Another SA medical scheme is facing solvency issues

The Transmed Medical Scheme has failed to maintain its solvency ratio at or above 25%, the minimum statutory prescribed level in the Medical Schemes Act.

This was revealed in the 2021 Council for Medical Schemes (CMS) Industry Report released last week, which reports that Transmed’s solvency ratio dropped to 19.72% in 2021 from 22.37% in 2020.

A closed medical scheme, Transmed serves current and retired staff of state-owned enterprises Transnet, South African Airways and the Passenger Rail Agency of South Africa and their subsidiaries, according to its website.

Transmed, which is one of only two of the 75 registered medical schemes in South Africa whose solvency ratio was below the statutory prescribed level, had an average of 27 967 beneficiaries in 2021.

The solvency ratio of a medical aid scheme refers to the scheme’s accumulated funds as a percentage of its gross annual contributions.

Health Squared

The other medical scheme to fall foul of this statutory requirement is Health Squared, whose financial difficulties have been widely reported on since an SMS was sent to its members on 18 August with a link to a letter signed by the scheme’s principal officer Elias Mabena informing them of the planned voluntary winding up of the scheme effective 31 August.

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The solvency ratio of Health Squared Medical Scheme plummeted to 6.04% in 2021, from 17.32% in 2020.

The CMS report said Health Squared had an average of 29 549 beneficiaries in 2021.

The scheme is now currently under provisional curatorship and its board of trustees has launched a high court application to liquidate Health Squared.

CMS executive manager regulation Mfana Maswanganyi said the council will return to court on 1 November to request the court to confirm the appointment of the curator for Health Squared.

Maswanganyi said that if the appointment of the curator is confirmed by the court, the curator will be responsible for the scheme’s liquidation application and not Health Squared’s board.

Higher demographic profiles

The report said both Health Squared and Transmed have poorer demographic profiles than the industry average, with a higher average age and pensioner ratio.

“Schemes with higher [risk] demographic profiles are at particular risk of the so-called ‘death spiral’, where adjustments in order to price appropriately for the profile of their members might result in the unaffordability of contributions and the subsequent loss of their younger members, thereby exacerbating the effect,” it said.

The report revealed that Health Squared, which is managed by Agility Health, had the highest administrative costs of the open medical aid schemes, with administration expenses accounting for 10.67% of gross contribution income.

It also had the highest claims ratio of the open medical aid schemes.

CMS senior manager: financial supervision Julindi Scheepers said Transmed is a different scenario to Health Squared, in that it is not an open but a restricted scheme and the employer is to some extent subsidising the solvency of the scheme.

Scheepers said Transmed had a solvency ratio of almost 20% at end-December 2021 and has ring-fenced its pensioner members with Transnet funding this specific benefit option, in terms of its performance to maintain its solvency at 25%.

She added that Transmed’s solvency ratio at end-July was higher than the CMS had approved for end-December in terms of the scheme’s business plan, despite claims from a seasonal perspective being high in July.

Industry-wide perspective

The report said the overall medical scheme industry’s solvency ratio in 2021 improved to 46.73% from 44.55% in 2020.

Although there was a significant decline in net healthcare results to R820.5 million in 2021 from R19.9 billion in 2020, overall solvency levels improved due to significant increases in investment income.

Scheepers attributed the decline in net healthcare results to 2020 being an exceptional year for schemes because of the decrease in the claims ratio – partly due to the Covid-19 pandemic.

She said elective procedures were postponed in 2020, mostly due to the pandemic, with the release of pent-up demand in 2021 resulting in higher claims and some Covid-19 claims also coming through in the year.

Scheepers said there were also some increased hospital costs and the CMS had requested schemes to assist members in terms of contribution increases, which resulted in limited contribution increases in 2021.

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“We also saw a decrease in screening activities in 2020, which will affect the downstream costs, because early detection results in less costs and better clinical outcomes.

“The industry is still in a surplus position and I don’t think it’s worrying at this point in time,” she said.

Medipos

It has also emerged that Medipos members owe the scheme contributions because their employer, SA Postal Services, has not paid over the contributions it deducts from its employees to the scheme.

Medipos has informed its members their contributions are in arrears and their benefits will be suspended should the scheme not receive payment.

Members of Medipos have lodged a high court application to compel Sapo to pay Medipos the contributions that are due.

The report reveals that Medipos’s solvency ratio – at 36.08% in 2021 – was above the minimum statutory prescribed level, but had deteriorated significantly from 2020 when it was at 67.7%.

Medipos had the highest claims ratio of the closed medical aid schemes in 2021. The report attributed this to the non-receipt of a number of monthly member contributions from the employer.

Maswanganyi said last week that in an attempt to find a solution, the CMS is in the process of finding a way to ensure the registrar is represented within the scheme.

But Maswanganyi admitted the CMS does not have any jurisdiction over what an employer does with the benefits that are supposed to be paid on behalf of employees and only the employees themselves are able to challenge the employer in this regard.

Less than 15% of SA on medical aid

Commenting on overall trends in the 2021 report, CMS executive research and monitoring Michael Willie said medical scheme membership as a percentage of the population declined to 14.86% in 2021 from 16% in 2000, which is an indicator of the population having lower exposure to medical schemes.

Willie said the number of beneficiaries covered by medical schemes has remained stagnant in the past decade and has not surpassed the nine-million mark.

He said affordability is one of the key drivers of growth in medical aid membership.

Willie said total out-of-pocket payments by medical aid members increased by 23.2% in the six years from 2016 until 2021 (from R29.8 billion in 2016 to R36.8 billion in 2021).

He said the percentage increase in out-of-pocket payments by members of open schemes was 34.7% while that of restricted schemes was significantly lower at 17.6%.

The gap between the benefits paid by medical schemes and the out-of-pocket payments by scheme members has been growing in open schemes.

“We have to do something about it to reduce the financial burden on consumers,” he said.

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