Words on wealth: report reflects medical scheme industry woes

The private healthcare system in South Africa is failing consumers, and the medical scheme industry is unsustainable. The latest Industry Report for 2024 by the Council for Medical Schemes (CMS), released last week, confirmed for me these unpleasant truths.

Medical scheme membership has been growing more slowly than the South African population for some years now, and the average age of membership is rising. Long-term prospects are looking poor unless the government and private sector can put their differences aside for the sake of the consumer. From my viewpoint, each is as bad as the other.

Healthcare providers should not be able to charge what they like. There is virtually zero control over the pricing of medicines, treatments and specialist consultation fees. Efforts by the government over the years to regulate pricing have gone nowhere. How the government can even think of National Health Insurance before tackling uncontrolled pricing is beyond my comprehension. ​

Too many unviable schemes

According to the report, the industry is consolidating to some extent, with the number of schemes decreasing. But there are still too many small, unviable schemes, while some of the larger ones are failing to exploit economies of scale to improve their offerings to members.

There were 71 schemes in 2024, of which 55 had restricted membership (serving a particular company or industry sector), and 16 were open. These numbers are down from 60 restricted and 23 open schemes in 2014. Only six schemes saw an increase in membership, including the biggest, the Government Employees’ Medical Scheme (GEMS). The remaining 65 schemes, including the large open schemes, saw membership declines, with the drops ranging from 5% to a staggering 36.6%.

Thirty schemes (27 restricted and three open ones) have fewer than 6,000 members, with a handful of schemes having fewer than 2,000 beneficiaries (members and dependants combined). Compare these figures with those of the two largest schemes: Discovery Health Medical Scheme has roughly 2.7 million beneficiaries, and GEMS has roughly 2.3 million.

The challenge facing schemes, as is the case with insurance generally, is that the majority of members, who are healthy and claim rarely, should subsidise the minority who are unhealthy and need to claim regularly. The smaller the scheme, the less likely this is to happen.​

Static, ageing membership

The industry covered 9.17 million beneficiaries in 2024, a marginal increase of 0.45% from 2023. Compare this with the 1.33% increase in South Africa’s population, which is just over 63 million. Medical schemes therefore cover about one-seventh of the population, and this proportion is decreasing.

Add to that the fact that membership of medical schemes is ageing, meaning the ratio of older, sicker beneficiaries to younger, healthier ones is increasing. In 2016, the average beneficiary age was 32.5 years; in 2024, it was 34.2 years. The pensioner ratio (the percentage of beneficiaries over 65) climbed from 7.9% to 9.8%. “These patterns indicate that the medical scheme population is ageing gradually, which could have long-term cost and sustainability implications for the sector,” the report states.

From 2018 to 2024, the beneficiary population shows interesting trends across different age bands. The number of children under a year old declined by roughly 15%. At the other side of the age spectrum, beneficiaries aged 85 and over showed a significant increase of 27%.

​Healthcare utilisation and benefits paid

The utilisation of healthcare services by beneficiaries continued to rise in 2024, driven by demographic shifts, increased demand for care, and the return to normal treatment patterns after the Covid-19 pandemic. Total healthcare expenditure on benefits paid in 2024 increased to R259.3 billion, up by 8.5% from 2023. Benefits paid per beneficiary increased by 7.8%, reflecting higher utilisation and increased service costs.

Hospital expenditure remains the dominant cost driver, at 36% of total benefits, with the cost per admission increasing by 9.9%, despite fewer admissions. Specialists’ bills accounted for 28% of expenditure, medicines for 14%, and supplementary and allied health professionals for 8.5%.

Interestingly, admissions to mental health institutions increased overall by 12.5% between 2023 and 2024. This growth was largely driven by open schemes (18.6%), while restricted schemes recorded a decline (-7.2%).

Expenditure on the prescribed minimum benefits (PMBs), which schemes must provide from risk contributions for life-threatening conditions, made up 52.3% of total benefits paid, rising from R124.4 billion in 2023 to R135.7bn in 2024. Hypertension (high blood pressure), hyperlipidaemia (high cholesterol) and adult-onset diabetes mellitus remain the most prevalent chronic PMB conditions. ​

Non-healthcare expenditure

While medical schemes are non-profit entities, third-party administrators are not, and the fees charged by these administrators can form a relatively high portion of members’ contributions. An interesting statistic in the report is that administration costs were 1.5 times higher in schemes that used third-party administrators than in those that did the administration themselves.

The amount of your contribution going towards accredited administrators varies among schemes, with the average at R340.18 per average member per month. Discovery Health Medical Scheme is the outlier, at R387.08 pampm, with the next most expensive, Fedhealth Medical Scheme, at R299.47 pampm. The biggest restricted scheme, GEMS, comes in considerably cheaper, at R117.80.

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