Initial analysis of how well South Africa’s medical schemes are performing in the restricted and open medical scheme environment indicates that the industry has made some recovery compared to the previous year despite ongoing pressure to improve financial performance.
This is “likely to see continued consolidation of medical schemes with a further reduction in their numbers going forward” says Roshan Bhana, Healthcare Actuary and Head of Technical and Actuarial Consulting Solutions (TACS) , a division of Alexander Forbes Health in Sandton.
While TACS is currently conducting a more detailed analysis of The Council for Medical Schemes’ recently released 2010/11 Annual Report, a review of the operations of medical schemes in 2010 highlights the following key statistics and trends.
The number of registered medical schemes has dropped from 110 in 2009 to 100 in 2010. This trend is expected to continue as more scheme amalgamations and liquidations are expected. In 2010, there were 27 open medical schemes and 73 restricted membership schemes.
The number of principal members increased at a slightly faster rate of 3.6% in 2010 compared to the 2.9% experienced in 2009. This translates into a total of 3,612,062 principal members in 2010 compared to 3,488,009 in 2009. Open scheme membership increased marginally by 1.3% while membership of restricted schemes increased by 7.1%. This growth was largely driven by GEMS (Government Employees Medical Scheme).
The average age of beneficiaries dropped slightly from 31.6 years in 2009 to 31.5 years in 2010. In addition, the pensioner ratio (proportion of beneficiaries 65 years and older) remained unchanged compared to the previous year at 6.5%. Open schemes showed a higher pensioner ratio at 7.5% compared to restricted schemes at 5.1%.
In 2010, medical schemes spent 11.3% more on healthcare benefits and collected 13.7% more in contributions than in 2009. Contributions increased to R R96.5 billion from R84.9 billion in 2009. Healthcare expenditure increased to R84.7 billion from R76.3 billion in 2009.
The risk claims ratio for all schemes decreased to 87.3% in 2010 from 89.3% in 2009. The claims ratio is the proportion of healthcare costs as a percentage of risk contributions.
Non-healthcare expenditure (NHE) includes administration, managed care costs, broker fees, distribution costs, bad debts and reinsurance costs. In 2010, total non-healthcare expenditure rose by 6.9% to R11.6 billion (R10.8 billion in 2009). In 2010, NHE as a proportion of gross contribution income was 14.3% for open schemes and 8.2% for restricted schemes.
The net healthcare result of a medical scheme shows its position after claims and non-healthcare expenditure are deducted from contribution income. The net healthcare result for all medical schemes combined was a deficit of R459.6 million in 2010, an improvement from a deficit of R2.6 billion in 2009. Open schemes incurred deficits of R0.5 billion (2009: R1.7 billion) and restricted schemes incurred deficits of R43.5 million (2009: R918.8 million deficit).
The inclusion of investment and other income resulted in schemes making a net surplus of R2.9 billion in 2010. Open schemes made a R1.3 billion surplus (2009: R0.3 billion) and restricted schemes made a surplus of R1.6 billion (2009: R0.7 billion). 33% of open schemes and 20% of restricted schemes made net deficits after investment income. In addition, Council notes that schemes are increasingly relying on investment income to balance their books.
The solvency ratio is the level of reserves (accumulated funds) that a medical scheme has in relation to its liabilities (claims and expenses). Regulation 29 of the Medical Schemes Act requires all medical schemes to maintain a minimum solvency level of 25%. In 2010 the average solvency for all medical schemes declined to 31.6% (2009: 32.9%). The solvency ratio of open medical schemes remained unchanged at 27.4% while that of restricted schemes declined to 38.4% in 2010 (2009: 42.5%).