Getting to
GRIPS with HEALTHCARE
INFLATION
With all medical aids having launched their revised products , plans and pricing for 2025 , our CFO , Luke Woodhouse , gives us some insights into the reality of rising healthcare costs and the delicate balance of keeping increases as low as possible while maintaining the sustainability of the Scheme .
The South African healthcare sector is influenced by some unique factors such as inflation , unregulated pricing and the fluctuating exchange rate . While these remain relatively stable year on year , the dynamics evolve in line with changing circumstances .
In August it was announced that the Consumer Price Index ( CPI ) slowed down to 4.6 % in July , from 5.1 % in June this year . This is the lowest since July 2021 when it was also 4.6 %.
This was good news for South Africans generally and a harbinger of a possible interest cut rate . Does this mean we can expect healthcare costs to be reduced ? ‘ Unfortunately not ,’ says Luke Woodhouse , ‘ medical inflation is a different animal and there are unique factors which result in each year ’ s inflation .’
Globally , healthcare inflation is typically higher than CPI . In South Africa , annual salary increases are usually based on CPI . However , the cost of healthcare will typically increase between CPI + 2 % and CPI + 4 % each year .
17
Bonitas Member Magazine Issue 4 / 2024
WHAT ARE THE MAIN DRIVERS OF HEALTHCARE INFLATION ?
• Chronic diseases and lifestyle : The rising prevalence of chronic / lifestyle diseases such as diabetes , hypertension and obesity increases the demand for healthcare services , contributing to higher medical costs
• Cost of medical technology and drugs : Medical inflation often reflects the rising costs of medical technologies , treatments and pharmaceuticals
• Ageing population : South Africa , like many other countries , has an ageing population . Older people typically require more medical care , leading to increased demand and higher medical costs
• Specialised medical skills : The cost of these is high and specialists often charge more for their services because of their expertise and the significant costs associated with their training and equipment
• Private healthcare costs : These are unregulated in South Africa , so healthcare providers can , and do , set their prices independently leading to a higher health CPI
• Administrative costs : Including those associated with insurance claims , billing and other tasks
• Limited competition in healthcare : This can lead to higher prices as the fewer the providers , the more they can charge for their services
• Exchange rate fluctuations : Many medical supplies and pharmaceuticals are imported and when the Rand weakens , the costs increase
• Increased utilisation : As medical schemes cover more services and as people become more health-conscious , the utilisation of healthcare services increases , driving up costs