Medical scheme contributions to see above-inflation increase in January 2023

Medical schemes typically increase their contributions in January each year. The reduction in claims experienced during the Covid-19 pandemic, alongside a desire to maintain affordability for members in a low-inflation environment, saw many schemes defer their 2022 increases, with the biggest open medical scheme – Discovery – originally deferring its increase from January to May 2022, and then again until October.

While the January 2023 increases have not yet been announced, GTC Health Consulting says that Discovery has confirmed a 7.9% increase in October 2022. Various other schemes increased their contributions earlier in the year, although many were also deferred beyond January.  

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The October 2022 increases will almost certainly be followed by scheduled increases in January 2023. According to Jill Larkan, head at Healthcare Consulting at leading financial and wealth advisory business GTC, “Interim increases are administratively expensive and disruptive, and we suspect schemes will return to the traditional January increase date from next year”.

In a statement published in July, the Council for Medical Schemes (CMS) recommended that contribution increases for the 2023 benefit year should not exceed 5.7%, in line with the 2023 consumer price inflation (CPI) forecast of the South African Reserve Bank, but that “due to unique industry-specific cost-push factors… Home schemes may require contribution increases above inflation”.

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“In previous years, medical schemes have typically exceeded the CMS increase guidelines by around 4%, as is evidenced by the information provided by the CMS in their circular,” said Larkan.

“On that basis, taking into account the anticipated ‘return to normal’ happening within medical aid claiming patterns being reported by the schemes at the moment, we anticipate that the 2023 increase will be in the range of CPI (5.7% forecast by the SARB in their July Monetary Policy Statement) plus 4% (general average increase above inflation provided by the CMS), resulting in an average increase of between 8% and 10% per annum in January 2023, if nothing else dramatic changes.

“The CMS circular itself notes that a medical scheme contribution increase rates have consistently surpassed the CPI, except in 2021, which was the first time in over a decade that the industry implemented contributions increase below CPI.”

According to Larkan: “The lower-than-anticipated increases in 2021 were due to the financial constraints that South African consumers are facing on the one hand, and underutilisation of the medical aid benefits resulting in record reserves held by the medical schemes on the other”.

Lower-than-usual usage of medical scheme benefits amongst members who were fearful of doctor visits and hospitalisation in the context of the COVID-19 pandemic resulted in combined medical scheme reserves growing to a record R73.29 billion in 2021.

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“If schemes do not, at the very least, keep their increases in line with medical inflation year-on-year, acknowledging that this medical inflation has always outstripped CPI,” Larkan said, “there will come a time when their members must endure a sudden once-off adjustment to ensure that contribution rates match the anticipated medical inflation increase rates year-on-year and in our current economic climate, no member wants to endure that kind of ‘catch-up’ pain after a ‘budget-friendly’ financially abundant period of deferred or non-existent annual increases.”

Larkan advised all members that the relief on personal budgets – granted by the deferment of increases until October 2022 – is fast drawing to an end. These October increases as well as the anticipated return-to-normal January adjustments, just 4 months later, will result in the further tightening of the budget purse strings for many families.

*Press Release provided by GTC Health Consulting