Discovery Health Medical Scheme announces a second year of deferred contribution increases

Deferred contribution increase allows Scheme to keep pace with expected medical inflation, while providing financial relief for members.

Discovery Health Medical Scheme (DHMS) has announced that it would again delay the implementation of its annual contribution increases.  After delaying the annual contribution increases for 2021 by 6 months to 1 July 2021, the Scheme announced that the annual contribution increases of 7.9% for 2022 would only be implemented from 1 May 2022.  This makes Discovery Health Medical Scheme the only medical scheme to have deferred contribution increases twice since the onset of the COVID-19 pandemic, providing contribution relief to the value of more than R4 billion to its members.

“With lingering COVID-19 economic effects, the deferred contribution increase provides much needed contribution relief for members of Discovery Health Medical Scheme.” explains Dr Ryan Noach, CEO of Discovery Health, the administrator of Discovery Health Medical Scheme, “The deferral of the increases for 2021 and 2022 means that members will have an actual effective increase in total contributions of 2.9% in 2021 and 5.3% during 2022. At the same time, the Scheme’s contributions are keeping pace with the medical inflation anticipated once COVID-19 becomes endemic in the healthcare system and avoids the need for increase “shocks” at that time.”

Scheme maintains strong financial position

“In brief, our decision to defer contribution increases in 2021, and again for 2022, is based on the decline in non-COVID-19 healthcare claims seen over the course of the pandemic. This trend has strengthened the Scheme’s reserve position relative to regulated solvency requirements,” explains Dr Noach.

DHMS maintained its strong reserve position over 2021 and is projecting solvency to be well above the regulated requirements by the end of 2021.

Deferred contribution increases assist members financially

DHMS’s powerful initiatives to protect its members through Covid-19 combined with its progressive contribution increase strategy to support members has led to a reduction in members withdrawing from the Scheme, and an increase in the number of new members joining the Scheme.  As of August 2021, the Scheme had grown its membership by more than 27,000 lives during 2021.

Contribution increases must maintain contributions in line with medical inflation

“While reserve levels remain high, medical schemes must account for the return of non-COVID-19 healthcare demand once COVID-19 becomes a stable, endemic infection,” explains Dr Noach. “Strong reserve levels are essential to manage short-term COVID-19 spikes, and the return of latent, non-COVID-19 healthcare demand.”

“This is why contribution increases must be priced absolutely correctly to allow for expected future healthcare utilisation. Setting contributions lower than medical inflation will result in contributions falling behind claims and lead to ongoing medical scheme losses, ultimately resulting in future contribution ‘shocks’ to maintain sustainability.”

While medical scheme claims are currently depressed because of COVID-19, the trend is temporary and not reflective of underlying medical inflation. The DHMS claims experience for 2021 shows that healthcare claims between COVID-19 waves are higher than pre-pandemic levels. For example, between waves of COVID-19 infection: 

  • Elective surgical admissions (e.g. major joint replacements and cataract surgery) have increased to 113% and 120% of pre-COVID-19 levels respectively.
  • New healthcare services required to diagnose and treat COVID-19 infections remain high.

“The claims experience of DHMS provides guidance on the expected future cost of healthcare claims between COVID-19 waves and once COVID-19 becomes endemic.  The trends imply that medical inflation has persisted at a rate of 3% to 4% above consumer price inflation since 1 January 2020, and that DHMS will be well positioned with contributions at the level of anticipated claims before considering contribution increases for 2023.” says Dr Noach.

Increasing contributions in 2022 by medical inflation

The contribution increases of 7.9% for 2022 is based on medical inflation, made up of tariff inflation, utilisation changes and demographic risk.

In more detail, medical inflation for 2022 is made up of:

Tariff inflation – The increase in cost of healthcare services, typically within 1% of CPI, and which is projected to increase by 4.4% on average for 2022.

Utilisation changes – The increase in the extent to which members access healthcare services. While a current, temporary discontinuity in utilisation persists because of COVID-19, claims experience guide an estimated increase in claims of 1.5% for 2022.

Demographic risk – The increase in claims because of changes in the demographic profile of the medical scheme. This is unaffected by COVID-19, and historic trends suggests 3%for 2022.

Benefits derived from risk management and Vitality – Over time, Discovery Health has implemented various unique risk management and wellness interventions to reduce medical inflation for Discovery Health Medical Scheme. These interventions lead to lower contribution increases or enhanced benefits for DHMS members. In 2020, DHMS saved R6.7 billion through various risk-management interventions, which for 2022 leads to a reduction in expected future claims of 1%

Medical inflation for 2022 is therefore estimated at 7.9%, informing the required increase in contributions for 2022. 

“A lower increase would fall behind medical inflation in 2022 and place the long-term sustainability of the Scheme at risk. Similarly, a higher increase would exceed 2022 medical inflation, and place unnecessary affordability pressures on members.”

The strong financial position of Discovery Health Medical Scheme can then be leveraged to delay the implementation of the contribution increase for 2022 to 1 May 2022, further supporting affordability for members.

“Overall, DHMS ensures that the contribution increase effectively balances short-term affordability and long-term sustainability, by appropriately allowing for the expected medical inflation trends in 2022 and leveraging the Scheme’s financial strength to defer the increase,” adds Dr Noach.

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