A 7,9% fee increase for Discovery Health members
Discovery is the first medical scheme to announce its premium increases for 2011 and this has come in at an average rate of 7,9%.
Discovery Health members can expect a maximum of an 8% increase in premiums irrespective of the plan they are on.
Medical benefits will increase in line with medical inflation, which currently ranges between 5% and 7,5% depending on the medical treatment.
Dr Jonathan Broomberg, chief executive of Discovery Health, expects other schemes to announce increases of more than 10%.
Discovery Health has increased its new membership by 92 000 members and 139 000 lives covered—a 12% growth rate.
Much of this growth has been driven by its low-cost KeyCare series, which was responsible for 40% of new members and now covers 335 000 lives.
One of the major concerns around medical schemes is that they have failed to grow the number of new members, and much of Discovery’s growth has been a result of the migration from other medical schemes rather than increasing coverage.
However, Broomberg says half the growth in KeyCare has been a result of people taking out medical cover for the first time. That means that this year, Discovery Health has extended medical cover to nearly 28 000 people.
KeyCare is aimed at providing a cost-effective medical cover for people earning less than R8 500 a month and is based on earnings levels. For example, a principal member earning R6 000 or less would pay R396 per month for KeyCare Core, while someone earning between R6 000 and R8 000 would pay R492 per month.
Classic Comprehensive remains the most popular option for Discovery Health members, with more than 444 000 lives covered. Costal Saver and Classic Saver are also popular options, with more than 300 000 lives covered per plan.
Although a rapidly growing membership base is very healthy for long-term sustainability and lowering the risk profile of the fund, in the short-term it does have a negative impact on premiums.
As new members join, Discovery is required to hold upfront 25% of its annual premium in reserve to meet the 25% solvency requirements. This will add 1% to the cost of premiums.
Other cost drivers include: medical inflation, new technology and medicines, and an ageing membership.
Medical inflation and new technologies
Medical inflation is running at between 5% and 7,5% depending on the service provider. Another driver of medical costs is the continual introduction of new, more expensive technologies and medicines.
For example, if a new cancer drug hits the market and has a very high success rate, members will want to have it covered by their medical scheme irrespective of cost.
Any medical scheme experiences an increase in the age of its membership as members get older.
However, Broomberg argues that because Discovery Health is growing membership rapidly, especially among younger people, the average age is increasing at a lower rate than other medical schemes and therefore having less of an impact on premium increases.
Broomberg says that the average membership age of Discovery Health increases by two months each year compared to about seven months per year for the industry average.
This year Discovery launched its Delta network, which can cut premiums by 10% to 20%.
Currently 90 000 members have signed up for the Delta network, which is a range of hospitals that Discovery has negotiated discounted rates for Discovery members.
The hospitals were selected based on their level of care, cost efficiency and location to ensure that members have access to a Delta network hospital within 10km of their homes.
For example, a Discovery member on the Classic Saver plan who joined the Delta network would see a 20% reduction in their monthly premiums for the same benefits.
If members go to the selected hospitals, their medical bills would be covered by Discovery. If a Delta network member opted for a non-network hospital a co-payment would apply. However, in the case of a life-threatening emergency, no co-payment would be levied if the member went to a hospital outside the network.