Investigating Private Health Insurance Expenditure on Private Hospitals in South Africa, 2006-2014

South Africa’s private health care sector is at a focal point, with relevance to both local and international stakeholders. The increase in expenditure on private hospitals by private health insurers (called “medical schemes” in South Africa) has been outpacing headline inflation over the last decade. This is unsustainable and impacts on the long term sustainability of medical schemes in South Africa. [Medical scheme expenditure on hospitals is measured ‘per average beneficiary per annum’ (pabpa).]

Some industry players have erroneously and simplistically attributed the expenditure increases only to price increases of private hospital services, presumably derived from various factors which include a lack of market competition. Only fragmented research into utilization trends representative of the medical scheme population exists – mainly due to the dearth of accurate and relevant data collection by the central authorities. Various steps are being taken to resolve potential misperceptions arising from this context, including an ongoing inquiry by the Competition Commission of South Africa into the private health care sector. 

This study is taken from a position of independence and contributes by collecting and aggregating private data from the three largest private hospital groups – which account for approximately 70% of the national private hospital market share – and analyzing drivers of medical scheme expenditure thereon over 2006-2014. 

To begin, the expenditure increases are decomposed to account for headline inflation and hospital price inflation, with drivers of the latter being discussed. It is then highlighted that a large portion of the expenditure increases are yet unaccounted for and are not in line with the increase in medical scheme beneficiaries over time. Accordingly, utilization trends are analyzed at three levels: 1.) total admissions pabpa for the three hospital groups aggregated; 2.) total admissions pabpa for the three hospital groups aggregated, but separately for communicable, non-communicable and other conditions; 3.) total admissions pabpa for the three hospital groups aggregated, but separately for different categories of conditions – including cancer, diabetes, heart conditions, respiratory conditions and HIV/AIDS. Age is controlled for in each case.

It is found that over time, medical scheme beneficiaries, on average, are being admitted to private hospitals more frequently, as well as staying in hospital for longer during each admission. The data also indicate that over time older people are being admitted to hospital more often. Further analysis shows that there has been a marked increase in the utilization of private hospital services by medical scheme beneficiaries with non-communicable (and especially lifestyle related) diseases. This may be indicative of deterioration in the demographic profile of the medical scheme population. Whilst this depicts an increasing burden of disease, other reasons – including technological and regulatory – for such increasing utilization patterns are discussed.

This study’s findings contradict previous assertions by certain industry players and the study uniquely contributes in the granularity of data analysis at medical condition level in South Africa.