Health department to blame

"The annual blame game has begun," says Colin Bullen, head of Specialised Consulting at Lekana Employee Benefit Solutions.

"In the demonology of the Registrar of Health Schemes the culprit is usually the broker, the administrator and other contributors to non-health care costs. In reality it's more likely that most of the blame this year belongs at the door of Health Department policy."

According to Bullen the biggest single driver of contribution increases in 2004 is the solvency requirement of the Medical Schemes Act. From 2004, medical schemes must have reserves equal to 25% of annual contribution inflows.

"This is dead money," says Bullen. "It sits in reserves. Smart financial structuring to put the money to work is not permitted. Reinsurance, usually an efficient way of managing and reducing risk, is only allowed in special circumstances.

"Even then, no deduction is allowed against the solvency requirements for this transfer of risk.

"Schemes are not allowed to reserve according to the probability of insolvency. Instead the application of a simple unjustifiable percentage dictates members' contribution requirements."

Bullen says study of one large scheme's financial provisions shows that in excess of R2bn will have been pumped by members in the period to December 2004.

"In the demonology of the Registrar of Health Schemes the culprit is usually the broker, the administrator and other contributors to non-health care costs. In reality it's more likely that most of the blame this year belongs at the door of Health Department policy."

According to Bullen the biggest single driver of contribution increases in 2004 is the solvency requirement of the Medical Schemes Act. From 2004, medical schemes must have reserves equal to 25% of annual contribution inflows.

"This is dead money," says Bullen. "It sits in reserves. Smart financial structuring to put the money to work is not permitted. Reinsurance, usually an efficient way of managing and reducing risk, is only allowed in special circumstances.

"Even then, no deduction is allowed against the solvency requirements for this transfer of risk.

"Schemes are not allowed to reserve according to the probability of insolvency. Instead the application of a simple unjustifiable percentage dictates members' contribution requirements."

Bullen says study of one large scheme's financial provisions shows that in excess of R2bn will have been pumped by members in the period to December 2004.

About 7% of the scheme's contribution requirements this year are thus funding 'dead money'. In contrast, commission to brokers accounted for just 0.6% of the total cost of that scheme and a negligible portion of the increase.

Bullen is confident the 2005 level of medical scheme increases will fall substantially as solvency pressures will be reduced. Open schemes have had to step up reserves massively, but he expects that most will have caught up on the backlog by the end of 2004.

"In the demonology of the Registrar of Health Schemes the culprit is usually the broker, the administrator and other contributors to non-health care costs. In reality it's more likely that most of the blame this year belongs at the door of Health Department policy."

According to Bullen the biggest single driver of contribution increases in 2004 is the solvency requirement of the Medical Schemes Act. From 2004, medical schemes must have reserves equal to 25% of annual contribution inflows.

"This is dead money," says Bullen. "It sits in reserves. Smart financial structuring to put the money to work is not permitted. Reinsurance, usually an efficient way of managing and reducing risk, is only allowed in special circumstances.

"Even then, no deduction is allowed against the solvency requirements for this transfer of risk.

"Schemes are not allowed to reserve according to the probability of insolvency. Instead the application of a simple unjustifiable percentage dictates members' contribution requirements."

Bullen says study of one large scheme's financial provisions shows that in excess of R2bn will have been pumped by members in the period to December 2004.

About 7% of the scheme's contribution requirements this year are thus funding 'dead money'. In contrast, commission to brokers accounted for just 0.6% of the total cost of that scheme and a negligible portion of the increase.

Bullen is confident the 2005 level of medical scheme increases will fall substantially as solvency pressures will be reduced. Open schemes have had to step up reserves massively, but he expects that most will have caught up on the backlog by the end of 2004.

"In the demonology of the Registrar of Health Schemes the culprit is usually the broker, the administrator and other contributors to non-health care costs. In reality it's more likely that most of the blame this year belongs at the door of Health Department policy."

According to Bullen the biggest single driver of contribution increases in 2004 is the solvency requirement of the Medical Schemes Act. From 2004, medical schemes must have reserves equal to 25% of annual contribution inflows.

"This is dead money," says Bullen. "It sits in reserves. Smart financial structuring to put the money to work is not permitted. Reinsurance, usually an efficient way of managing and reducing risk, is only allowed in special circumstances.

"Even then, no deduction is allowed against the solvency requirements for this transfer of risk.

"Schemes are not allowed to reserve according to the probability of insolvency. Instead the application of a simple unjustifiable percentage dictates members' contribution requirements."

Bullen says study of one large scheme's financial provisions shows that in excess of R2bn will have been pumped by members in the period to December 2004.

About 7% of the scheme's contribution requirements this year are thus funding 'dead money'. In contrast, commission to brokers accounted for just 0.6% of the total cost of that scheme and a negligible portion of the increase.

Bullen is confident the 2005 level of medical scheme increases will fall substantially as solvency pressures will be reduced. Open schemes have had to step up reserves massively, but he expects that most will have caught up on the backlog by the end of 2004.

Bullen is confident the 2005 level of medical scheme increases will fall substantially as solvency pressures will be reduced. Open schemes have had to step up reserves massively, but he expects that most will have caught up on the backlog by the end of 2004.