Youth unemployment deepens SA’s medical aid crisis

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JEREMY MAGGS: South Africa’s private healthcare system is facing a slow-burning sustainability crisis. This is worrying. Younger people, the very members that medical schemes need to balance risk, are increasingly walking away. Why? Well, because they simply cannot afford the monthly cost.

At the same time, healthcare inflation, hospital costs and weak employment are placing even more strain on the system.

This warning from Nedbank healthcare analysis is that it’s not just an NHI (National Health Insurance) debate, it is now a hard economic question about whether private healthcare can remain viable for the middle class.

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I want to discuss this in a little more detail. Luyanda Njilo is with me, senior equity research analyst for healthcare at Nedbank Corporate and Investment Banking. Luyanda, a very warm welcome to you.

This is very worrying. Are medical schemes pricing younger South Africans completely out of the system? Is that the contention from your research?

LUYANDA NJILO: Jeremy, thank you for having me. The issue is the way the medical aid schemes are designed – that younger people help subsidise the cost of the older high-claim members within a medical aid scheme.

The issue in South Africa is that youth unemployment is quite high. It used to be around about 36% back in 2015. It’s currently around 45.8% in the first quarter of 2026.

So young people are not joining the medical aid scheme and the ones who are in the medical aid scheme are dropping out.

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Then this results in a spiral effect in which the contributions or the premiums that the medical aid schemes charge become more expensive, which historically they’ve been higher than inflation.

JEREMY MAGGS: So if young, healthier members are leaving, are we at the point now where the entire medical aid model in South Africa is starting to slowly unravel?

LUYANDA NJILO: Yes, we’re at a point where structurally it’s under pressure. If I’m just giving you stats, from a period between 2015 to 2024, we saw an 18% decline from members who are aged between 25 to 34. Now, these are crucial because they help subsidise the cost of healthcare members.

JEREMY MAGGS: So how serious, then, is the risk of a real death spiral here? Fewer younger members, higher average claims, even higher premiums. What’s the timeline on sustainability, do you think?

LUYANDA NJILO: In my view it’s going to take around about another five to 10 years if we continue on this trajectory, it’s going to become increasingly unaffordable for people to maintain a medical aid scheme.

The reason why I say this is because around 52% of all beneficiaries, according to Sars (South African Revenue Service) data, earned between R200 000 to R500 000 per annum. Now, this is a very sensitive middle-class segment of the market.

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So if you continue to increase premiums at around about 10%, whereas their salaries are growing at inflation, 3%, 4%, then it becomes increasingly unaffordable for them to maintain a medical aid scheme and as a result, they will drop out.

JEREMY MAGGS: Which does make a very strong case for a workable NHI. But the reality of the situation is that we’re far away from that becoming a reality.

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LUYANDA NJILO: One hundred percent. NHI, in its essence, is still going to be funded by the same people because it’s funded through the tax base. So it’s not necessarily a solution to the current problem. Where we should be focusing on is on three things.

The first one is we need to grow jobs, formal employment specifically at a macro level. We need GDP growth for that. The second one is we do need to rethink how our healthcare model is designed. Typically, people delay going into a healthcare facility up until they need to go into a tertiary hospital. At that point it becomes very expensive.

So we need to focus more on preventative healthcare instead of focusing on tertiary healthcare.

Then the last one is basically encouraging people to focus on lifestyle – like the Discovery Vitality model – where lifestyle choices become more important because the issue we have in South Africa is that we do have a relatively younger population versus our European peers.

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However, most of our young people are not economically active. So that’s why the private healthcare system is currently under pressure.

JEREMY MAGGS: Let me pick you up on that second point. I think jobs is a given, and I do understand the idea of a healthier lifestyle contributing to bringing costs down. But this notion of prevention-focused healthcare, do you think it can genuinely bend the cost curve, or do you think that in itself is maybe in danger of being oversold?

LUYANDA NJILO: I think it can, based on our research, if you focus on early diagnosis, it can reduce the cost or the tertiary cost by around about 50%. If we diagnose you early for certain illnesses, then we keep you healthier for longer, and it’s easier to maintain your illness and manage it.

So early diagnosis, we need diagnostic technology for that and also to encourage people to get diagnosed early.

It’s just basically focusing more on healthcare wellness instead of focusing on a model where people only seek healthcare when they’re sick, because by then it’s a little bit too late.

JEREMY MAGGS: Luyanda, you talk about recalibrating the model. Is there a sense maybe that private hospitals and the specialists who work in those hospitals are doing enough to restrain cost? Or are we at a point now where they’re simply passing pressure down the supply chain?

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LUYANDA NJILO: It’s a very interesting question, Jeremy, because it’s speaking through incentives in the system. In South Africa we have a fee-for-service payment model where specialists and doctors are paid to service you. So it is in their best interest to service you, and that then encourages over-servicing within the system.

The people or the segments of the market that are trying to change this are your medical aid schemes, which are cracking down on over-servicing.

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The system is disjointed, where the incentives for the specialists are very different from the incentives of the medical aid schemes, and that’s the current tension that we have in the system.

JEREMY MAGGS: Just a final one in terms of cause, is it unemployment, which is the main driver here, and you did allude to the importance of job creation a little earlier, or do you think that we’re at a point – and I suspect it might be this – where contribution increases are now simply untenable and unreasonable?

LUYANDA NJILO: Yeah. It’s because of the risk pool within the medical aid schemes, which is older, that is resulting in the high premiums. Because on average, people aged over the age of 65 within a medical aid scheme account for 10% of members, but they account for 30% of the expenditure.

So it is quite expensive for them to be on a medical aid scheme and as a result, if you have an older risk pool, the percentage increase year-on-year is north of 10%, and that is the problem that we have.

So employment comes in to a point to say that you need the younger members to subsidise the cost of the older members, and that’s why youth unemployment in particular is quite important for us to solve.

JEREMY MAGGS: It is a very disturbing state of affairs. Luyanda Njilo, thank you very much indeed. He’s a senior equity research analyst for healthcare at Nedbank Corporate and Investment Banking.

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