THREE RE­STRICTED SCHEMES THE MOST LIKELY TO SUR­VIVE

Weekend Argus (Saturday Edition) - - PERSONALFINANCE -

Town Mu­nic­i­pal Work­ers’ As­so­ci­a­tion in 1952. Dis­cov­ery Health Med­i­cal Scheme was fourth over­all and the high­est-rated open scheme.

The de­tails of the in­dex are con­tained in the re­port “Di­ag­no­sis 2015/16” by Alexan­der Forbes health­care ac­tu­ar­ies Roshan Bhana and Ali­son Couni­han and se­nior ac­tu­ar­ial con­sul­tant Casper de Vries.

The re­port in­cludes an over­view of the med­i­cal scheme industry, which, the au­thors say, re­mains sta­ble and fi­nan­cially sound.

The av­er­age sol­vency (scheme re­serves as a per­cent­age of con­tri­bu­tions) at the end of 2014 was 33 per­cent, which was above the 25 per­cent re­quired by law. This was de­spite a no­tice­able de­te­ri­o­ra­tion in the industry’s op­er­at­ing re­sults, from a sur­plus of R1 551.78 mil­lion in 2013 to a deficit of R464.51 mil­lion in 2014.

A sur­plus arises when con­tri­bu­tions ex­ceed claims and non-health­care ex­penses. Op­er­at­ing re­sults are cycli­cal, with schemes ex­pe­ri­enc­ing good years and bad years, Alexan­der Forbes Health says.

The re­sults of the Med­i­cal Schemes Sus­tain­abil­ity In­dex should be in­ter­preted with cau­tion, be­cause only the top 10 open med­i­cal schemes (out of a to­tal of 23) and the top 10 re­stricted schemes (out of 60) are rated.

Fur­ther­more, the in­dex ranks med­i­cal schemes ac­cord­ing to cu­mu­la­tive scores on a range of quan­ti­ta­tive fac­tors and does not take qual­i­ta­tive fac­tors, such as ser­vice lev­els or ben­e­fits, into ac­count.

The in­dex at­tempts to an­a­lyse the col­lec­tive im­pact of th­ese key statis­tics on schemes and their abil­ity to sus­tain them­selves in the face of merg­ers.

The fac­tors that are taken into ac­count in­clude the size of a scheme rel­a­tive to that of the av­er­age open and closed scheme, mem­ber­ship growth, the change in the av­er­age age of ben­e­fi­cia­ries over time, the scheme’s op­er­at­ing re­sults rel­a­tive to the industry, and the change in op­er­at­ing re­sults per ben­e­fi­ciary each year.

Ad­di­tional fac­tors in­clude an anal­y­sis of the change in the scheme’s re­serves and the trends in the sol­vency lev­els of funds.

The big­gest in­creases in the in­dex for 2014 were ob­served for Sizwe, LA Health and Samwumed, which im­proved their 2013 scores by 21.9 per­cent, 18.1 per­cent and 23.3 per­cent re­spec­tively.

Alexan­der Forbes Health says al­though Polmed had a small op­er­at­ing deficit in 2014, it in­creased its re­serves and sol­vency level (re­serves as a per­cent­age of con­tri­bu­tions).

LA Health had a slight in­crease in its pos­i­tive op­er­at­ing re­sults and an in­crease in mem­ber­ship and the age pro­file of the scheme, the re­port says.

Samwumed’s score im­proved sig­nif­i­cantly. This was be­cause the size of the scheme in­creased, there was a “note­wor­thy im­prove­ment” in its op­er­at­ing re­sults dur­ing a gen­er­ally tough year, its re­serves in­creased sub­stan­tially and its sol­vency im­proved.

The re­port notes that Lib­erty Med­i­cal Scheme had the big­gest de­cline in its in­dex value. This was be­cause it had a sig­nif­i­cant op­er­at­ing deficit last year, and its re­serves and sol­vency ra­tio de­creased.

Transmed was ranked at the bot­tom of the in­dex. It con­tin­ued to lose ben­e­fi­cia­ries and had an op­er­at­ing and a net (af­ter in­vest­ment in­come) loss.

The “Di­ag­no­sis” re­port notes that the in­vest­ment strate­gies adopted by most med­i­cal schemes are too con­ser­va­tive. By law, schemes are al­lowed to in­vest up to 40 per­cent in eq­ui­ties, whereas the av­er­age eq­uity ex­po­sure is only about 18 per­cent.

Schemes could earn higher re­turns by in­vest­ing in riskier in­vest­ments. Th­ese re­turns could be passed on to mem­bers in the form of lower con­tri­bu­tion in­creases or en­hanced ben­e­fits, the re­port says.

The au­thors note that the con­sol­i­da­tion of schemes seems to be slow­ing, be­cause no amal­ga­ma­tions were an­nounced in 2015.

The re­port says the av­er­age ra­tio of claims paid to con­tri­bu­tions col­lected in­creased to 88.2 per­cent, up from 85.4 per­cent in 2013. A risk claims ra­tio of 85 per­cent is con­sid­ered sus­tain­able, the au­thors say.

Con­tri­bu­tions that are not spent on claims are used to pay non-health­care ex­penses and fund re­serves.

How­ever, the au­thors say the in­crease to 88.2 per­cent is not cause for alarm, be­cause gen­er­ally claims ra­tios have a two- or three-year cy­cle, with good years and bad years.

Data re­leased in the 2014/15 Coun­cil for Med­i­cal Schemes’s an­nual re­port shows there has been a slight in­crease in the av­er­age age of med­i­cal scheme mem­bers (from 31.9 years in 2013 to 32.1 years) and a slight in­crease in the ra­tio of pen­sioner mem­bers (those over 65) to to­tal mem­ber­ship. How­ever, fam­ily size has con­tin­ued to de­crease. The av­er­age fam­ily size was 2.25 in 2014, com­pared with 2.26 in 2013.

The au­thors say the dif­fer­ence be­tween the rate at which med­i­cal scheme con­tri­bu­tions are in­creas­ing and in­fla­tion, as mea­sured by the Con­sumer Price In­dex, has de­creased in re­cent years. This partly be­cause med­i­cal schemes have suc­ceeded in man­ag­ing the fees charged by health­care providers.

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