20/09/2008 16:42 - (SA)
Living life without protection
Malose Monama
AS tough economic conditions continue to bite, an increasing number of South Africans are compromising on their medical schemes and other insurance coverage to free up resources for their living expenses.
Stories of motorists parking their vehicles at home to save on insurance premiums and fuel costs are becoming commonplace, as are policy cancellations and buy-downs.
“Inflation, high interest rates and the current economic climate are forcing many South Africans to review their medical scheme cover in an attempt to make ends meet,” says Kevin Aron, divisional managing director at Medscheme Health, which is the country’s largest scheme administrator.
“Many have begun compromising on their medical scheme coverage in an effort to free their cash to meet other ongoing expenses.”
Refilwe Moletsane, deputy executive officer of the SA Insurance Association (SAIA), the mouthpiece of the short-term insurance industry, says the sector is under pressure.
“Insurance policy cancellations are an issue and there have been underwriting losses,” she says.
“Some consumers choose to go without cover when they come under financial strain. Insurance is essential, but it is unfortunately easy do away with,” says Moletsane.
She says SAIA is especially concerned about a rise in the number of motor accident claims in recent months. Motor accident claims account for 70% of total claims.
Aron says although medical scheme coverage is a necessity, it is also extremely price-sensitive.
“Because of the current economic environment, medical schemes are experiencing an increase in requests to reduce members’ contributions. Many clients are changing from comprehensive cover to less expensive packages.”
He says some people are even starting to personally take on the risks of providing for their own day-to-day medical expenses.
“This means they are reverting to hospital plans that only cover expenses incurred after being admitted to a hospital or preferred provider network,” he says.
He adds that there has also been an increase in the number of medical scheme members who are not able to meet their monthly payments and are forfeiting their medical aid memberships as a result.
“The concern over rising costs can also be seen through members who cancel or postpone non-critical elective surgery when they are required to finance a portion of expenses,” Aron adds.
He says the problem is expected to worsen if there are further interest rate or major price hikes. Medical schemes will be challenged to devise mechanisms to cope with the changing economic environment.
“In order to contain costs, medical schemes need to boost their operational efficiency and increase the volumes of clients they serve,” Aron says.
“By reducing administration costs, medical schemes should then be in a position to pass on the savings to their hard-pressed members.
“Generally, the medical inflation rate ran at about two percentage points above the consumer index. However, as the health-care industry comes under further pressure, steps will have to be considered to reduce costs and bring the healthcare inflation rate in line with the overall inflation index.”
He adds that recent government interventions in the private health care arena, coupled with demands that costs be contained, are positive moves for the consumer but that all stakeholders should be involved in the drive to reduce costs.
“The solution lies in medical scheme coverage becoming more available to more people. As the volumes grow, so the pressure on costs, especially non health-care administration costs, will be reduced and enable costs to be contained.”
Emile Stipp, general manager for health actuary services at Discovery Health, South Africa’s largest open medical scheme, says the scheme continues to perform strongly despite the difficult market conditions.
“We have not seen any significant uptick in buy-downs or lapses, which have been stable around the 4% mark,” he says.
“The scheme has continued to grow organically in terms of membership and reserves are building steadily towards the 25% level by the target date of December 31.
“However, we are mindful of the financial pressures that consumers face and have responded in terms of benefit design and contribution increases for next year.”
The medical schemes also face a threat from the growing Government Employees’ Medical Scheme, which is taking members away from open schemes.
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