Medical schemes get a clean bill of health
The Council for Medical Schemes (CMS) Annual Report places South Africa’s private medical schemes industry under the microscope. Among the many topics addressed in the 2011/12 report, presented to the media at the CMS offices in Pretoria this Tuesday, was
CMS Registrar and Chief Executive, Dr Monwabisi Gantsho, was on hand to confirm council’s support for various initiatives aimed at strengthening South Africa’s healthcare sector. Over the past 12 months the regulator has both contributed to government’s proposed National Health Insurance (NHI) through its participation in technical sub-committees as well as supported the Department of Health (DoH) strategic review of the country’s health system.
Gantsho said that council would do everything in its power to ensure that medical schemes honoured their Prescribed Minimum Benefits (PMB) obligations and indicated that hospitals and specialists could yet be regulated in an attempt to rein in inflation-plus price increases. In this regard the CMS is hard at work to iron out any imperfections in their enabling legislation – the Medical Schemes Act – to ensure the interests of medical schemes beneficiaries are put first.
Medical scheme “head count” dips into double digits
A trend common to both the pension funds and medical schemes environment is the gradual consolidation of funds and schemes. In the medical schemes space this consolidation has taken place by way of mergers and acquisitions as funds strive for cost efficiencies and optimum member profiles. It is not uncommon for schemes with high average member ages to seek out and acquire / merge with younger and healthier schemes, for example.
By 31 December 2011 the total number of medical schemes operating in South Africa thus fell to 97, down from 100 in 2010, and 143 a decade ago. The declining trend exhibits among both open schemes (now numbering 26) and restricted schemes (71). Overall the industry has “dropped” four schemes per year going back to 2012. A closer analysis confirms that larger schemes are more likely to survive. Almost a third of the 97 schemes now boast 30000-plus beneficiaries.
The absolute measure of growth in the sector remains the number of principal members and beneficiaries covered by the medical schemes “umbrella”. At latest count there are some 3730565 (up 3.3%) principal members and 4795844 (up 2.5%) dependants for a total of 8526409 beneficiaries. The total number of medical scheme beneficiaries has only increased by 26.9% since 2000 – a disappointing annual compound growth rate of just 2%.
Premium collection and healthcare expenditure outstrip inflation
One can spend hours poring over the medical schemes’ incomes and expenditures. On the income side members contributed R107.4 billion (or R1 063.9 per average beneficiary per month – pabpm) over the 12 months ending 31 December 2011. This represents an 11.3% increase over 2010 premiums. Gross premiums are further split to risk contributions (which came in at R966.6 pabpm) and medical savings account contributions (at R116.8 pabpm).
Meanwhile total gross relevant healthcare expenditure topped R93.2 billion for the year under review, 10.3% higher than the previous year. Both premiums collected and healthcare expenditure outpaced inflation by some margin! The bulk of healthcare expenditure was on hospitals (36.6%), medical specialist (22.8%), medicines (16.3%), supplementary and allied health professionals (7.9%) and general practitioners (7.4%). A steep R84.0 billion of the total was covered out of medical schemes’ risk pools, with the balance of R9.2 billion paid out of medical savings accounts.
The country’s major medical schemes have come in for some criticism of late for rising non-healthcare expenditures, most notably administration expenses. Despite complaints these fees are largely in check and rising at rates lower than inflation. According to the CMS the country’s 97 medical schemes spent R8.2 billion on administration expenses, R2.4 billion on managed healthcare fees and R1.4 billion on broker costs. Although much fuss was made over the increase in the broker expense item it should be noted that these costs include commissions, service fees and other distribution costs incurred by the medical aid schemes to “support” brokers… Broker commissions – across the schemes that still pay commissions – averaged out at just R46.8 per average member per month!
A financially sound industry
The net healthcare result is defined as a schemes’ position after all benefits and non-healthcare expenditures are deducted from premium income. In the latest year South Africa’s 97 medical schemes showed a net surplus of R1 billion, though open schemes reported deficits of some R47.6 million versus the restricted schemes surplus of R1.1 billion. Overall the year-on-year performance of both scheme types improved this year over last. The net surplus after investment income and consolidation adjustments for all schemes came in at R4.3 billion. Council was also satisfied with improvements in scheme solvency, which was up from 31.6% to 32.6%. Schemes must by law maintain a 25% solvency level.
Editor’s thoughts: A strong emerging medical schemes’ trend is that of dispute resolution via the country’s courts. The CMS spent R10.4 million on litigation in the 2011 financial year – with schemes burning through approximately R50.5 million. Even so, the registrar remains adamant it will pursue “issues” in court even if it takes four, five or seven years for a favourable outcome. Is the regulator too hasty to take errant schemes to court – and should more be done to resolve industry disputes through negotiation and arbitration? Please add your comment below, or send it to [email protected]
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