Medical aid sector stable despite challenges
SA’s medical schemes industry remains stable despite the challenges it faces, according to financial services group Alexforbes’ latest analysis.
It compiled a sustainability index for the top-10 open and top-10 restricted schemes, which ranks Discovery Health Medical Scheme highest among the open schemes, followed by Bestmed, while LA Health was the top restricted scheme, followed by the Government Employees Medical Scheme (GEMS).
Restricted schemes are limited to employer or professional groups, while open schemes will enrol anyone who can afford their premiums.
The index includes factors such as the relative size of the scheme, the average age of its beneficiaries, and its solvency ratio.
While many medical schemes had deliberately run up an operating deficit in 2022 as they drew down on reserves accumulated during the Covid19 pandemic, some schemes had experienced a higher than anticipated increase in claims in 2022, which necessitated steeper contribution increases in 2024 Alexforbes branch head for technical and actuarial consulting solutions, Paresh Prema said.
“Contribution increases always lag: you only see the impact of a more difficult year two years later, and we are seeing schemes correcting [now] for 2022,” he said.
The 2024 contribution increases for the 10 open schemes ranged from 6.9% to 16%, which were relatively high compared to the increases announced during the pandemic. A total of 16 of the 20 schemes included in the analysis did not have sufficient contribution income to cover claims and expenses in full, meaning they ran at an operating loss in 2022. They used investment income and reserves in some cases, to subsidise the costs incurred. Of these 16 schemes, 12 schemes did not have sufficient investment income, resulting in a negative net result for the year, concludes the Alexforbes analysis.
Based on data published by the Council for Medical Schemes, the analysis shows that open schemes grew their principal membership by 1.2% between 2021 and 2022, while restricted schemes grew their principal membership by 1.1%.
Medical scheme membership is a function of employment, and thus modest growth was in line with SA’s weak GDP, said Prema.
Growth was largely driven by increased membership of Discovery and GEMS.
On average, restricted schemes maintained higher solvency levels than open schemes. In 2020, the average solvency for all schemes increased significantly because of the large surpluses resulting from Covid-19.
In 2022, the average solvency for all medical schemes increased to 47.2% from 46.7% in 2021, and from 44.6% in 2020. The solvency level for open schemes decreased from 39.6% in 2021 to 38.0% in 2022, while the overall solvency level for restricted schemes increased from 56.2% in 2021 to 59.5% in 2022.
The solvency ratio is a measure of a schemes financial health and is the ratio of reserves to annualised contribution income. The Medical Schemes Act requires all schemes to have a solvency ratio of at least 25%.