Medical schemes regulator engages other schemes to help affected Health Squared members

In the wake of news around the pending liquidation of Health Squared Medical Scheme, the Council for Medical Schemes (CMS) confirmed on Tuesday that it is in talks with seven other medical schemes to take on affected Health Squared members.

“These medical schemes are in discussions with CMS to consider options for Health Squared Medical Scheme members while ensuring their members are not unduly disadvantaged,” the council said on Tuesday.

Read: Health Squared Medical Scheme applies to be wound up

The CMS said it has taken this action to protect the interests of members of Health Squared.

It encouraged Health Squared members “to avoid panic-inspired movements that might leave them worse off” while CMS engages with the other medical schemes to find a workable solution.

“All the parties in these engagements are conscious of the urgency of the matter and will endeavour to assist the regulator in finding a solution that is also in the best interests of their respective schemes, its current membership and as duly mandated by their Board of Trustees,” it said.

Health Squared Medical Scheme was formed in 2018 through the amalgamation of two long-standing medical aid providers, Resolution Health and Spectramed.

According to Independent Financial Consultants (IFC), Health Squared has 48 000 members.

Winding up

Health Squared Medical Scheme lodged an application in the High Court in Johannesburg on 18 August 2022 in terms of Section 51 of the Medical Schemes Act (131 of 1998) for leave to apply for the voluntary winding up of the scheme in the interest of its members.

It notified its members about the planned winding up of the scheme late on Friday afternoon via a SMS with a link to a Health Squared Medical Scheme statement and a copy of its High Court notice of motion related to the winding up of the scheme effective from 1 September 2022.

In its statement on Tuesday, the CMS added that it will keep Health Squared members and the public informed of further developments.

It will also continue to exercise statutory oversight on the affairs of medical schemes “in general, to ensure that members’ interests are protected at all times”.

However, the CMS failed to respond to or address a number of issues and questions posed by Moneyweb.

These included:

• What will the CMS be doing to assist Health Squared Medical Scheme members to get their new medical aid schemes to waive the normal three-month waiting period before new members can submit claims?

• Will the CMS, which is cited as a respondent to the High Court application, be opposing or supporting Health Squared’s application for leave to wind up the scheme and, if so, on what basis?

• Is the CMS aware of any other medical schemes that are experiencing financial difficulties and/or whose solvency ratio is below the legislated 25 – and if so, what are the names of these schemes?

• What action is being taken by CMS to assist medical schemes to improve their solvency ratios, which may have been impacted by the Covid-19 pandemic?

Health Squared claims high Covid-19 claims expenditure was the primary driver of the financial deterioration of the scheme during 2020 and 2021, with the scheme particularly impacted relative to medical scheme industry norms due to its older than average age profile.

Other factors were a considerable loss of members in recent times and a worse than expected claims experience in 2021 and 2022.

Solvency

Health Squared said the combined effect of these factors is that the scheme’s solvency ratio, the ratio used to measure a scheme’s reserves available to meet claims, has suffered a significant and relentless decline despite numerous remedial interventions.

The medical aid scheme noted that its solvency ratio is projected by the scheme’s actuaries to be between 0.2% and 2.3% at the scheme’s 2022 year-end and was at about 2.15% at the end of July 2022 after being at 17.32% a the end of 2020.

The letter to its members said Health Squared has pursued various options to avoid a winding up, including proposed amalgamation transactions with various other schemes, but these discussions have been unsuccessful.

It advised members “to seriously consider taking steps to secure new membership at other medical schemes with effect from September 1 2022”.

Health Squared added that it will use its best endeavours to assist members in the period leading up to 31 August 2022 by providing information necessary for them to apply for membership at new medical schemes, including the issuing of membership certificates.

The High Court application by Health Squared Medical Scheme for leave to file a winding up application will be heard on 30 August 2022.

It said the effect of the winding up application “is that with effect from September 1 2022 the scheme will no longer be conducting the business of a medical scheme”.