Should medical aid schemes be allowed to tap into their reserves to treat COVID-19 patients?

Should South African medical aid schemes be allowed to tap into their reserves to help treat people infected with the coronavirus? Yes and No.

Here are reasons why. Under the Medical Schemes Act, reserves are accumulated funds that must be maintained at a minimum level of 25% of annualised gross contributions to protect members’ interests by guaranteeing the continued operation of a scheme. They ensure that the scheme is able to meet members’ claims as they arise.

The reserves – currently at R60bn, also act as a buffer against unforeseen and adverse developments, whether from claims, expenses or adverse market conditions. When reserves, whose sources include retained surplus between contributions and claims, income from investments, over-payment recoveries and others, fall below the prescribed solvency ratio, this serves as a warning of a medical scheme’s potential inability to meet its obligations in the long term.

Therefore, as the regulator, the Council for Medical Schemes, (CMS) has invited schemes to apply individually for the usage of the reserves. There should be a clear understanding the Board of Trustees oversee the proposals before they are sent to CMS for consideration. Secondly regulator will monitor the usage of those approved.

To ensure good governance, effective management and functioning of the scheme and in order to safeguard the interest of members, those schemes whose reserves are below the 25% threshold can never be allowed to use reserve funds for COVID-19 claims. If this is allowed, it will endanger the solvency of a scheme utilising such funds.

Reserves are funded from members’ contributions, and their primary purpose of a medical scheme are to cover members’ healthcare expenses, therefore the interest of members is the absolute priority when managing cash flows from reserves.

To cover COVID-19 medical related claims, the CMS has already implemented the following interventions:
• Declaration of COVID-19 as a clinical emergency and as a Prescribed Minimum Benefit, meaning that coronavirus infection is funded in full irrespective of medical scheme benefit option;
• Publication of Clinical Guidelines to support implementation and funding decisions;
• Extension of the convening of Annual General Meetings by schemes until 90 calendar days post the lockdown;
• Initiation of a process to develop a framework for tariff and price negotiations on key goods and services.

The above interventions show that where member benefit and protection is demonstrated, exemption proposals from medical schemes and related entities are granted. In general, the interest of medical scheme members has been held supreme in the assessment of the exemption applications, notwithstanding the exceptional circumstances presented by the pandemic.

We appreciate that COVID-19 and the associated lockdown will result in many healthcare service providers facing financial distress as a result of health services that are currently being undertaken COVID-19. Indeed, keeping these practices alive ensures future access to care for medical scheme members.

What the proposal to use the R60-billion reserves lacks, is a societal benefit from a medical scheme beneficiary perspective. How can equity be ensured between different service provider groups, servicing patients from varying socio-economic profiles, across different geographical areas?

The South African government has spearheaded many interventions aimed at providing relief for small businesses during this state of disaster.

Therefore, it is our considered view that service providers should avail themselves to these financial relief programmes to ensure their sustainability. Relief by banks, insurers, and other financial institutions has also been extended to individual professions, thus healthcare providers are not limited in options.

Therefore if we allow the R60-billion reserve funds to be used willy-nilly to treat COVID-19 patients, the interests of medical scheme members may not be protected in the short term, as this concession only serves the preservation for one side, that of the service providers.

Dr Sipho Kabane is the Registrar and Chief Executive, Council for Medical Schemes.