Bigger is not always better
When choosing a medical scheme, look at the solvency ratio, not the size of the scheme
WITH the cost of medical schemes rising every year, many people must be wondering whether their affiliation is still worth their while.
Brian Watson, executive at Genesis Medical Scheme, said there is a perception among South Africans that being a member of a bigger medical scheme is better.
“This simple deduction is untrue. It is the solvency ratio and the ability of a medical scheme to pay its members’ medical bills that matter. A ‘smaller’ medical scheme with higher reserves may in fact be ‘bigger’ than a larger scheme with lower reserves.”
Dr Jonathan Broomberg, CEO of the company that administers Discovery Health Medical Scheme, recently made allegations against Genesis on national radio, saying that in 2012, Discovery’s top 100 claims would have wiped out Genesis Medical Scheme.
Watson said that the Medical Schemes Act requires medical schemes to have reserves of at least 25% of the total contributions paid by members in a year.
“The higher the solvency ratio, the greater the ability of the scheme to pay its members’ claims,” he said.
“A mediumsized medical scheme like Genesis had, at the end of 2012, some R256 million in reserves. It insures around 20 000 lives and would therefore have about R12 692 per beneficiary in reserves to pay claims. All open medical schemes in South Africa maintained an average of only R4 192 in reserves per beneficiary,” said Watson.
In Broomberg’s argument, he compared the financial reserves Genesis Medical Scheme had at the end of 2012 to the top 100 claims made by Discovery members the same year, and said that if Genesis had received these 100 claims, the medical scheme would have been “finished”.
In response, Watson said the claims have no statistical basis.
“On the basis that 100 claims would wipe out Genesis, each claim would have an average amount of R2,56 million. Genesis insures 20 000 lives and accordingly, 100 of these lives equal 0,5% of the total lives insured. Discovery insures around 2,4 million lives and if 0,5% of the total submitted claims equalled R2,56 million each, Discovery would have to pay R31 billion.
“This is nearly four times the sum of money the scheme had in reserves at the end of 2012.
“Many industry players may debate this point, but there can be no debate around a mathematical certainty,” said Watson.
He said a study by actuarial firm Towers Watson shows that there is no correlation between the average incidence of large hospital claims and the size of a medical scheme.
What this means is that the chance of Genesis registering claims of R256 million in any year is the same as the chance of Discovery registering claims of R31 billion. Based on this study, an extremely bad year for Genesis, which may only occur once every century, might result in large claims of R11 million, or only four percent of the scheme’s reserves.
In its Circular 4 of 2013, the Council for Medical Schemes said there is no proven benefit for members who belong to big medical schemes — in terms of lower costs as a result of economies of scale.
Access to affordable health care is an essential many South Africans cannot live without. When membership cost increases are in excess of the CPI, it can create affordability challenges for members. “By looking out for value and sustainability, as opposed to being fixated on the size of the medical scheme, South Africans can comfortably afford the benefits of quality health care,” said Watson. — Business Editor.
Genesis Medical Scheme executive Brian Watson.