As medical schemes continue to report record surpluses due to reduced healthcare utilisation by members in the past two years, the crushing effect the Covid-19 pandemic is having on the financial sustainability of private practices is becoming more evident. Estimates by joint CEO of Insight Actuaries and Consultants, Christoff Raath (pictured above) show that based on claims data for June, July and August in 2020 and 2021 there has been a 32% drop in claims for medical- and 43% for surgical cases compared to the corresponding three months in the previous two years with no indication yet of a recovery after the country moved out of the third wave of the pandemic. In addition, the number of healthcare practitioners claiming from schemes has decreased, which could be related to the closure of practices during the pandemic or more doctors leaving the country.

According to the Council of Medical Schemes’ (CMS) 2020/2021 annual report tabled in Parliament last week, the total surplus recorded by the industry topped the R20 bn mark for a second consecutive year with many open schemes now having reserves of up to 50% as the industry average rose to 44%, up from 36% in 2019.  The report shows that pay-outs to GPs decreased by 9.7% or almost R7 bn last year compared to 2019 with a similar trend seen across all specialties.

Speaking during a webinar hosted by the Institute of Health Risk Managers (IHRM), Raath said that while the reduction in healthcare utilisation is indicative of members’ reluctance to seek medical care during the pandemic for fear of infection at practices and in hospitals, it also raises questions about possible overservicing in the pre-Covid years.

Apart from Covid-related admissions, utilisation in all disease categories decreased significantly, particularly those related to elective procedures such as hip and knee replacements and cataracts, and ear, nose and throat-, skin- and respiratory conditions with even claims for childbirth showing a decline.

“It was expected that claims would start spiking between waves because of pent-up demand, but up until now we don’t see strong evidence of this happening, indicating that the recovery of private practices to pre-Covid levels could take longer than anticipated,” Raath noted.

“Based on what we are now seeing, the reduced utilisation levels could persist as it appears as if patients and medical practitioners, might have recalibrated their thinking about what is necessary,” Raath added.

Shedding reserves to assist members not a recommended option

In a bid to assist financially stressed consumers and shed some of the reserves, certain medical schemes have opted for lower-than-average annual contribution increases for 2022 while Discovery Medical Scheme has again delayed its increase of 7.9% to May next year.

However, Raath pointed out that reductions in contribution increases could hurt medical schemes in the long run with a decrease of just 1% plunging them into a loss-making trajectory and even bankruptcy over the next 10 to 15 years. In addition, medical schemes are battling to budget for the coming year because of the many uncertainties such as a  possible surge in claims when members start to return to have delayed procedures done and the impact long Covid-related conditions could have on future healthcare utilisation. Uncertainty around the effectiveness of current Covid-19 vaccines and the possible need for booster shots could also severely impact on schemes’ current budgets. In addition, the financial hardships members are facing because of the struggling economy and job losses could lead to anti-selective withdrawals as younger and healthier people resign from schemes, placing a significant burden on schemes, Raath warned.

The bottom line, he explained is that it will be very hard for schemes to shed reserves by lowering contribution increases without setting themselves up for a prohibitive contribution adjustment in a few years’ time as the current uncertainties become certainties in a post-pandemic world.

Estimates from Insight show that only one year of no contribution increases followed by subsequent average increases of 7.5% could ravage reserves causing an accelerated drop to far below the required 25% in the next 10 years, forcing schemes to impose double-digit increases in future to avoid plunging below the required 25% or going bankrupt.

“Using low contribution increases to assist members in time that reserves are high turns out to be surprisingly difficult as it could set schemes up for prohibitive increases in the next few years, forcing members to give up their medical aid because of affordability issues, impacting not only on the sustainability of the medical scheme industry but also on private practices as their income from medical scheme members continues to dwindle,” Raath concluded.