Business Tech Africa will be running a series of articles regarding Medical Healthcare costs and looking at the business of Healthcare in South Africa and attempting to understand rate increases.
Part 1 – Medical Aid Increases – What is happening?
Among the open South African medical schemes, Bestmed has reported the highest average increase in medical aid rates, of 12.75% for 2025, with Sizwe Hosmed a close second highest with 12,5% average increase. At the lowest end of the increase spectrum is Discovery Health with an average of 9,3% and Momentum Health with 9,4% increase for 2025.
While individual plan rates within medical aid schemes may vary and there are a few that are in the 7% – 8% increase range, the majority have continued on a more than double inflation cost increase path.
In addition, there has been some benefits and savings reductions in some of these medical aid plans exacerbating the above inflationary increases.
Medical Aid Inflation VS CPI Inflation
The majority of open medical aid increases for 2025 are over 10% compared to a CPI inflation rate of only 3,8%, the lowest that inflation has been since March 2021, and a Production Price increase of only 1% in September, indicating a reduction in production costs of -0,3%, as per the latest inflation stats provided by Stats SA
Globally, healthcare inflation has tended to outpace CPI, and in South Africa, annual increases where salary increases are typically tied to the CPI rate, healthcare input costs generally rise by a figure of CPI + 2% to CPI + 4% each year, although finding clarity of the details of these cost increases is an almost impossible task.
So even at an above CPI inflationary medical expenses rate of CPI+4%, this would set an expected medical aid increase figure for 2025 in South Africa at around the 7,8% mark at the top end and at a 5,8% inflation increase at the lower end of that spectrum.
2025 Medical Aid Guidelines for Increases
On 1 August 2024, the Council for Medical Schemes (CMS), the governing authority for medical aid schemes in South Africa, released their advisory circular for increases in medical aid fees for 2025, and had urged schemes to cap their tariff hikes for 2025 at 4.4%, plus “reasonable” utilisation estimates. How a reasonable utilisation estimate is calculated is up for debate, but with the lowest CPI in three years it is of concern that there are medical aid schemes that are increasing rates at almost 3 x the CPI inflation rate for 2025.
In 2024, medical aid schemes increased rates by between 8%-10% with an average CPI inflation rate of 5,9%, bringing the motivation behind the 2025 increases into question.
According to a report by the CMS, the percentage of individuals utilising private healthcare in South Africa, has declined to under 15% of the population of 62 million (as of 2022), relative to population growth, highlighting the increasing strain on public resources.
With above persistent, above inflationary increases however, it is understandable, why so few make use of private medical aid cover in South Africa. It is simply becoming less and less affordable for the bulk of the population.
Business Tech Africa, attempted to get input from the healthcare industry and financial statements of hospital groups, in order to try understand why this critical service in healthcare continues to outstrip inflation by such a great margin, and to also understand the root causes of the increases in input costs.
Hospital Group Cost Increases and Profits – The Details
We took a look at the financial statements of two of the major hospital groups in the country – Life Healthcare and Netcare Healthcare, that between them control the bulk of the private hospitals in South Africa. The most fascinating aspect was the large difference in the cost inputs, for the two largest cost input categories for the hospital groups: Drugs & Consumables and Employee Benefits.
Drugs and consumables for Life Healthcare, saw a 7,9% increase in cost in their last financial year, while Netcare only reported a 2,9% increase. Employee benefits for Life Healthcare increased by a substantial 9,1% while those for Netcare increased by a modest 5,6%. Total expenses incurred for Life Healthcare increased by 10,5% while Netcare had an increase in total costs of only 3,8%
Despite these cost increase difference, both groups saw and increase in pre-tax profits with Life Healthcare declaring a healthy 15,9% increase in profit, despite the cost increases, while Netcare declared a 5,9% profit before tax.
Business Tech Africa reached out to a CEO of one Hospital group to see if there were an average increase in rates charged to consumers at the group available for the past few years and we were told that this information was not available for public consumption and they would not consider releasing it.
Industry Association Stays Mum on Rates
We then approached the Executive for Public Affairs at the Hospital Association of South Africa (HASA), Mark Peach, for input from the industry body on understanding what the average rates increases for hospitals are and were informed by Mr Peach, that an average increase in Hospital rates was not available from HASA, and that having such a figure would be anti-competitive.
When questioned why this would be anti-competitive, Mr Peach declined to comment any further.
Interestingly enough, industry averages are quite common in other industries, and as these are generally calculated post increase periods, and so does not provide any competitive advantage for any particular company other than to gauge the company’s rate increases against its peers.
Rate Comparisons Common Practice Across the Economy
There are many consumer price comparison websites that are available to consumers, that provide an open comparison of costs on anything from insurance to flight costs to hotel accommodation to corn flakes that are certainly not anti-competitive.
For many years there has been a media inflation watch that publically discloses all media advertising rates and makes comparisons of such and this forms part of advertiser’s decision making process to decide if they are buying an effectively priced medium or not.
Motor Industry price increases are equally made available publically and this is part of a transparent market process that allows for consumers to understand what they are paying for and for competitors to assess their competitiveness.
It brings into question why this is not common practice in the medical industry and if introducing such openness would encourage greater competitiveness in prices in the seemingly closed and mysterious world of medical healthcare?
