Social protection was always meant to be in the plan – where did it all go wrong?

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Respected healthcare actuary Barry Childs of Insight Actuaries and Consultants and the chief executive officer of the Health Funders Association (HFA) Thoneshan Naidoo discuss the factors behind double-digit medical-aid contribution increases for 2025 across much of the industry.

“Medical schemes, as not-for-profit entities, operate within extremely tight constraints to meet the anticipated healthcare needs of their members. Over time, the regulations designed to support the Medical Schemes Act 131 of 1998 have either failed to materialise or, in some cases, have become outdated and disconnected from contemporary needs and context,” Naidoo says.

“This means that the approximately nine million South Africans who fund their own healthcare through paying medical-scheme contributions, and who rely on the security and protection provided by medical-scheme cover, are finding it more and more difficult to afford their scheme contributions.”

Childs adds that medical schemes face financial risks, partly because the package of reforms intended to accompany the Medical Schemes Act were never implemented.

NHI overshadows reforms

“Although these measures were meant to be part of the overarching plan to ensure the sustainability of medical schemes, since 2000, much attention has been diverted to the NHI, overshadowing the pressing need for reforms in the current system that could reduce costs and extend private healthcare access to millions more, well before the NHI can start delivering these crucial health services and supporting the
capacity of the NHI to reach those in need,” he says.

“The principles of open enrolment and community rating were intended to ensure that medical schemes offer protection to all members on an equitable basis and not according to their individual health-risk rating, guaranteeing all members access to the basket of Prescribed Minimum Benefits [PMBs],” Childs says.
 
Insight Actuaries and Consultants found that over a span of 22 years, the Gross Contribution Income (GCI) per life per month for medical schemes increased by 8.2% annually, compared to an average annual Consumer Price Index (CPI) increase of 5.5%.

Had it been possible to keep the increase in contributions in line with CPI, medical schemes would be 43% less expensive today than they currently are.

Covid’s lingering costs

Christoff Raath of Insight Actuaries has observed that a contributing factor to 2025’s contribution increases stems from the Covid era, when medical schemes experienced surpluses due to decreased utilisation. In accordance with the Medical Schemes Act, schemes temporarily lowered contributions or enhanced benefits to return these surpluses to members.

This led to deliberate losses, as trustees worked within legal constraints to ensure reserves were gradually redistributed. By 2022, schemes’ finances began normalising, with losses reflecting this strategy.

Although data for 2023 is not yet public, most schemes are back to pre-Covid reserve levels resulting in schemes having to adjust contribution increases in the interest of sustainability, according to Raath.

Furthermore, data indicates that when healthcare consumers eventually returned to healthcare facilities post-Covid, they were often in poorer health, leading to significantly higher treatment costs. Various healthcare studies, such as those from the South African Medical Research Council (SAMRC), have reported this phenomenon, highlighting the long-term impact of delayed medical care during the pandemic, Naidoo adds.

Aging population pressure

The other major contributor to this gap is the regulatory limitations that prevent medical schemes from being able to contain the utilisation increases of a medical-scheme population that is aging, and this drives up costs which in turn discourages new entrants from joining the scheme.

“Late-joiner penalties are among the measures designed to protect the interests of the members who contribute throughout their working lives, thereby supporting the intended social solidarity framework, however even these measures have not been adequate.”

Childs points out: “Anti-selection is a major cost driver for medical schemes, because the lack of regulatory completeness does not adequately deter people from joining medical schemes only when they need to access high-cost treatments, then leaving the scheme having used more funds than they have.

"For this reason, many open schemes must apply underwriting – that is, waiting periods for new applicants before they can claim for certain categories of benefits, within the regulated constraints.

“Had a risk-equalisation fund been established, as intended to help schemes offset costs for sicker and higher risk members, this would have served as a buffer against the high contribution increases that deter younger members.

“What we are seeing in medical-scheme increases for 2025 so far reflect the cumulative effect of regulatory neglect since 2000, when a change in policy direction meant that the much-needed remaining pillars of social solidarity were never implemented."

Reforms remain overdue

The effect of the overdue regulatory reforms and lack of regular reviews of the PMBs have further escalated costs for all members. Despite this, the value provided by medical-scheme benefits remains invaluable for families while also alleviating pressure on the public-health sector.

“Social security is the backbone that health funding seeks to achieve, fully considering the economic importance of promptly available quality medical care for the workforce, extending well into retirement.

"In the private-health funding realm, all medical-scheme members support each other by paying contributions, and the country by paying taxes that fund public health services they do not use – freeing up much-needed capacity for those reliant on the state. This in itself reflects the interconnected nature of private-health funding and the broader availability of scarce medical resources.

“The implementation of the Health Market Inquiry’s recommendations, which identified important opportunities to address inefficiencies that inflate the cost of cover and promote improved affordability, would help to attract young, healthy members to help balance the relatively higher healthcare costs of older members.

"This in turn would considerably reduce the cost of membership for everyone, extending the benefits of private healthcare to many more South Africans,” Naidoo notes.

“The HFA continues to advocate for urgent progress to address these regulatory gaps, restore the affordability of healthcare coverage, and uphold the principles of social solidarity that would have a positive impact on healthcare for all South Africans,” Naidoo concludes.