Health care can cost an arm and a leg and is a grave concern for the employers of today, reports Karen
The cost of health care has been identified as the priority issue facing employers in the 1995 health care benefits survey undertaken by Old Mutual.
Yet the survey also revealed that more than 70 percent of employers could not quantify their total health care costs.
In many cases, a portion of the cost was hidden in general overheads or salary bills, especially where benefits such as on-site clinics and first aid stations are offered.
The survey included respondents from the top 300 listed companies and the top 200 unlisted companies which together represent 660 000 active employees and 36 000 pensioners in South Africa.
Concern over costs has led to 63 percent of small companies changing their medical aid scheme within the last five years to find new cost-effective solutions.
Assistant general manager Barry Crookes believes that many of the changes were more acts of desperation than carefully considered strategies, judging from the lack of adequate management information.
The figure was more stable for large companies as most have self-managed schemes which have undergone dramatic changes more recently than the commercial schemes.
However, the percentage of large companies, with more than 10 000 employees, which had had the same medical aid scheme for more than 10 years, dropped from 72 percent in 1994 to 38 percent this year.
Consultant Heather McLeod says there is a growing trend towards managed care, changing member incentives and the use of savings plans to break the cost spiral.
Managed care entails influencing the supply side, through contracts with hospitals, general practitioners and medicine suppliers.
An analysis of the total cost of medical services indicates that medicines and hospital services together account for almost half the total bill.
The survey reports that pensioners belonging to medical aid schemes are relatively well-treated compared to elsewhere in the world, where benefits have been reduced, or even removed, in recent years.
Cross-subsidisation, whereby the young and the healthy subsidise the costs of the old and the sick, is under pressure because of the ageing profile of medical aid schemes. Despite this, the survey found that an increasing number of employers support this approach.
McLeod believes it is because there appears to be no other real solution to the problem. However, she adds that there is a move by most funds to pre-fund for future pensioner liabilities.
Pre-funding entails members paying more now — usually into some form of savings scheme — to build up a lump sum to fund retirement benefits later.
Although only a few employers assist employees with pre-funding, almost three-quarters said they intended to pre-fund in future.
“This trend was given added impetus by the release of accounting opinion AC305 in July,” says McLeod.
The accounting profession has stated that, as has happened in other countries, companies will need to reflect the present cost of health care for future pensioners in their financial statements.
“In essence, medical benefits should be treated like retirement benefits and paid for while the employee still works for the company,” says McLeod.
She says the liabilities for health care for pensioners totals about R35-billion but the available assets are only at R1-billion. “The remaining R34-billion needs to be split between all the companies and funded in the medium term.”
Attitudes towards Aids have also changed in the past 12 months with 78 percent of respondents compared to 57 percent in 1994 now having some form of Aids policy in