Spending on medicines in the retail sector by the South African medical (insurance) schemes grew 8.9% in 2014. The number of beneficiaries enrolled in the schemes remains near static.
IHS Life Sciences perspective | |
Significance | Data published by the South African Council for Medical Schemes suggest that the number of medical schemes declined in 2014, as some smaller schemes were amalgamated into larger ones. The number of beneficiaries enrolled in the schemes increased 0.4% – less than South Africa's population growth rate. |
Implications | Expenditure on medicines increased 8.9% year on year, with spending on this being the second-largest expenditure after that on hospital care. The primary destination for beneficiaries' out-of-pocket expenditure and medical saving scheme spending is medicines. |
Outlook | Although not completely clear, the primary reason for the slowdown in new enrolment in medical schemes could be the deterioration of the South African economy. Enrolment levels may improve should the government and scheme providers implement proposed reforms. |
The South African Council for Medical Schemes, the regulator of the country's medical scheme (insurance) system, has published its 2014/15 annual report providing statistics and insight into the private healthcare market in South Africa and therefore ultimately important trends in healthcare in the country. A copy of the report can be accessed here and a copy of the related press release here.
The report suggests that there were 83 medical schemes operating in the country at the end of 2014. Of these, 23 were open schemes, allowing anyone to enrol in them. There were also 60 closed schemes, which are only open to certain populations – normally employment based. Over time, the number of medical schemes has declined from 131 in 2005. Between 2013 and 2014, four schemes ceased operating – although these schemes did not disappear but were instead amalgamated into larger schemes. In 2014, 8.8 million people were beneficiaries of the medical schemes, a 0.4% increase on the number of beneficiaries in 2013.
Contributions to the schemes grew 8.0% year on year (y/y) to total ZAR140.2 billion (USD10.4 billion) in 2014. However, when all costs were taken into account, the schemes ran a combined deficit of ZAR464.5 million for 2014, down from a surplus of ZAR1.55 billion in 2013. The Council has attributed this difference to a "worsening of claims ratios".
Overall healthcare expenditure of schemes totalled ZAR124.3 billion in 2014, up 10.0% y/y. Of this, expenditure on hospital care (which includes expenditure on medicines in hospital settings and other hospital-based care) totalled ZAR64.6 billion – growing 11.6% y/y. The second-largest expenditure after hospital care was expenditure on medicines outside of hospital settings. This totalled ZAR20.5 billion in 2014, a 8.9% increase on 2013. Interestingly, the study noted that scheme beneficiaries used their medical savings schemes and out-of-pocket expenditure primarily to purchase medicines.
Outlook and implications
The rate of growth in enrolment in the medical schemes is lower than South Africa's population growth rate of 1.33% (source: CIA Fact book), suggesting that the percentage of the population covered by the schemes is declining. This is troubling, considering that the 8.8 million beneficiaries of medical schemes appear to be a small percentage of the total South African population of 53.7 million. In order to level the playing field between the high-quality care provided in the private sector and that provided by public healthcare, the Council has proposed reforming the medical scheme system to relax the prescribed minimum benefits (PMBs) system that requires providers to provide a set minimum set of benefits (see South Africa: 4 August 2015: South Africa's Council for Medical Schemes considers low-cost insurance products). In theory, if lower levels of cover below the PMB were allowed, providers may be able to offer basic packages with lower premiums, thereby allowing patients on lower incomes to access care. The government has also proposed reforms to the means by which medical schemes negotiate prices of the PMBs, potentially providing savings that could be reflected in premiums (see South Africa: 20 July 2015: South African DoH proposes amendment to medical scheme pricing of prescribing minimum benefits). The government is also continuing to progress its plans to introduce universal health insurance, although full rollout of the scheme remains many years away.
It is interesting that the growth in the number of enrolees is lower in 2014 than in 2013, when the number of beneficiaries had grown by 1.1% (see South Africa: 10 September 2014: South Africa's Council for Medical Schemes reports large surpluses among medical aid funds). Although it is unclear why the slowdown in growth of enrolees occurred, it may potentially be linked to a worsening of the South African economy, which may be prompting many patients to consider their spending patterns more carefully. The deterioration of the economy may also be prompting patients to dip into medical savings accounts to pay for medicines. Given that out-of-pocket expenditure on medicines remains an important means of financing access for scheme enrolees, it seems prudent for the pharmaceutical industry to maintain a watchful eye on the South African economy.