Medical Aid Warning in South Africa As Rising Costs and Youth Exit Threaten System Stability

• Experts warn South Africa’s medical aid system is under pressure as fewer young people join or remain members due to rising premiums and affordability challenges
• The system’s risk pool is weakening, with older members driving higher costs while younger contributors decline, increasing financial strain on schemes
• Analysts caution that without intervention, rising premiums and shrinking membership could threaten the long-term sustainability of private healthcare funding

South Africa’s private healthcare funding system is facing growing pressure as industry experts warn that declining membership among young, healthy contributors, combined with rising medical inflation, could place medical aid schemes under severe strain within the next decade.

The warning was raised by Luyanda Njilo, senior equity research analyst for healthcare at Nedbank Corporate and Investment Banking, during an interview on The Money Show, where he outlined how structural changes in the country’s labour market and household income levels are weakening the risk-pooling model that medical schemes depend on.

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Medical aids operate on a cross-subsidy system where younger members effectively fund the healthcare costs of older and sicker beneficiaries. However, Njilo says this balance is shifting as fewer young people are entering or remaining in medical aid schemes due to affordability pressures and unemployment.

Rising costs and shrinking young membership

According to Njilo, one of the most significant challenges is that medical aid premiums are increasing faster than income growth. He notes that while premiums are rising at around 10% annually, salary growth for many households is closer to 3% to 4%, making continued membership increasingly unaffordable.

He added that many young professionals are opting to delay joining medical aid schemes, believing they are healthy enough to avoid immediate healthcare costs. However, this behaviour reduces the pool of low-risk contributors needed to stabilise pricing across the system. Njilo explained that young adults, particularly those entering the workforce, are either not earning enough to join medical aid or are choosing to prioritise other financial commitments over healthcare cover.

Risk pool imbalance under pressure

Medical schemes rely on a balanced membership structure. Njilo highlighted that members aged 65 account for around 10% of beneficiaries but generate approximately 30% of total healthcare costs, while individuals aged 20 to 44 represent about 33% of members but only 24% of total spending. This imbalance is critical because it shows how older members depend heavily on younger contributors to sustain the system financially. As the younger base shrinks, the cost burden on remaining members increases.

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As financial pressure increases, households are increasingly forced to make difficult choices between healthcare cover and other essential expenses such as housing, transport and food. Njilo also pointed to broader economic conditions, including high youth unemployment and stagnant wage growth, as key drivers of declining participation in private healthcare funding systems.

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Source: Briefly News