Medical aid industry membership in SA has remained static at less than 7m for the past 10 years. However, 10 years ago the industry covered 20% of the total population; now it covers only about 15%.
The problem confounding the industry is the ever-increasing cost of private treatment and care. Despite various attempts by medical aid administrators to get to grips with rising costs - including the industry's swing to managed health care and the increasing use of risk-sharing arrangements - costs have continued to increase significantly above inflation year after year.
The health department's medicine price regulations have helped to blunt drug price escalation. As a result, private hospital costs have now taken over as the key driver of private health-care costs. Schemes and administrators complain that another key cost-driver is the regulatory environment, in particular the ever-widening scope of the prescribed minimum benefits (PMB) package - the package of benefits all schemes must provide. They have urged the Council for Medical Schemes to reconsider its latest plans - contained in circular 8 - to overhaul the way benefits are structured, claiming they will push up costs and make low-income schemes less affordable.
Another factor increasing schemes' costs is the fact that the stagnating medical aid scheme population is ageing each year. As technology advances to extend life, this further drives up schemes' costs.
Jonathan Broomberg, head of strategy and health policy at Discovery Health, identifies two additional trends that have affected the industry.
First, over the past 10 years there has been a shift in the power balance between funders (medical schemes) and hospital groups. As a result of consolidation in the hospital market there are now only three dominant groups - Netcare, MediClinic and Life Healthcare (formerly Afrox). The resulting oligopoly gives these players significant power in setting prices in the market.
Second, the competition authorities have ended the practice whereby schemes bargained collectively with the hospital industry over annual tariff increases. Collectively, schemes had greater bargaining power; now each scheme has to fend for itself. "Because of the three hospital groups' regional dominance and market power, it's difficult, even for large schemes, to exercise the sort of purchasing power that should come from scale," says Broomberg.
All schemes are working hard to develop contractual relationships (risk-sharing agreements) with hospitals and other service providers that can reduce costs over time. These alternative reimbursement methods are an improvement on the old fee-for-service model, but have yet to make a big difference to health-care inflation.
The health department and competition authorities are concerned about the situation and are considering a range of options. The most likely is some form of bargaining council framework to control out-of-network prices, covering hospitals, doctors and other providers of care.
A solution to the stagnation and ageing of the medical schemes' membership profile has always been sought in the emerging market. However, despite the surge in the black middle class over the past three years to a group of about 2m individuals, only 26% have any medical aid.
The failure of the industry to make greater inroads into this market is due mainly to affordability issues, according to Broomberg, who has co-ordinated a consultative investigation into the feasibility of low-income medical schemes (Lims) on behalf of the ministerial task team on social health insurance.
A draft report has been finalised. It provides researched proposals on how to remove the obstacles that retard the development of low-income medical schemes in SA.
If the Lims proposals were implemented and the authorities were to take steps to break up the regional dominance of the hospital industry, medical aids would be sitting pretty.
"In the absence of these steps, private health care will become more expensive and cover fewer people - the direction in which the industry's been heading for the past 10 years," warns Broomberg.
