File image.
WARREN THOMPSON: It’s that time of the year when many people will be reviewing their medical aid coverage after having received letters of increase from their medical aid providers.
Here to help us make sense of this is Jill Larkan, head of healthcare consulting at GTC. She is joining me from Cape Town. Good evening, Jill.
JILL LARKAN: Hi there, Warren, and hello to your listeners.
WARREN THOMPSON: Thank you very much. Any chance of rain down in the Cape yet?
JILL LARKAN: We’ve had sporadic rain, but no, nothing that’s forecast that’s going to help us.
WARREN THOMPSON: Well, we’ll try and send of the rainfall we’ve been enjoying here on the highveld your way.
Jill, it’s a very interesting topic this, with people reviewing their medical aid cover. Just tell us a little about why you are very qualified to speak about this. I understand that GTC conducts a survey every year regarding medical aid schemes. Tell us more about what you do and what you review, specifically in that survey.
JILL LARKAN: Thanks, Warren. Every year we have a look at all of the open medical aids, and we categorise them each into their own little sector. So if you have a hospital plan, we put all the hospital plans together, and if you have a savings account plan, we put all the savings account plans together, etc.
And then we rate the premiums against one another. So we find the risk premium first for each of those and then we rate them against one another and give each a score.
So, depending on where you are sitting, you’ll be able to find out what you [or your scheme] score by looking at our GTC survey, which is available online for everybody to view.
After we’ve done that, we then have a look at the longevity of the scheme, the health of the scheme as a whole. Now, to do that, we have to take what the Council for Medical Schemes publishes every single year in their annual report. We draw out 10 different factors and we analyse those factors – such things as the age profile of the scheme, the solvency ratio of the scheme. We even go as far as to have a look at the number of complaints received on the Hello Peter website, for example. We analyse all of those and we give each of the schemes a score overall from a macro perspective, from the longevity or the health of the scheme.
Then we combine those two and get an overall rating for the scheme as a whole, to see exactly where your plan within the scheme fits in, and what rating you would receive. We publish that on our website.
WARREN THOMPSON: When do you anticipate doing that, because people are reviewing their medical aid now, they are going to get those letters, all of which, as I understand, are increases, not decreases – which we’ll touch on a little later. But when do you publish that survey, and where exactly can people go to pick that up?
JILL LARKAN: Our survey is published online on our website, www.gtc.co.za. It is published round about May of every year. So in May 2018 we will have completed the analysis of the 2018 schemes, and have a look at each of those and give you a rating about where each one of them has fitted in this year.
You won’t be able to use the survey from an individual perspective, to review your medical aid. But from a company perspective, from a group scheme perspective, you’ll be able to use it more clearly to decide where you want your company to go for the following year, which is what we aim at doing, because we work mostly on the group scheme side.
WARREN THOMPSON: All right. Just having a look at those – the letters of increase that are coming through – what’s the sense this year? What sort of increases are people receiving or can expect to receive from their medical aid provider for the year ahead?
JILL LARKAN: The lowest one we’ve seen so far is 5.8%, and the highest one is nearing 11%. So most of these schemes that are releasing are above inflation once again, and that increase will be eating away at everybody’s take-home salaries. So it is becoming a little bit of a burden for everybody to bear.
WARREN THOMPSON: Just a bit of perspective here, Jill, because when we spoke earlier on today you mentioned how medical aid inflation has been running ahead of consumer price inflation, CPI, for quite a few years. What’s the underlying structure , the dynamic there, that keeps on driving these increases when I’m sure most of the people receiving the letters will be getting salary increases in line with inflation, as measured by CPI?
JILL LARKAN: Well, the medical aids have become quite clever. They use fancy words like “demand-side utilisation” and “supply-side utilisation”, all effectively including the CPI of course, making up what we term medical inflation. So demand-side would be like people getting older on your scheme every single year, or increases in the number of people who are on your chronic illness benefit, or the burden of disease as we understand it. Those would be attributed to demand-side utilisation, or increases.
And then supply-side would be things like medical technology, advances in medical technology and people wanting to use those advances. Those are much more expensive that the ordinary old way of doing things, so the medical aid would be funding that and be prepared to find that. So increases in premiums because of the increase in usage. And then also new facilities which are available, more hospitals which are available, which now create more beds, more people using those beds.
So all of those relate to the medical inflation that we’ve seen. The medical aids continue to want to meet our need for the level of cover we demand from them, therefore they have no option but to increase our premiums accordingly because we want to stay on that level of cover.
So effectively medical inflation is what’s driving the increases behind the medical-scheme premiums.
WARREN THOMPSON: Jill, we want to touch on this idea of the risk, and how medical aid schemes have been very clever in handing the risk back to their members. Give us a little bit of insight as to what you’ve been seeing over the last few years in that regard.
JILL LARKAN: When we think about our medical schemes, we think, “my broker told me that I have a 100% plan”. In our heads that means 100% of everything is covered. But that’s not actually how medical aids work. Medical aid means that 100% cover is 100% of the medical-aid tariff that is covered by your medical scheme, not necessarily 100% of the cost which you incur. So without you actually realising it, the medical scheme has passed the risk that you carry from them – which they used to cover at 100% of cost back in the day, probably about 10 years ago – on to you, and you carry part of the risk now. So the medical scheme will pay 100%, but doctors are no longer charging you at [that] 100%. Their [fees] are multiples of the 100%, so you can expect a 200% or 300% bill, and you would be carrying the balance of the risk yourself, 100 or 200% yourself.
In that way they’ve managed to protect themselves from the topside risk and you are carrying the balance of the risk yourself as a member. That would be the first way and the biggest way that they’ve transferred risk back to the member.
Another way they’ve done it is by using a savings account. So clients have use of a savings account, where the medical scheme provides you a savings account for the year, based on your premium. Whatever you pay, a percentage of that goes to your savings account. Most people find that has definitely run out by about March, April or May of each year. The balance of the risk is carried by you, unless you are one of the fortunate people who are able to afford to belong a comprehensive plan with an above-threshold benefit.
Those are two of the very basic ways that the scheme has transferred some of the risk from them back to you as a member.
WARREN THOMPSON: What can we do about that, though? We had a discussion about the top-up cover that’s available. Is that one way in which people can, relatively cheaply, instead of funding the difference between two rates out of their pockets, use the top-up cover?
JILL LARKAN: Yes, absolutely. For in-hospital expenses the difference between what the medical aid pays and whatever your doctor is charging you then can be covered by what we term a “top-up” or “gap cover”. Those are relatively inexpensive for a family, probably looking at about R350 for an elite plan. Those are really, really nice to have. They cover a whole lot of additional little things, like the balance of oncology, or MRI, CT scans, or cover if you go into a casualty ward and your medical savings may be finished. This provides the extra benefit for out-of-hospital as well as the additional top-up for in-hospital cover.
WARREN THOMPSON: I understand the top-up plans don’t apply to out-of-hospital expenses. Is that correct?
JILL LARKAN: Correct, they don’t. For out-of-hospital expenses you need to find more innovative ways of funding that. Some companies have provided special cards that you could possibly use to prefund your savings because, if you were to try to upgrade your medical aid you would find that the premium difference is just too high for the small extra benefit which you get. So you may wish to stay on your medical aid, whichever one you are on, but to take the extra amount of money and fund it to a special savings account which you yourself can run, rather than paying extra money into your savings account. You may even wish to consider, if you don’t use your above-threshold, your extra savings account. Or even if you don’t use your savings account you may actually wish to just run a plain hospital plan with this extra saving account that you run yourself, rather than using your medical aid to do so.
But with all of this, I must say that professional advice from a really qualified professional advisor who deals just with health care would be really the best way that you could possible go to assist yourself in this way.
WARREN THOMPSON: Just briefly, Jill, besides obviously the cover that you buy and using top-up cover for those expenses in hospital, it’s always good to have a portion of cash on hand in case of these differences, as well as any out-of-hospital expenses that you may have when you have run our of that medical savings account.
JILL LARKAN: Yes, it would be awesome if we could all have that. It would be nice if we could run a special savings account. But if you plan to do so, there are different ways of dong it. A professional advisor would be the first call that I would make, because there are many different ways of doing that, some of which are really built into different medical aids. Discovery has one, Momentum has one, and Fed Health has just brought out one. People in the medical aid industry have identified that this is a need for people, and you can actually make use of it. But your professional adviser will know that. You are already paying them, so please use them.
WARREN THOMPSON: Okay, great. We’ll have to leave it there. Thank you very much for your insight. I look forward to looking at that survey.
Brought to you by Moneyweb