29 November 2016

The cost of healthcare in South Africa

Despite policy initiatives aimed at structuring affordable low cost healthcare funding products, medical schemes have remained unaffordable, and therefore inaccessible, to the majority of South Africans.

Dr Jaco van Zyl, Medical Executive at Cipla SA, points to statistics from the World Health Organisation (WHO), which indicate that the worldwide provision of healthcare related products and services consumed on average 9,95% of Gross Domestic Product (GDP) in 2014. “Over the same period in South Africa, total expenditure on healthcare in South Africa (SA) accounted for 8,5% of GDP, with an annual increase of 8,8% projected for the years between 2013 and 2017.”

“In South Africa, healthcare services and products are provided by parallel running public and private healthcare systems. Even though private healthcare is only available to a very small section of the South African society (16,3%), it still accounts for a disproportionate 52% of the total expenditure on healthcare,” says Dr van Zyl.

He explains that in the private healthcare market the two main methods of healthcare financing is through private health insurance (medical schemes) and direct out of pocket payments by the patients, with the bulk of out of pocket payments made by medical scheme members.

Below Dr van Zyl analyses how these two methods affect the cost of healthcare in South Africa.

Medical Schemes a source of private healthcare funding

Despite policy initiatives aimed at structuring affordable low cost healthcare funding products, medical schemes have remained unaffordable, and therefore inaccessible, to the majority of South Africans over the last couple of years. 

Most recently the Council of Medical Schemes (CMS) reported that Medical scheme contributions increased by around 9% between 2014 and 2015 but the average contribution increase announced by open medical schemes for 2017 is averaging 10,3%. 

This accelerated growth in member contributions appears to be driven by a toxic cocktail of:

  •  An increase in claims
  •  The fact that scheme members are getting older and sicker, requiring more resources
  •  A negative member growth rate
  •  An increase in the cost of Prescribed Minimum Benefits (PMBs) 
  • An increase in operating losses by schemes as well as a decrease in solvency ratios

With the majority of patients accessing private healthcare through scheme funding channels it is clear that affordability is still the most important challenge facing the private healthcare in South Africa today.  

Direct out-of-pocket (OOP) payments

OOP payments is the alternative for patients wanting to acquire private healthcare services and products. According the CMS medical scheme members paid R3.2 billion out of their own pockets more for private healthcare in 2015 than in 2014 (R27.2 billion in 2015 compared to R24 billion in 2014). A 13,4% growth rate that outpaced even the growth in scheme contributions.

A third (33%) of the total OOP expenditure was spend on medicine, meaning patients spend around R9 billion rand out of their pockets on medicine alone. 

It is also important to note that OOP constituted a large proportion (18.6%) of total healthcare expenditure for individuals who were already making significant premium contributions to medical schemes.

Private healthcare in South Africa is expensive and relatively inaccessible to the majority of South Africans. With scheme contributions by members increasing at an alarming pace, and out-of-pocket expenses by members showing double digit growth, private healthcare affordability is set to remain a big challenge in the future. 

The cost of biologics and the promise of biosimilars

The cost of treatment in general and medicine in particular is an important barrier to healthcare access, with the rising cost of medicine contributing to the growing pressure on affordability. A key objective of pharmaceutical genericisation is to reduce the cost of the patent expired molecule and therefore improve treatment access.

“The introduction of the exciting new group of treatments called biosimilars, products that can be loosely defined as biologic medicine generics, promises to slow down the above average growth currently seen in treatment cost, growth largely fuelled by the increased cost of biologic medicine,” concludes Dr van Zyl.


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