Closing Off The Medical Scheme Equation

 

In 2012, the number of medical schemes in the industry decreased to 92 from 97 at the end of 2011. This trend continued in 2013 with at least 6 further amalgamations taking place during the year and has further continued in 2014 with at least 3 amalgamations being announced.

 

Despite the decrease in the number of medical schemes, the number of lives covered increased by 1.8% in 2012 to a total of 8.7 million beneficiaries.

 

 

We touched on the fact that the risk profile of a medical scheme’s membership is one of the most important contributing factors to a scheme’s performance, particularly its claim levels. In particular, the average age and average family size are two key statistics that medical schemes monitor on an ongoing basis. We’ll cover membership profile in more detail in a future post.

 

 

Below is our equation which you’ve now become used to:

 

 

The components of the medical scheme equation were focused on in turn, with the main points being as follows:

 

• Healthcare costs, while following a cyclical trend, have continued to increase over the last few years. This is due to increases in utilisation and demand for benefits as well as increases in the base cost of care.

• Non-healthcare costs include the running costs of a medical scheme. These are a major focus point of the Council for Medical Schemes (CMS) and schemes are encouraged to manage these expenses closely. As a result of this focus, NHE as a percentage of gross contributions has steadily declined over the past few years.

• Although schemes may invest up to 40% of their assets in equities, the majority of schemes choose to invest most of their assets in less risky and more liquid asset classes such as cash and bonds.

 

There was a significant deterioration in the overall operating results of the industry from 2011 to 2012. In 2012, the industry managed to breakeven at an operating level, i.e. total risk contributions were sufficient to cover risk claims and non-healthcare expenses.

 

Schemes incurring operating deficits have to rely on investment income to achieve a break even result on a net level. During 2012, the addition of investment and other income resulted in schemes achieving an overall net surplus of R 3.7 billion.

 

 

Our most recent post focused on solvency in medical schemes, and we spoke about the fact that under the current legislation, medical schemes are required to maintain a solvency level of at least 25%. At the end of 2012, the average solvency for all medical schemes was 32.6%. Although the average solvency levels of the industry are above the statutory required minimum, there were 11 schemes that ended 2012 with solvency levels below 25%.

 

 

The 2012 financial year saw continued consolidation through the amalgamation and liquidation of unsustainable medical schemes which should serve to improve the sustainability of the industry as a whole. In addition, the profile of the industry is stable and the overall financial position is sound.

 

Despite this, the medical schemes industry in South Africa faces unique challenges in the build-up to full implementation of National Health Insurance. Other influences, such as the demarcation between health insurance policies and medical scheme cover, findings of the inquiry into private healthcare sector pricing and further regulatory reform by way of the Medical Schemes Amendments Bill, are likely to transform the landscape of private healthcare funding over the next decade.

 

So, now that we’ve bedded down some of the basics, we can start focusing on the things that affect you as a member of a medical scheme.