Discovery Health Medical Scheme (DHMS) is refusing to accept members of the ailing Transmed medical scheme who want to join the largest open scheme in South Africa.
DHMS alleges that Transnet, Transmed and healthcare brokers Aon are conspiring to bankrupt Discovery by encouraging the wholesale transfer of Transmed members to the scheme. This, Discovery says, will have a detrimental impact on DHMS and its current members.
DHMS told a recent hearing of the Council for Medical Schemes’s Appeal Committee that Transnet and Transmed, on the advice of Aon, had decided to close a low-cost option on Transmed – the Ubuntu option – in 2009, and this has resulted in a flood of older Transmed members wanting to join Discovery’s low-cost KeyCare plans.
A ruling by the Appeal Committee last month reveals that DHMS is of the view that it is, in effect, being forced to take on the Transmed members after both DHMS and the Government Employees Medical Scheme declined offers to merge with Transmed (see “The older members nobody wants”, below).
According to the ruling, DHMS says the effects of allowing many former Transmed members to join KeyCare will be:
* An increase in the contribution rates on the KeyCare plans;
* A reduction in the scheme’s solvency ratio (its reserves as a percentage of its contribution income) over time; and
* A threat to the scheme’s ability to meet its liabilities to members on all its plans.
The Appeal Committee dismissed DHMS’s argument that the alleged conspiracy poses a systemic risk to the scheme of more than 2.3 million beneficiaries (principal members and dependants), and it ordered Discovery to admit a Transmed member who had applied to join DHMS.
The Medical Schemes Act obliges open schemes to admit anyone who wants to join, whereas restricted schemes are entitled to limit their membership to a group, such as the employees of a company.
Milton Streak, principal officer of DHMS, says the scheme will appeal against the Appeal Committee’s ruling to the Appeal Board of the Council for Medical Schemes.
Last month, DHMS rejected another Transmed member who tried to switch to Discovery after his benefits on Transmed’s top option were cut (see “Transmed cuts benefits on top option”, below).
In response, Dr Monwabisi Gantsho, Registrar of Medical Schemes, says his office will not tolerate any form of discrimination against medical scheme members .
Gantsho says his office remains committed to protecting members and ensuring the long-term sustainability of the industry. The Council for Medical Schemes put Transmed under financial monitoring in 2009, after its reserves fell from 61 percent to 42 percent in 2008. At the end of 2011, Transmed had reserves of 9.5 percent, whereas it is required by law to hold 25 percent of its contribution income in reserve.
Transmed has about 136 000 beneficiaries, and its ratio of pensioners to beneficiaries under the age of 65 is 22 percent, according the Council for Medical Schemes’s 2011/12 annual report. The average pensioner ratio for both open and restricted schemes is 6.6 percent, and DHMS has a lower-than-average pensioner ratio of 6.3 percent.
The Ubuntu option had about 20 000 lives at the end of 2008 and a pensioner ratio of 11.6 percent, according to the council’s 2009/10 annual report.
Transmed principal officer Petrus Wasserman says the board of trustees decided to close the Ubuntu option after PrimeCure, which provided primary health services to members on the option for a set fee, terminated the agreement.
The decision to close the option was approved by the Registrar of Medical Schemes, Wasserman says. Aon was not involved in the decision, he says.
When Ubuntu closed, members had a choice of moving to a cheaper option with fewer benefits or to a more expensive one with more comprehensive cover.
However, according to Andre Jacobs, head of healthcare at Aon Hewitt, at about that time Transnet employees negotiated the right to receive a medical scheme subsidy from their employer and belong to not only Transmed but also to one of five open schemes, including DHMS.
According to the Appeal Committee’s ruling, DHMS says it then received 2 500 membership applications from Transmed members, mainly for its KeyCare options. It denied them membership.
Aon lodged a complaint with the Council for Medical Schemes on behalf of one of the members whom DHMS rejected, Mrs M. Her complaint was the subject of the Appeal Committee’s ruling last month.
Jacobs denies there was a conspiracy and says Aon was engaged to advise members and not to advise Transmed or Transnet on the design of the scheme’s benefits.
Aon’s advice to Mrs M to complain to the council was in her best interests, because DHMS had denied her the right to join an open medical scheme, he says.
Jacobs says he has four more complaints with the council from Transmed members who have been denied membership by DHMS.
The Appeal Committee’s ruling says Transnet denied the conspiracy charge, and Gantsho told the committee he found no evidence of one.
“The registrar did not deal with issues pertaining to systemic risk posed by an avalanche of membership applications to Discovery by Transmed members or a category of such members,” the committee’s ruling says. “It appears that no evidence of such systemic risk was presented to him for consideration and determination.”
The ruling went on to say that the Appeal Committee could not have dealt with this issue unless it had already been the subject of a decision by the registrar: the committee could only review the registrar’s decision on the complaint.
It also says there are remedies in the Medical Schemes Act for the “mischief” alleged by DHMS. If the scheme is concerned about systemic risk, it can ask the registrar to take action as provided for by the Act.
Streak says DHMS’s concern is that an influx of members from Transmed will have the effect of unfairly transferring the risk and liability for these members from Transmed and Transnet to DHMS and its current members.
In several documents sent to the registrar, Transmed itself has demonstrated the risks its members pose, Streak says, and for this reason DHMS will appeal against the Appeal Committee’s decision.
THE OLDER MEMBERS NOBODY WANTS
In an attempt to solve the financial problems of its restricted medical scheme, Transnet has unsuccessfully looked for schemes with which Transmed can merge and has tried to encourage pensioner members to leave the scheme.
Transnet believes that only Discovery Health Medical Scheme (DHMS) and the Government Employees Medical Scheme (Gems) are big enough to absorb Transmed and its large number of pensioner members, according to a Council for Medical Schemes Appeal Committee ruling against DHMS for denying membership to a Transmed member who wanted to switch to DHMS.
Transnet approached DHMS in 2008, but DHMS declined the merger on the grounds that it would be detrimental to the open scheme, the ruling says.
Gems, which has more than 1.6 million principal members and dependants, also apparently declined to merge with Transmed.
Gems subsequently attempted to amend its rules to exclude certain employer groups within the public sector but was denied permission to do so. Both the Registrar of Medical Schemes and the Council for Medical Schemes’s Appeal Board argued that the rule change would contravene the Medical Schemes Act.
Gems has been struggling to build up the reserves it is by law required to hold, because its membership has grown rapidly since its launch in 2006.
In April 2009, Transnet attempted to offer certain pensioners on Transmed a cash subsidy that would have enabled them to join an open scheme of their choice. These pensioners are all former South African Transport Services (SATS) employees who retired before 1990. Transnet is subsidising their contributions for the Guardian option only.
In 2009, there were 26 000 former SATS members on the Guardian option, with an average age of more than 76. At the end of last year, 19 600 pensioner members were on the Guardian option.
However, Transnet withdrew the subsidy proposal when the office of the Registrar of Medical Schemes, said the pensioners could not be ring-fenced in a single option under the new subsidy structure.
Negotiations between Transmed, Gems and the registrar’s office are continuing.
TRANSMED CUTS BENEFITS ON TOP OPTION
Transmed members on the scheme’s top option were informed in late August that, as of this month, the option would no longer offer private hospital cover for elective procedures.
To avoid closing the option, the Private Network Saver Plan, or imposing a mid-year contribution increase, the trustees decided to restrict private hospital cover to the prescribed minimum benefits (PMBs), a letter sent to Mr D, a member on the option, says.
The PMBs cover all medical emergencies, some 270 life-threatening conditions and 25 common chronic conditions.
According to the letter, there is a very high utilisation of major medical benefits on the option.
Mr D says the changes introduced from this month significantly alter the cover he enjoys and he cannot access more comprehensive cover on Transmed, because the Private Network Saver Plan is the scheme’s top option.
Mr D says he has taken out an insurance policy to top up his Transmed benefits, but he is still not adequately covered, because the policy excludes cover for any procedure not covered by his medical scheme.
Mr D’s broker advised him to join Discovery Health Medical Scheme (DHMS), but, despite a protracted interaction with the scheme, DHMS remains resolute that it will not accept any Transmed members.
Petrus Wasserman, principal officer of Transmed, says the measures introduced on the Private Network Saver Plan are part of a business plan that Transmed has submitted to the Council for Medical Schemes to get the scheme’s reserves up to the required level.
The business plan, which takes into account the membership losses Transmed has suffered, will get the scheme back to the required 25-percent reserve level by December 2014, he says.