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Lower-than-usual medical scheme contribution increases likely – GTC Healthcare Consulting

Published

2021

Wed

18

Aug

This year, for the first time, it seems likely that medical schemes will announce contribution increases which are in line with recommendations suggested by The Council for Medical Schemes (CMS).

 

This is according to Jill Larkan, Head: Healthcare Consulting at leading financial and wealth advisory business GTC.

 

“In previous years, medical schemes have typically exceeded the CMS increase guidelines by around 4%,” adds Larkan. 

 

The Council for Medical Schemes (CMS) publishes an annual set of guidelines for medical scheme contribution increases in South Africa (click here to read to full guidelines). These guidelines are based on a review of national and global macro-economic outlooks and, this year, the significant effects of the coronavirus pandemic on medical scheme reserves and member hospitalisation trends. 

 

The CMS has recommended that contribution increases for the 2022 benefit year be limited to 4.2% in line with the National Treasury’s projected CPI figure. Larkan expects medical schemes to align very closely with this recommended contribution increase for next year.

 

According to Larkan: “The lower-than-anticipated increases are due to the financial constraints that South African consumers are facing on the one hand, and record reserves held by the medical schemes on the other. Lower-than-usual usage of medical scheme benefits amongst members who have generally been fearful of doctor visits and hospitalisation, have resulted in combined medical scheme reserves growing to a record R73.29 billion.

 

“This behavioural pattern, could, however, reverse if vaccinations and infections combine to confer herd immunity on the population. In that case, members could flock back to doctors to catch up on delayed procedures, and some conditions which could have been worsened after a year of delayed care,” she says. “Medical schemes thus have a precarious balancing act ahead of them so as not to overburden struggling members on the one hand and ensure adequate reserves for their future care on the other.”

 

The CMS believes that medical schemes with adequate reserves should be “well insulated” against such a spike. Interestingly, the CMS had a specific warning for medical schemes whose financial sustainability was already questionable pre-pandemic, advising them to consider “interventions such as amalgamating with other schemes”.

 

Contribution increases around the CMS-suggested level of 4.2% will have significant implications on members’ budgeting and future outcomes forecasting, as Larkan explains.

 

“Given that financial planning forecasts typically assume contribution increases of at least 2–3% above CPI, GTC would consider it prudent for South African medical scheme members to reconsider their projections for the 2022 year if the increases announced in October 2021 are at the expected lower levels. Many South Africans will then have the option of redirecting ring-fenced medical aid increase budget allocations toward increasing savings or retirement savings contributions instead.”

 

 

 
Source: GTC Healthcare Head Jill Larkan
 
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