A snapshot of South African private healthcare

The Council for Medical Schemes (CMS) recently published it’s 2007/8 Annual Report which includes results for the entire medical schemes environment. As the country heads for tighter regulation in coming years we though it appropriate to take a snapshot o

Schemes, members and beneficiaries

The best way to get an overall feeling for the coverage provided by private healthcare is to look at the total number of schemes, members and beneficiaries in the country’s registered medical schemes. At December 2007 there were 3 233 490 members across 41 open and 81 restricted schemes. This represented an 8.3% improvement on 2006. Total beneficiaries increased from 7 127 343 to 7 605 236, or 6.7%

A statutory requirement for all funds is to maintain a solvency ratio of at least 25%. The CMS notes that they “monitor the financial soundness of medical schemes [and that] schemes that fail to meet statutory solvency requirements must submit business plans” for further analysis and comment. Solvency ratios seem more of a problem in open than restricted schemes. Of the 41 open schemes which boast an average solvency ratio of 28.6%, 18 are below the required 25%. Meanwhile only seven of the 81 restricted schemes (average solvency of 58.9%) operate below the prescribed solvency ‘norms’. Discovery Health Medical Scheme came under fire in 2007 for being just below the 25% level and remains at 23%. At the time they argued that it was difficult to maintain the ratio when a scheme was growing at a very fast rate, yet there were many baying for the company’s blood!

Why, we wonder, has the same fuss not been made aver the Government Employee Medical Scheme (GEMS)? The CMS even found it necessary to include a note on the schemes recent solvency ratio woes: “GEMS continued to make progress [sic] with its solvency and membership growth.” We agree that member growth (from 44 602 to 197 082) has been impressive; but the scheme’s solvency ratio fell from 36.6% in 2006 to only 8.3% at the end of 2007. CMS’s comment: “This is largely attributable to a rapid increase in membership…”

Reaching critical mass

One area the CMS obsesses over is the administrative and other non-medical expenditures incurred by open schemes. We were also quite surprised by some of their observations in this area. You would expect these fees and expenses to decrease as firms hit a certain ‘critical’ mass and the efficiencies associated with member weights. But it seems the opposite is true.

Let’s examine some of these costs as they apply to Discovery Health Medical Scheme, which with average 2007 beneficiaries of 1 886 448 for 2007 is by far the largest open scheme. Discovery’s administration expenditure per average beneficiary per month is R90.90 – a staggering 27% higher than the industry average of R71.50. At 11.1% it carries one of the highest administration expenses versus gross contribution income too. Even the broker fees, at R44.50 per average member per month, are high. The industry average for broker expenses is R37.80 with the highest recorded amount R59.10.

Discovery often mentions the bargaining powers associated with its massive member base and you’d expect the company to be able to demand among the best administration rates in the industry. The group could shave more than R430m per annum from its administration expenses (money directly back into the scheme member’s pocket) by simply reducing these costs to the industry average. This raises questions about how appropriate it is to allow a medical scheme to use a medical scheme administrator which is in the same stable. Could Discovery Health Medical Scheme get a better rate for its members by changing administrators? We believe it definitely could!

Plenty of complaints in 2007

Another aspect we’d like to take a quick look at is the complaints handled by the CMS in 2007. The 2 891 complaints received by the organisation was 30.3% higher than the previous year. Some of the issues mentioned by the CMS included a number of complaints about “apparently unlawful membership terminations by Spectramed.” A task team was established to deal with the problem. There were also a number of complaints around the payment “in respect of services provided by healthcare providers whose practice code numbers had lapsed.” The top five complaints categories for 2007 were unpaid accounts (1 066 cases), limitation of benefits with respect to PMBs (359), schemes refusing to issue authorisations (231), misunderstandings with scheme (204) and administrative inefficiencies (189).

The CMS has a difficult task. One of its long-term goals is to provide a “cost-efficient, equitable health system for South Africa and all her people.” To do this they continue to work with the “Minister of Health, the Portfolio Committee on Health, the Director-

General of Health and officials in the Ministry” And they engage “with the Board of Healthcare Funders and many other stakeholders and individuals.” We trust their diligent policing of the environment won’t lead to a dissolution of the private medical schemes sector in favour of government’s goal of National Health Insurance.

Editor’s thoughts:
There are many issues facing the healthcare environment. The CMS plays an important role in policing the industry; but is it focussing on the right areas? What areas of the private medical schemes environment should the CMS focus on in the coming years? Add your comments below, or send them to gareth@fanews.co.za