Londiwe Buthelezi

HIGH medical inflation and regulated contribution increases are affecting the solvency levels of medical schemes. The overall solvency ratio of all registered schemes fell to 30.3 percent in September from the audited solvency level of 31.6 percent at the end of 2010, the quarterly report of the Council for Medical Schemes (CMS) showed.

Although the current levels were well ahead of the required minimum level of 25 percent, as per regulation 29 of the Medical Schemes Act, solvency ratios have shown a constantly declining trend over the past seven years, sliding from 39.1 percent in December 2005.

The CMS said the decrease was mostly attributable to the benefit designs and seasonality of claims patterns and the fact that solvency was calculated on annualised gross contributions.

But PwC’s medical scheme analyst said the decline in solvency ratios since 2006 was particularly evident in the restricted schemes, which declined from 65 percent to the current 34.9 percent.

The source said in her experience this was mainly due to the conscious decision by schemes to utilise their reserves in order to keep contribution increases lower. “Otherwise (it) would be due to realised investment returns coming under pressure in the wake of what has been happening in the markets,” the source said.

She said another large contributor was that health-care cost inflation had been higher than growth in the consumer price index for some time.

“Medical scheme contribution rate increases also have to be approved by the Council for Medical Schemes on an annual basis, and the rate increases suggested by the schemes are not always approved.”

The CMS said the solvency level in September was still 3.2 percent higher than the expected solvency level of 29.4 percent for the same period. Open schemes had lower solvency levels at 27.2 percent, compared with the 34.9 percent of restricted schemes.

The CMS report shows that restricted schemes have always been noticeably ahead of open schemes but restricted schemes have fallen sharply from 2006.

In September nine open schemes failed to meet the prescribed solvency level of 25 percent and they represent 60.1 percent of the total open schemes’ beneficiaries. In 2010, 12 open schemes fell short. Only six restricted schemes were below 25 percent.

The report also showed that although the total number of beneficiaries rose by 1.9 percent, the number of beneficiaries on open schemes had decreased slightly to 4.67 million compared to 4.8 million.

Restricted schemes, on the other hand, gained new beneficiaries and had 3.7 million in 2011 compared with 3.5 million in 2010.

A study conducted by the CMS in 2011 on member movement noted that open schemes experienced a significant loss of membership in recent years while restricted schemes gained some. It also showed that the average family contribution in restricted schemes was 11.5 percent lower than in open schemes.

But Thulani Matsebula, the head of research and monitoring at the CMS, said the growth in numbers of beneficiaries in restricted schemes was almost exclusively explained by growth of the Government Employees Medical Scheme.

The CMS said the schemes’ gross contribution income grew to R79.5 billion in the period from R72bn in September 2010.

However, this was 1.2 percent below the budgeted R80.5bn. The gross contribution per average beneficiary per month was R1 065.3, 9.2 percent higher than R975.3 in 2010.

But the relevant health-care ratio decreased to 88.4 percent because of increased non-health expenditure, which totalled R8.95bn, compared with R8.52bn a year earlier.