Costs rise as health insurance competes with medical schemes

Medical schemes, gap cover policies and primary healthcare plans each offer us valuable protection against healthcare costs, but costs are being shifted between these products which is undermining attempts to contain rising healthcare expenses, actuaries warned at their recent annual conference.

Four actuaries from Medscheme, one of the country’s largest medical scheme administrators, presented evidence to the Actuarial Society of South Africa convention in Cape Town of the impact that delayed medical scheme regulatory reform was having on South Africans.

How costs are shifting in healthcare

Using Medscheme and partner insurers’ data, the Medscheme actuaries Stephanie van Niekerk, senior manager for actuarial product and group technical marketing, Elizabeth Greyling, senior actuarial analyst, Homaam Arend, actuarial analyst, and Allan Williams, associate consultant, highlighted how:

• Medical scheme benefits are reducing
  As the cost of providing the prescribed minimum benefits (PMBs) increases, medical schemes are reducing non-PMB benefits. The PMBs share of expenditure has risen over time and accounted for 70 percent of healthcare expenditure (excluding claims paid from medical savings accounts) on Medscheme administered schemes in 2025, Greyling told the ASSA conference.

This leaves less room for schemes to retain or improve non-PMB benefits, she said, noting that PMB benefits have not been reviewed regularly as required by law.

• Scheme costs are rising above inflation

Medical scheme contribution increases averaged 8.1 percent a year from 2022 to 2026, compared with the average inflation rate of five percent, Greyling said. This is making scheme membership unaffordable.

• Providers are charging more

Healthcare providers are increasing their fees more than schemes are increasing their reimbursement rates, leaving members to fund the difference.

The actuaries found that Medscheme data showed about 75 percent of hospital admissions resulted in an out-of-pocket payment in 2025.

Greyling said a study by gap cover provider Ambledown found that the probability of shortfall from in-hospital events has risen from 10 percent in the late 1990s when the Medical Schemes Act was implemented to 70 percent in 2024.

• Gap cover pays for more shortfalls

It is estimated that 800 000 South Africans have gap cover and claims against these policies are rising rapidly. Greyling said gap cover provider data from 2021 to 2026 shows:

• • The number of gap cover claimants with annual shortfalls amounting to more than R50 000 rose by an average of 13 percent a year
    
    
  • Members with a shortfall above R50 000 from a single event increased by 10 percent a year
    
    
  • The frequency with which policyholders claimed grew by more than 10 percent a year
    
    
  • At least one member’s gap cover claims in a year exceeded the amount paid by his medical scheme.

• Scheme members are buying down

Medscheme data shows that each year more members move to cheaper options – known as buying down, often using gap cover to boost their cover. Four percent of members moved to cheaper options while only 1.8 percent moved to higher options in 2025 for 2026.  

Other members leave medical schemes and take out primary healthcare plans.

How schemes’ cost savings are thwarted

Greyling said schemes use a range of initiatives to save costs, including:

• Benefit design that includes co-payments, deductibles, benefit category sub-limits and exclusions.
  
  
• Managed care with a range of clinical and financial interventions including pre-authorisation, case management, disease risk management, use of a medicine formulary and treatment protocols.
  
  
• Negotiating with providers and setting up networks to get discounts when members are channelled to them.

While gap cover provides valuable financial protection for us as individuals, it can undermine schemes’ attempts to contain costs and ensure sustainability, Williams explained. This can increase the utilisation of medical services and claim costs for the schemes, he added

About 96 percent of all claims on gap cover products are a result of tariff shortfalls, co-payments and sub-limits, he said.

When gap cover reimburses co-payments, covers tariffs when members do not use scheme network providers and extends scheme sub-limits, the financial incentive to influence members to manage their use of benefits or use the scheme’s designated providers is removed, Williams explained.

Weakening the incentives for members to use scheme provider networks can ultimately lead to schemes losing negotiating power with providers which in turn results in tariff escalations, he added.

Williams said this results in a cycle of escalating costs – schemes’ efforts to manage costs are undermined by gap cover forcing schemes to cut benefits which creates more shortfalls and increases claims against and, ultimately, premiums on gap cover policies.

How primary healthcare plans encourage buy downs

Low-cost medical scheme options exempt from some expensive PMBs have not been enacted.

Meanwhile, insurers’ primary healthcare plans, which operate on a temporary exemption from the Medical Schemes Act’s full PMB requirements, cover an estimated 1.5 million to two million South Africans, mainly for GP consultations, dentistry and medicines, Greyling said.

There is currently no restriction on being a member of a medical scheme and taking out a primary healthcare plan as a top up, Arend said. This creates an opportunity for scheme members on options with good day-to-day cover to buy down to cheaper hospital plan options with less day-to-day cover and combine this option with a primary healthcare policy.

Buying down in this way could achieve savings of as much as 37 percent for a single member and 23 percent for a family of three, Arend said.

However, he warned that members may lose other benefits by buying down and paying twice for some benefits. All scheme options must provide day-to-day benefits that are PMBs and many insurers bundle their plans with hospital insurance benefits.

When schemes and primary healthcare plans have different provider networks, consumers using both products may have a poor claims experience, Arend said.

Younger, lower-risk members are most likely to buy down, he said. This can have a negative impact for schemes, as older and higher-risk members will become more concentrated in comprehensive options, increasing contribution pressure, reducing necessary cross subsidies and threatening the sustainability of these options, Arend said.

How to stop the cycle of increasing costs

Risks are arising because the three healthcare products interact and influence one another, but there is an opportunity, without waiting for law reform, to protect schemes as the foundation of healthcare cover by co-ordinating how complementary products fit around them, Van Niekerk said.

She said the actuaries propose that:

• Schemes and gap providers participate in provider arrangements that moderate differences between scheme and provider tariffs without setting industry tariffs in contravention of competition law.
  
  
• Gap cover providers reduce or exclude penalty co-payments levied when members don’t use designated networks, referrals or pre-authorisation. Genuine shortfalls could remain covered, while sub-limit extensions could depend on clinical criteria, approved networks and treatment protocols.
  
  
• Care should be co-ordinated across shared networks and clear rules should determine which product pays first.
  
  
• Scheme members should only buy primary healthcare insurance for primary care, aligned to the proposed minimum low-cost benefit package.

The competition implications need to be considered, particularly if co-ordination extends into provider networks, reimbursement arrangements and data sharing across products, Van Niekerk said.

What matters for scheme members is that they have clarity on what they are covered for, how and where to access care, and what they may still need to pay for themselves, she concluded.