Why medical aid costs increase above inflation

Major medical schemes have announced contribution increases of between 7.35% and 8.9% for 2027 as ageing membership bases, rising rates of chronic illness, and advances in medical technology and medicines push up healthcare costs.

Medical aid schemes operate on a shared-pool model, similar to a stokvel, with members’ contributions used to pay for eligible healthcare claims.

Data from the Council for Medical Schemes, the industry regulator, shows that as much as R96 of every R100 paid into a scheme goes towards healthcare costs.

Moneyweb asked Momentum Health, Discovery Health Medical Scheme, the Health Funders Association (HFA) and the Board of Healthcare Funders (BHF) why contributions increase above inflation every year.

The short answer is that as healthcare expenditure increases, so do contributions.

1. Members are using more healthcare services

Increased use of healthcare services, known as utilisation, is adding to medical scheme costs.

According to HFA chief executive Thoneshan Naidoo, utilisation is adding about 4% to the estimated 3.8% consumer price inflation (CPI) rate for healthcare provision in 2027.

Deon Kotze, chief commercial officer at Discovery Health, says Discovery Health Medical Scheme (DHMS) has recorded increased utilisation across doctors and other healthcare professionals, diagnostic services, medicines and hospital admissions.

An ageing membership and the growing prevalence of chronic conditions are among the factors driving this trend.

“The number of members on the [DHMS] that are registered for the treatment of a chronic illness rose from 27.8% to 33.6% between 2019 and 2026,” he says.

Kotze says members with chronic illnesses, including mental health and lifestyle-related conditions, incur healthcare costs three times higher than those of other members.

Momentum Health chief marketing officer Damian McHugh says hospitalisation remains one of the largest areas of medical scheme expenditure. Meanwhile, almost one in six members costs more than they pay in.

The HFA’s State of Medical Schemes report, based on data covering 62% of medical scheme beneficiaries, found that nearly 35 000 beneficiaries in the study had claims exceeding R500 000 in 2025, while more than 10 000 had claims of over R1 million.

A further 975 528 beneficiaries – 17% of the population surveyed – incurred healthcare costs exceeding their annual contributions, Naidoo says.

2. Modern medicines cost more

Medical advances have brought new treatments and therapies, but many come at a high cost.

Kotze says medicine costs funded by DHMS, excluding members’ discretionary day-to-day benefits, increased by an average of 6.2% a year between 2016 and 2026, despite savings from generic medicines and patent expiries.

“High-cost new medicines have been a major driver of this trend,” he says.

“Spending on these drugs grew by an average of 9.7% a year over the same period and had a disproportionate impact on medical inflation.”

3. Medical scheme members are ageing

Older people generally have greater healthcare needs, which can lead to higher claims costs.

McHugh says the average age of beneficiaries in the Momentum medical scheme increased from 32 to 34.2 years between 2019 and 2024. The average age in open schemes (not linked to a specific employee) is 36.4 years.

Discovery Health Medical Scheme’s claims data shows that its average beneficiary age rose by 3.1 years, from 35.3 to 38.4, between 2019 and 2026. This reflects both existing members ageing and people joining at older ages.

4. Fewer younger people are joining

Low economic growth and high unemployment make medical scheme membership unaffordable for many people. Those who do join may also be older.

Paresh Prema, branch head of technical and actuarial consulting solutions for healthcare at Alexforbes, says medical schemes rely on cross-subsidisation: younger, healthier members help fund the higher expected healthcare costs of older members and those with greater medical needs.

When fewer younger people join or remain in schemes, the average age of the membership and expected claims costs can rise.

McHugh says attracting and retaining younger members is a key challenge for the industry.

“The medical scheme market is actually shrinking and that is one of the key challenges to resolve.”

Schemes are trying to attract younger members through more affordable options. DHMS, for example, has added more than 80 000 members since 2025 through newer options.

5. Prescribed minimum benefits add to costs

To protect members, the law requires medical schemes to cover the full cost of treating specified prescribed minimum benefit (PMB) conditions, subject to applicable rules.

These include 271 specified conditions, such as cancer and medical emergencies, as well as 26 chronic illnesses.

The HFA says the cost of providing PMBs continues to rise. Between 2014 and 2024, PMB costs increased at twice the rate of CPI and now account for about 52% of total benefits paid, up from 43% in 2014.

6. Don’t just cancel your cover

BHF managing director Dr Katlego Mothudi advises members to speak to their scheme about a more affordable benefit option before cancelling their cover.

Network options may reduce contributions, but members should check whether designated doctors and hospitals are accessible to them.

They should also understand specialist referral rules, medicine formularies – which determine which drugs are covered – and potential co-payments.

Members should compare the likely overall cost of healthcare, rather than focusing only on monthly contributions, Mothudi says.

They should also consider the implications of a break in membership, including possible waiting periods when rejoining.

Mothudi warns that health insurance products, which can cost as little as R400 a month, offer different benefits and protections. They should not be assumed to provide cover equivalent to that of a medical scheme.

This article was republished from Moneyweb. Read the original here.