07 September 2009

Medical aid mayhem

Is your medical scheme in need of mouth-to-mouth resuscitation? If so, it's likely that your premiums will start to increase.


Is your medical scheme in need of mouth-to-mouth resuscitation? If so, it's likely that your premiums will start to increase.

In August, the Council for Medical Schemes (CMA) laid bare the financial state of its members and then told parliament last week that some schemes were on their "deathbeds".

Acting CEO of the CMA Patrick Matshidze told MPs 18 schemes have fallen below the prescribed solvency ratio of 25%.

The council defines a solvency ratio as "the cash a medical aid scheme needs to keep in reserve, expressed as a percentage". This serves as an indication of a scheme's ability to pay for claims.

The CMSA annual report, which was published on Wednesday, showed an average industry solvency ratio of 36.6%, with some well-known names missing the 25% solvency ratio benchmark.

The average contribution increase for all schemes in 2009 was 11.8%. "A feature of healthcare systems around the world is medical inflation which is much higher than normal price inflation," said head of research and development at Discovery Health, Alain Peddle.

According to the chief operating officer at Bonitas Medical Fund, Gerhard van Emmenis, cash flow management is an important aspect of schemes. That is because once contributions are approved and announced income is fixed, while healthcare costs vary due to price increases.

"Often schemes get their pricing of contributions and benefit design wrong due to external factors such as fee increases for service providers," he said. "I predict a number of schemes will make losses this year, due to the department of health approving a range of fee increases."

Peddle said members' most common complaint is being charged higher rates by their doctor or specialist than the rate covered by their plan.

This is because doctors and specialists are free to choose the rate that they bill, with members having to pay the difference between this and the amount paid out by the scheme.

In addition, Emmenis said members who suffer from more than one condition often require extended coverage, and their benefits do not always carry them through.

Also, in situations where families suffer from genetically inherited conditions, the family combined benefit is often not comprehensive enough to cover these.

Warning signs
Peddle said that when a scheme reports an operating loss, consumers should expect a significant increase in premiums.

"An operating loss means the scheme has been charging too little to cover expenses," he said. "It will be obliged to make some sort of fundamental benefit or premium change in the near future."

Peddle said consumers should take note of recent changes to benefits, or mid-year premium increases. Such changes imply the scheme had to adjust its strategy to counter for unplanned shortfalls.

Another negative sign is a high turnover among members, as this may be an indication of dissatisfaction with the scheme.

"There's a tendency for healthier members to leave a scheme more quickly than unhealthy members," said Peddle. "If the mix between healthy and unhealthy members of a scheme worsens, schemes will typically need higher premium increases."

Low solvency ratio
Some of the schemes that did not meet the required 25% solvency threshold included the following:

  • Liberty Health (22.8%)
  • Resolution Health (16.1%)
  • Oxygen Medical Scheme (16.6%)
  • The National Independent Medical Aid Society (13.1%)
  • Telemed (9.1%)
  • Purehealth (6.7%)
  • Thebemed (10.1%)
  • Spectramed (16.8%)
  • Momentum Health (18.7%)
  • Keyhealth (17.9%)
  • Pharos (16.8%)
  • Umvuzo (12.4%)
  • Gems (8.4%)
  • Lonmin (16.1%).

Reacting to his company's 16.8% solvency, Spectramed CEO Quincy Beukes said that in any other country or industry, an organisation would address this financial risk by changing product and price.

"However, this is not permitted in the South African medical schemes industry. The only solution for a medical scheme in this environment is to then adjust price gradually over a period of time and reduce cost through internal efficiencies." (Nolulamo Matutu/, September 2009)

Read more:
Crunch time for schemes
Med schemes council future unclear


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