Medical schemes had a good year financially in 2011 and have reached a new level of financial soundness, the regulator of schemes has reported. This is despite steep escalations in the cost of claims paid by schemes, especially those for hospital and specialist treatment.
Last year was again a year in which members faced above-inflation contribution increases, and there are few indications that the factors that are contributing to these stiff increases are abating.
What medical schemes collected from you in contributions exceeded, by R1 billion, what they paid in claims on your behalf, and this, together with investment income, resulted in schemes recording an average net surplus of R4.3 billion last year, the Council for Medical Schemes’s annual report for 2011/12 released this week shows.
The total reserves that schemes hold as protection against times when they may incur high claims rose by 13.9 percent to R35 billion.
As a result of these good results, the average solvency ratio of all schemes – their reserves as a percentage of contribution income – increased by 2.5 percentage points to 32.6 percent. This is well above the solvency ratio of 25 percent of contributions that medical schemes are required by law to maintain.
Dr Monwabisi Gantsho, Registrar of Medical Schemes, says although medical schemes have to provide you with certain minimum benefits – and some schemes say these benefits are pushing up the cost of your contributions – the medical scheme industry has been performing better than ever, and schemes have reached a new level of financial soundness.
“The industry has never been as stable and sustainable as it is now,” Gantsho says.
But the registrar’s comments may mean less to you, the medical scheme member, who saw your contributions increase by an average of 8.9 percent last year. Inflation, as measured by the consumer price index (CPI), was 6.1 percent for the year to the end of December 2011.
Members of open medical schemes (which must admit anyone as a member) had a higher average increase of 9.2 percent, while restricted schemes (which limit membership to certain groups or employees) had a lower average increase of 8.4 percent. The average family contribution to a restricted scheme is 12 percent lower than to an open scheme, according to the council’s annual report.
The annual report notes that from 2001 to 2011 the average difference between the increase in contributions and CPI was in the region of 3.9 percent, which is higher than the increase of CPI plus three percent recommended by the registrar’s office. The trend of a CPI plus 3.9-percent increase “has implications for the long-term affordability of the medical schemes industry, as increases in salaries may not necessarily be able to keep pace with contribution increases”, Gantsho notes in his report.
Although the financial health of schemes may be good, the annual report also contains information that suggests the pressure on your contributions is unlikely to ease soon.
R56 MILLION PAID TO TRUSTEES
Medical schemes spent R56 million paying their trustees, of which R37.8 million was paid to trustees of open schemes.
The Council for Medical Schemes’s annual report for 2011/12 shows that the highest fees for 2011 – R6.3 million, or R703 000 a trustee – were paid to the nine trustees of Liberty Medical Scheme.
The second-highest fees – R4.6 million, or R422 000 a trustee – were paid to Medshield Medical Scheme’s 11 trustees. These fees were higher than those paid by the country’s two largest schemes: Discovery Health Medical Scheme paid its nine trustees R2.3 million, or R257 000 a trustee, while the Government Employees Medical Scheme paid its 15 trustees R3.5 million, or R234 000 a trustee.
Both Liberty and Medshield incurred operating losses for the year to the end of 2011, and they were both named by the council as schemes with high marketing, advertising and broker fees.
FINANCES AT GLANCE
The Council for Medical Schemes’s annual report for 2011/12 shows that: