Christmas in July!

Each year, around Christmas, medical scheme members receive a communication from their medical schemes. The letter usually informs them of two things: their medical aid contribution is going up and their benefits are going down. The annual price review is

Another example of regulatory failure

The CMS went as far as to issue a ‘disclaimer’ at the end of the abovementioned communication. “Please note that this is an exceptional case which does not override the provisions of the rules of the scheme or the Medical Schemes Act 131 of 1998 in any way, shape or form,” they said. Their assertion is probably correct – the Medical Schemes Act remains intact – but if an exception is made in one case it can surely be applied to others. What will the CMS do when the next struggling scheme comes to it and says: “If we don’t pass through a 10% increase today we’re going to be in serious financial trouble in three months time?”

This event raises a serious question about the way in which medical schemes are regulated, particularly where fees and benefits are concerned. We have to ask whether Renaissance would have found itself in this predicament if the proposed changes to contributions and benefits could have been made immediately after the members’ special general meeting held 28 March 2008. “These changes,” notes the curator, “could not be implemented earlier due to provisions of Section 32 of the Medical Schemes Act 131 of 1998 (MSA), which regulates changes in contributions and benefits.”

In other words, while the financial situation of this health scheme slowly worsened, management had no option but to wait for year-end to take corrective action. This flies in the face of the CMS 2008/2009 strategic objective of the ‘Fair Treatment of Beneficiaries.” It also prevents medical schemes from fulfilling their crucial role in the relationship between broker, member and medical scheme. That task is as simple as remaining financially sound!

A disappointing chain of events...

How did Renaissance Medical Scheme reach this sad state of affairs? Toward the end of 2007 it emerged that the scheme could not meet the required reserve levels. This fact, combined with numerous complaints from scheme members about unpaid claims and concern over trustees’ prompted the registrar of medical schemes, Patrick Masobe, to seek intervention from the Johannesburg High Court on 8 May 2008. His application was granted a couple of weeks later, with Nkonki, chairman of auditing firm Nkonki, appointed by the court to act as curator to the medical scheme.

Nkonki has since reported back to the High Court. He advised that Renaissance had debt amounting to R44m; but that the scheme could be managed out of the crisis. The fund ran into trouble because it was unable to recover expenses from contributions. In fact it was losing money even before paying its non-hospital expenses. Nkonki told the High Court that “with the support of the members, the scheme stands a good chance of regaining financial stability.”

This prompted him to approach the CMS (on the medical scheme’s behalf) to allow for an ‘emergency’ change to tariffs and benefits.

No choice but to cough up!

Nkonki advised members that it was “necessary to implement the above benefit changes immediately to derive the needed savings for the recovery of the scheme.” And scheme members have no choice but to cough up. They could leave the scheme for another; but would face waiting periods and other negatives associated with such a move. In conclusion, Nkonki said: “I am aware of the difficulty that you as members may have in adjusting to these new changes, especially in view of the economic climate of our country, but I am sure you will agree with me that in the long run, these changes will be of benefit to you as members.”

Editor’s thoughts:
Running a business in today’s tough economic climate is not an easy thing. It’s certainly difficult to set income and expense budgets looking 12-months forward in a high interest rate and inflation environment. Your practice can chop and change at will, passing on price increases as required; but regulated business like Eskom, Telkom and of course the private medical schemes cannot. Is there an argument to allow medical schemes to review member fees and benefits on a more frequent basis? Add your thoughts below, or send them to gareth@fanews.co.za