Medical aids have been told to keep increases at 5.7% or less – but not too low

Business Insider SA

  • South Africans won't be able to afford above-inflation increases in their medical aid payments for 2023, the Council for Medical Schemes says.
  • It expects schemes to cap their upcoming increases at 5.7%, the current forecast for CPI.
  • Schemes flush with cash after the pandemic can keep increases lower – but the regulator will be looking for proof that they aren't borrowing future trouble with increases that are too low.
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Things are pretty tough, so medical aids should keep their upcoming 2023 price increases reasonable, the Council for Medical Schemes (CMS) says.

"In the context of the current economic climate characterised by surging inflation and rising interest rate, it is the CMS' view that above inflationary contribution increases are simply unaffordable for most members of medical schemes," it told schemes in a guidance note on increases late last week.

The council must sign off on increases, and the circular suggests that any scheme trying to get approval for an increase of more than 5.7% will have to prove why it needs the money.

That number is based on the Reserve Bank's current forecast for the consumer price index (CPI), the CMS said, even though medical prices are subject to very different pressures from those measured by the CPI basket. South Africa does not have an official index of the price of medical goods and services.

In July, the Reserve Bank hiked interest rates, saying it now expected inflation to hit 5.7% rather than 5% in 2023. At the time the rand had depreciated by 7.2% against the dollar in the year to date. Medical imports, and imported input materials for everything from pills to equipment manufactured locally, are typically pried in dollars.

The council understands there are "unique industry-specific cost-push factors such as the impact of the weaker rand exchange rate, the burden of diseases, etc", it said, which may mean that some schemes need bigger increases.

On the other side of the coin, lower increases may also be appropriate for schemes in a strong financial position, the CMS said – in which case it will want to see calculations that show the scheme will still have adequate income.

Amid the pandemic, the CMS pushed schemes to keep increases low, in part for fear that they would lose members when mounting financial stress caused by Covid-19 saw those members exit schemes, or just fail to make their monthly payments.

Average monthly payments ended up increasing by 2.2%, on average across all schemes.

With utilisation low, as elective procedures were cancelled because of Covid-19, and lockdowns kept people home, medical schemes took their accumulated reserves to above R100 billion by the end of September 2021.

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