Generally, an increase in competition should be welcomed, as it increases innovation and decreases costs. Furthermore, these alternatives address the much-needed demand for affordable medical cover.
The sustainability of medical schemes
Unfortunately, the increased competition from insurance products is threatening the sustainability of medical schemes. By law, medical schemes are required to cover Prescribed Minimum Benefits (PMBs) at cost. PMB-related claims are often costly, placing significant strain on medical schemes’ finances.
A further restriction on medical schemes is that their contributions may only differentiate on option, family size, and income. Consequently, medical schemes may not charge higher rates for elderly members or individuals with greater medical needs. By design, schemes require younger, healthier members to cross-subsidise higher-risk members.
Younger individuals, however, often do not deem medical cover as an immediate need and will rather forgo medical scheme membership unless it is required by their employer. Furthermore, younger people often have limited financial resources and would rather look at more affordable options, such as insurance products, should they want some form of medical cover.
Solutions that compete
Insurance products fill this much-needed void by providing affordable medical cover for those who do not have the means to belong to a medical scheme. Insurers have the flexibility to choose exactly what benefits they want to underwrite and can, therefore, tailor their offerings to address specific segments.
A further benefit is that insurers have the flexibility to provide different tiers of cover, ultimately providing individuals with more choices depending on what they can afford.
Some of the notable players in the market are offering solutions that compete directly with traditional medical schemes by offering a range of in-hospital and day-to-day benefits. Entry-level products start from as little as a few hundred Rand, with more extensive cover costing well over R1 000. Some products offer more specific cover, such as only day-to-day cover, accident cover, or limited hospital benefits. Individuals can then combine some of these products to create a customised solution based on their unique requirements and affordability.
Personalised insurance options
By having flexibility in what these products cover, insurers can design products to target several price points and market segments. It should be kept in mind that ultimately, insurers need to make a profit on the products that they sell. To accomplish this, they need to correctly price their risk and place limits on their risk exposure.
As an example, an insurance product may provide in-hospital cover, but cover may be limited to a maximum number of days in the hospital, a maximum amount per event, or a maximum overall annual limit on hospital benefits. Furthermore, they may exclude certain events and do not have to cover costly PMBs.
This allows insurers to better manage the costs associated with the benefits that they are providing and, therefore, affords them the ability to provide differentiated cover at different price points.
Read more: A practical path to professional success in risk management
At the detriment of schemes
The difference between health insurance and medical schemes is often not well understood. Younger, cost-conscious individuals may opt for the limited cover provided by insurance products, thinking that they get comprehensive cover.
Unfortunately, they only find out that this is not the case when it is too late, and they have an event that is not properly covered. While the entry of non-traditional players in the health insurance environment allows for individuals to get affordable cover against unexpected medical expenses, it also comes at the detriment of medical schemes that are losing young, healthy members to cross-subsidise older members.
Final thoughts
In summary, non-traditional insurance players are creating more accessible healthcare options but also posing challenges for traditional medical schemes. Understanding these dynamics is crucial for making informed choices about your healthcare cover.
For more insights and guidance on navigating these changes, visit the Milpark Education website and explore our programmes on insurance and financial services.
