Laura du Preez | 15 May 2025
Laura du Preez has been writing about personal finance topics for more than 20 years, including eight years as personal finance editor for two leading media houses.
Medical schemes are increasingly designing options with gaps in cover that require insurance policies, resulting in consumers increasingly paying for cover in line with their health risks, a leading medical scheme conference heard this week.
Hybridising medical scheme membership with insurance policies, such as primary healthcare plans or gap cover, undermines the cross-subsidies that medical scheme regulation sought to introduce.
However, schemes are increasingly finding they have no choice but to design options in this way to attract younger members, Christoff Raath, the joint CEO of Insight Actuaries and Consultants, told the Board of Healthcare Funders conference held in Cape Town this week.
The broken, incomplete and unsustainable medical scheme regulatory system has resulted in schemes becoming increasingly unaffordable and unattractive to younger, healthier people, Raath explained.
More than 4.5 million of them have chosen not to join a medical scheme. This anti-selection by younger, healthier members has created a 32 percent difference between average contributions on open medical schemes and restricted medical schemes, Raath told the conference.
Employees are often obliged to be members of restricted schemes, but in open schemes younger members opt out resulting in the average age of the nine million lives covered increasing each year, Raath explained.
Every year for the past two decades, the impact of members’ aging on contributions is between 1.5 percent and two percent, Raath said.
This issue has now reached a breaking point resulting in structural changes because schemes just cannot continue to deal with the aging of their membership in the absence of risk equalisation and mandatory or compulsory cover, Raath said.
Schemes are designing options that advertently or inadvertently have gaps in their benefits or co-payments, that can be plugged with either primary healthcare plans or gap cover, Raath told the conference. Combining these products provides cheaper cover for younger, healthier lives.
Healthcare brokers who sell insurance and medical scheme cover also earn more commission, he noted.
Primary healthcare insurance plans were meant to be converted to low-cost medical scheme benefit options and boost cross-subsidisation within schemes. However, this proposed regulation of these options has been under discussion since 2005 and the most recent proposals were only released in February this year after the BHF challenged the Council for Medical Schemes and the Minister of Health over their failure to proceed with this regulation.
Siphosakhe Phakathi, a senior associate at Werksmans Attorneys, told the conference that the BHF’s court application was for a review of the council’s decision not to exempt schemes from providing all the prescribed minimum benefits (PMBs) on their low-cost benefit options. Read more: What is a prescribed minimum benefit?
Raath said the estimated average cost of providing the PMBs is currently about R1 400 to R1 500 a month, which makes these benefits too costly for low-cost options.
Phakathi said the application also sought to review the council and health minister’s failure to finalise and implement regulations for low-cost benefit options.
The application was dismissed on April 1 this year. The BHF has, however, appealed as it believes the judgement was flawed and the council and minister’s decisions frustrate an important constitutional right to improved access to healthcare for millions of South Africans.
Phakathi says if primary healthcare plans are converted to medical schemes, members can claim tax credits, there will be improved oversight, risk pooling will improve and preventative healthcare will reduce healthcare costs.
Phakathi said the government’s support for NHI was the real reason for failing to implement the low-cost benefit options. It does not suit the government’s policy of rolling out NHI to increase medical scheme membership, she said.
While medical schemes have been denied the right to offer low-cost benefit options, insurers enjoy an exemption from the Medical Scheme Act allowing them to offer low-cost primary healthcare plans that ordinarily would be regarded as doing the business of a medical scheme.
The exemption was first granted in 2017 and was recently extended to 2027. Over this decade, use of these insurance products has grown to cover an estimated 1.5 million lives despite the Council for Medical Schemes findings that the cost of these products is high.
Raath said schemes are being forced to compete for younger members by hybridising membership and insurance products, because of the incomplete regulatory system that has created a slow death spiral for schemes. It is tragic, Raath said.
Actuaries warned that schemes would enter a death spiral when the Medical Schemes Act was implemented in 2001 with regulation intended to ensure older sicker South Africans do not pay more for cover and enjoy minimum benefits, but without key mechanisms to ensure schemes regulated this way were sustainable.
The Act obliges schemes to charge all members the same rate to belong to an option regardless of their state of health or age – a principle known as community rating. Contribution rates can only be based on the number of dependants you register and on your income. Income based contributions ensure that higher earners subsidise lower earners.
Open schemes are also obliged to admit anyone who applies to join or, in the case of a restricted scheme, anyone from the employer or industry group for whom the scheme was established. This is known as open enrolment.
But Raath says obliging schemes to comply with these principles and provide minimum benefits, without making membership of schemes mandatory has led to members selecting against schemes – joining only when they are sick and in need of benefits.
In addition, it costs schemes with many older sick members more to provide the minimum benefits on average than it costs a scheme with younger healthier members. The costs of the minimum benefits should have been equalised through a risk equalisation fund, but plans to introduce this fund were scrapped when the government decided to pursue NHI in 2007.
In another presentation to the BHF conference, Vishal Brijlal, senior country advisor for the Clinton Health Access Initiative, warned against allowing the status quo to continue. "Without active reform, the sector may collapse before NHI arrives," Brijlal said.
He said the long timelines for NHI – at least 10 to 15 years - should be recognised and instead of allowing the private health sector to drift, it should be prepared and aligned to be ready for NHI in a way that makes sense.
If the private healthcare system is allowed to collapse, nine million members will lose their financial protection and there will be a further burden on the unprepared public healthcare system.
Brijlal said the risk of allowing medical schemes to become increasingly unaffordable is that the market for private providers dwindles and is no longer viable. However, a sustainable private healthcare sector is required to serve the NHI, he said.
The Competition Commission’s Health Market Inquiry’s findings were that “regulatory failure by the government was a central problem” in the private sector.
Instead of ignoring reform, governance and oversight should be strengthened, competition improved and the foundation for a more inclusive and sustainable healthcare system, should be built, Brijlal said.
