The average contribution per medical scheme beneficiary every year has increased from about R1 800 in 1981 to nearly R9 900 in 2007.  

Indications are that medical scheme members are starting to resist rising costs from their schemes, and in a rare act of activism in the private medical scheme market, members of Discovery Health Medical Scheme recently demanded an independent review of administration fees charged by its administrator, Discovery Health, and urged the scheme to consider putting this part of the business out to tender.

Discovery Health Medical Scheme’€™s administration fees were the second highest in the country at an average of R102 per member per month.

With its 2,4 million members, Discovery Health Medical Scheme is also South Africa’€™s largest scheme. According to its annual report, the medical scheme paid R3,2 billion in administration and managed care fees to Discovery Health (the administrator) for the year ended June 2011.

The Council for Medical Schemes have raised concern about the proportion of funds medical schemes spend on non-healthcare items such as administration and broker fees, and have urged medical schemes to negotiate better rates in order to have more funds available for members’€™ medical bills.

Professor Di McIntyre of the Health Economics Unit at the University of Cape Town contends that a large portion of funds are going towards administration and other non-healthcare costs, but says it is only one of many attributing factors chasing up medical scheme membership fees.

‘€œFor many years, medical scheme contributions have been increasing far above the rate of inflation,’€ says McIntyre, a health economist. But because members complain when fees go up too much, medical schemes trim the benefits instead to save money. ‘€œSo in the past you may have been able to get a new pair of glasses every year, but now you can only get a new pair of glasses every few years.’€

According to Heidi Kruger from the Board of Healthcare Funders for Southern Africa (BHF), healthcare inflation is always higher than general inflation due to factors such as the high cost of health technology and pharmaceuticals and an ageing membership that is likely to acquire more healthcare costs.

By law, medical schemes are not allowed to make a profit, and all monies collected from their members should go towards paying claims and administering those claims. ‘€œTherefore, when a medical scheme decreases or changes its benefits, it is because there is not enough money in the kitty to pay everything for everyone,’€ said Kruger.

There is a lot of debate around why there is not enough money to go around.

Reasons that all agree on is the high administration and management costs (as discussed above), and the fact that people are using healthcare services more frequently.

Medical schemes blame regulations like the Prescribed Minimum Benefits (PMB) for escalating fees.   PMBs are set out in the Medical Schemes Act and is a list of benefits that every medical scheme has to cover regardless of the benefit option of the member. PMBs include the costs related to the diagnosis, treatment and care of any emergency condition, 270 medical conditions, and 26 chronic conditions.

In the private sector, healthcare providers are unregulated as far as pricing is concerned. ‘€œThe fact that there are no tariffs means that there is an open-ended liability for schemes for the set of Prescribed Minimum Benefits which each scheme must cover,’€ said Kruger.

McIntyre agrees that medical service providers also contribute to booming costs. ‘€œDoctors also have to generate income so they might be doing more diagnostics and procedures than are medically necessary,’€ she said.

In a 2010-article for Equinet, McIntyre explained that often doctors have a stake in the financial performance of some hospitals through share ownership or other forms of financial relationships. This may encourage higher levels of hospitalisation, longer periods of admission and greater use of expensive diagnostic technology provided in hospitals.

The cost of medical care itself has also increased substantially, and Health Minister Dr Aaron Motsoaledi has been critical of private health sector in this regard. The price of medical care in the private sector is between 10 and 12 times higher than in the public sector.

Furthermore there are three major aspects within this industry which contribute to increasing costs.  

The first is the lack of bargaining power, especially amongst smaller schemes. ‘€œThe smaller schemes have very little negotiation power when it comes to negotiating prices for healthcare services, especially with specialists and hospitals,’€ said Kruger.   ‘€œHospitals, because there is an oligopoly of three major groups, and specialists, because they can charge what they like because there is a shortage in the country.   Unfortunately, the public sector facilities are not in a state to compete with the private sector hospitals.’€

Secondly, schemes are not allowed to negotiate collectively on behalf of all medical scheme members, due to the Competition Commissioner’€™s ruling of 2004 which prohibited this practice.

The third, and probably most significant, is the actual system, said Kruger. ‘€œThe current system allows over-servicing, entrenches fraud and does nothing to align the incentives between the funders and the providers.’€