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Health: solvency article

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The Council for Medical Schemes (CMS), which regulates the medical scheme industry, has placed seven schemes on close watch due to solvency levels below the statutory requirement of 25% during 2014.

This was disclosed in the CMS annual report for 2014/15, published in Pretoria on Tuesday.

The schemes represent 24.1% of all medical scheme beneficiaries, due to the inclusion of the Government Employees Medical Scheme (Gems) with 1.8 million beneficiaries.

They are: Resolution Health (9.4%), Gems (10%), Liberty Medical Scheme (17.2%), Community Medical Aid Scheme (Commed) (21.4%), Suremed Health (21.4%), Thebemed (22.8%) and Transmed (22%).

Of these, Resolution, Thebemed and Transmed in fact improved on their 2013 solvency rate.

Discovery Health Medical Scheme, which accounts for 53.8% of the open scheme market, maintained a solvency level above 25% for the year in 2014, up from 24.3% in the previous year.

According to the CMS, the drop in Gems’ solvency ratio is largely due to a higher-than-expected claims ratio. Membership also dropped by 0.8% due to resignation of public servants, termination of membership due to the scheme’s debt management policy and members who passed away.

The CMS is developing a risk-based solvency framework that will later be issued for comment.

Medical schemes that saw a drop of 100% or more in operating performance before investment income in 2014 include Bonitas, Medshield, Fedhealth, Liberty, Gems and Polmed (South African Police Service Medical Scheme). CMS general manager for financial supervision Tebogo Maziya pointed out that some schemes deliberately manage reserves down and this may result in decreased operating profit.

Non-healthcare expenditure – which includes among other things administration cost, remuneration of principle officers and trustee fees, as well as advertising and broker fees – has increased from R1 743 to R1 753.50 per average beneficiary per month. This has long been a focus area for the CMS.

The CMS said while the overall costs have decreased in real terms, some schemes still see it moving upwards. “In the interest of member protection, it is important that such expenditure can demonstrate clear value,” the regulator said.

Some of the schemes that fail to meet the solvency level, also feature as high spenders on these non-healthcare items.

Gems and Liberty with 116 000 beneficiaries, are the top and fifth respectively on the list of schemes with the highest trustee fees and feature with Transmed on the list of top ten highest remuneration for principal officers. Transmed has 81 000 beneficiaries.

The CMS has introduced compulsory disclosure of payments to trustees and the next step would be to prescribe the levels of payment, the council said.

Liberty and Commed are also among the biggest spenders on advertising, marketing and broker costs.

Medical schemes paid a total of R124.1 billion in benefits in 2014, up 11.1% from 2013. The amount paid per average beneficiary per annum increased by 10% to R14 185.

Hospitals were the main beneficiaries of these payments, getting R46.6 billion or 37.6% of the total. Only 6.6% or R8.2 billion was paid to general practitioners (GPs).

The CMS says from the data it is clear that medical schemes that have a high proportion of benefits paid to GPs have lower payments to hospitals. The opposite is also true. If payments to GPs are low, hospital costs increase. This negative correlation may be caused by the way benefit options are structured, the CMS says.

GPs were paid an average of R328.70 per visit, dentists R879.62 and anaesthetists – the top earners – R2 506.42.

Members paid on average R6 000 per annum out of their own pockets, although this may be understated as all direct payments to service providers are not recorded by medical schemes.

Prescribed minimum benefits

The actual cost for prescribed minimum benefits (PMBs) amounted to R567 per beneficiary per month and constituted 52.5% of all risk benefits paid out. PMBs are conditions that medical schemes are legally obliged to cover to a prescribed minimum level of treatment.

The accuracy of this amount is however questioned, since data from 19 schemes had to be disregarded as it was clearly not correct, according to Dr Anton de Villiers, CMS general manager for research and monitoring. De Villiers said some schemes suggested the average PMB cost was R20, which cannot be correct. He said the problem may be with the actual implementation of PMBs or with the reporting.

The CMS also interrogated the quality of care beneficiaries received for nine conditions on the PMB chronic disease list. The results indicate that beneficiaries do not get the benefits they are entitled to, which results in higher and more costly outcomes, including hospitalisation and developing complications that need costly treatment.

From a sample of 404 161 hypertensive beneficiaries, for example, only 33.8% have undergone at least one electrocardiogram test during 2014, and of 44 608 beneficiaries suffering from Diabetes Mellitus 1, only 6.6% had the Fundus Exam eye test that should be done at least once a year.

De Villiers said medical schemes should pro-actively contact members suffering from these diseases to encourage them to make use of these benefits, as it will save costs in the long run. He said these tests are indicated for managing these conditions and are covered as PMBs.

“They pay for managed healthcare, but they don’t get the value.”