Methealth paid OpenPlan medical scheme R38 million in compensation for maladministration which forced the scheme to increase member contributions.
Publiserve, the medical scheme that was liquidated in July last year, was not the only victim of bad administration by Metropolitan Health (Met-health). OpenPlan, a large open scheme, has received R38 million in compensation from Methealth for maladministration.
Payments of R26 million and R12 million were made for the years 2000 and 2001 respectively, according to the minutes of OpenPlan's annual general meeting last year.
Elise Delport, the chairperson of OpenPlan's board of trustees, says the payments covered a number of short-comings, including the accounting of savings account balances for members on these options, and reporting on the scheme's finances, on which the trustees based their decisions about contributions and benefits.
Delport says the maladministration, together with other factors, affected OpenPlan's reserve levels - the scheme's reserves have for the past two years been way behind the statutory required levels. For this reason, OpenPlan had to implement interim increases of 10 percent on six of its nine options on September 1 last year. Following this the scheme lost a lot of members - a major portion of the approximately 35 000 members who left the scheme over a year.
In addition, R92 million in reserves that two other medical schemes, SAKAV and PIMAS, handed over to OpenPlan when they amalgamated with it in 2000, were depleted in a year in which the scheme had an operating loss of R109 million. (See We're doing our best, say OpenPlan trustees)
Blum Khan, the new chief executive of the Metropolitan Health Group, of which Methealth is a subsidiary, would not comment on the payments, saying they were subject to a confidentiality agreement.
By the end of 2000, OpenPlan had reserves of 1.46 percent of contributions. By law it should have had 10 percent.
At the end of last year, its reserves were at 2.3 percent, when the statutory requirement was 13.5 percent. Delport says the scheme's reserves are currently just under seven percent (although an interim figure such as this can be misleading because solvency levels should be based on contributions for the full year).
Delport says the trustees hope to achieve a level of at least 12 percent by the end 2002, when the reserves should be at 17.5 percent.
Delport says the scheme swallowed some bitter medicine in 2001 when it introduced interim increases, but now the scheme is on the right track and did not need to implement interim increases this year, despite the fact that at least nine other open schemes have done so.
OpenPlan has also been in regular contact with Patrick Masobe, the Registrar of Medical Schemes, and is working with him and the Council for Medical Schemes on a business plan to raise the scheme's reserves to the required levels.
Delport says the R38 million in compensation paid by Methealth did not restore the scheme's reserves to the appropriate levels, but the trustees considered the payment to be a fair and reasonable settlement.
She says it would have been very difficult to prove what the scheme's reserve levels would have been had there not been any maladministration or amalgamations.
The trustees did reconsider their administration contract with Metropolitan, Delport says, but decided that it is not that easy to change administrators and that none of the big administrators appeared to have a perfect administrative record.
She also says that Methealth has been administering OpenPlan since 1997 and much of the mess was historical. In 2000, Metropolitan bought Newmed, the administrator of Bank-med, a large restricted scheme in the banking sector. In January last year, Newmed and Methealth were put under a new umbrella structure, the Metropolitan Health Group.
Instead of switching administrators, OpenPlan's trustees have decided to tighten up their administration agreement with Methealth and to ensure that service levels are adhered to strictly, Delport says.
She says if the scheme has problems with its administrator again it will consider self-administration. However, the trustees currently enjoy a good relationship with Methealth.
In 2000, OpenPlan also wrote off bad debts of R20 million. Delport says part of this was a result of bad administration and some compensation was received for this.
The scheme now has a very strict policy on debts owed by both employers and individuals. Also in 2000, Delport's annual report notes that brokers were paid commissions in excess of the three percent allowed in terms of the Medical Schemes Act. In addition, some of those brokers were not accredited in terms of the Act.
Methealth recently agreed to pay up to R10 million to the liquidator of Publiserve medical scheme. This followed a public enquiry held under section 417 of the Companies Act into the cause the Publiserve's collapse.
The enquiry heard evidence of how Methealth made irregular payments to broker companies on the scheme's behalf, and how Methealth had failed to keep the trustees informed of the scheme's financial status, and at times even provided inaccurate information to the trustees.
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Patrick Masobe, the Registrar of Medical Schemes, and OmniHealth have agreed to cut the costs of the medical scheme's administration in order to help the scheme meet its solvency levels - currently at 1.7 percent of contributions.
Masobe's office said that contribution increases, of which OmniHealth has had five in the past two years, and benefit reductions would not solve the scheme's solvency problems.
Masobe also said he had ordered an inspection into Topmed and Selfmed, both of which are at the centre of a dispute between two administrators.
- For more on Methealth and medical scheme issues, see: We're doing our best, say OpenPlan trustees and Members happy with schemes' service levels - survey and Consumers clueless about medical scheme legislation