Medical schemes show huge jump in their operating profit to R1.55bn

By Laura Du Preez Time of article published Sep 4, 2014

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Laura du Preez Personal Finance

MEDICAL schemes collected R129.8 billion in contributions, paid out R112.9bn in health-care claims and ended the year on a high note with an overall operating surplus of R1.55bn.

That was well up on the R29 million surplus at the end of 2012, according to the latest annual report of the Council for Medical Schemes.

But while the good operating results also boosted schemes’ solvency ratios, growth in membership slowed to just 1.1 percent last year and if it was not for growth in the membership of the country’s two largest medical schemes, the number of lives covered by schemes would have declined.

The low growth was a bit of a concern to the council, as schemes relied on growth among younger medical scheme members to sustain their risk pools, Dr Anton de Villiers, the head of research and monitoring at the Council for Medical Schemes, said.

A trend of lower growth in younger lives covered will affect schemes in future as health-care claims rise with the rising age of the lives covered by schemes.

Last year’s growth in lives covered was still enough to decrease the average age of beneficiaries covered by schemes but only slightly. The average age decreased to 31.9 years last year from 32 years at the end of 2012.

While schemes keep an eye on the membership trends and their effect on claims, last year’s good results could positively affect the contribution increases that financially healthy schemes put through for next year. Schemes are likely to start announcing their increases later this month.

The council’s annual report showed that after the inclusion of investment income, schemes collectively showed a 42.3 percent increase in their net surplus to R5.3bn. This translated into an increase in scheme reserves, pushing the overall reserves as a percentage of contributions, or solvency, of all schemes to 33.3 percent at the end of 2013 from 32.6 percent at the end of 2012.

Schemes are required by law to hold 25 percent of their contributions in reserve.

Tebogo Maziya, the head of financial supervision at the Council for Medical Schemes, said the reason schemes had a good year was the rate of contribution increases for 2013 was higher than the increase in claims.

Overall contributions collected increased by 10.4 percent over the course of last year, while total expenditure by medical schemes increased by 8.9 percent, the report showed.

On a per beneficiary level, expenditure on claims rose just 7.1 percent last year, she said.

Maziya said the council was of the view that contributions for 2013 were adjusted for the higher claims ratios experienced in 2012.

Last year schemes spent 35.3 percent of their health-care expenditure on hospital services (state hospitals included), but expenditure on private hospitals decreased slightly in real terms to R39.4bn in 2013 from R39.7 billion in 2012, the council said yesterday.

It said last year was the first year since 2005 in which there was no significant increase in expenditure paid by schemes to hospitals.

“While we are investigating reasons for this unexpected trend, initial indications are that private hospital admissions for expensive treatment such as renal dialysis, PET scans, angiograms, outpatient visits, bone density scans and MRI scans as well as births per 1 000 females declined,” Daniel Lehutjo, the acting chief executive officer and registrar of the Council for Medical Schemes, said.

De Villiers said the council would like to believe that the lower hospital costs were a result of managed care entities that schemes have contracted with to ensure health-care expenditure was appropriate and offered value for money.

The council had embarked on a project that would in future see managed care entities measuring the value they provided to schemes, he said.

Medical scheme payments to medical specialists increased again last year, with an 8.4 percent increase in real terms to R27.5bn last year from R25.4bn spent in 2012.

De Villiers also noted that the most significant increase in health-care benefits paid was for support and allied health professionals, such as laboratory technologists, physiotherapists and psychologists.

The council said the amount paid to these health-care providers increased by 19 percent from R7.9bn in 2012 to R9.4bn in 2013.

This category accounted for 8.4 percent of all benefits paid by schemes last year.

The annual report showed that the number of people who enjoyed health-care cover through medical schemes grew from 8.6 million at the end of 2012 to 8.7 million lives at the end of 2013.

However, the growth in membership of the country’s second-largest medical scheme, the Government Employees Medical Scheme (Gems), slowed. This resulted in virtually flat year-on-year growth (0.2 percent) in the number of lives covered by restricted schemes to 3.9 million members. Restricted schemes offer membership to employer or industry groups.

If Gems were excluded, the number of beneficiaries covered by restricted schemes would have declined 1.6 percent, De Villiers said.

Gems has grown strongly from no members when it opened its doors in 2006 to 1.85 million beneficiaries at the end of last year. It continued to grow but at a slower 2.3 percent rate last year.

The growth in membership of all open medical schemes – schemes that must admit anyone – exceeded that of restricted schemes for the 2013 year, as open schemes’ increased their number of beneficiaries by 1.8 percent to 4.8 million lives.

However, if the growth in membership of the country’s largest medical scheme, Discovery Health Medical Scheme, were excluded, the average membership of open medical schemes would have declined by 0.4 percent, De Villiers said.

Discovery Health Medical Scheme grew 3.9 percent last year to 2.5 million beneficiaries.

The annual report showed that consolidation among medical schemes continued its decade-long trend, with the number of schemes dropping from 133 at the end of 2004 to 93 at the end of 2012 and 87 at the end of last year.

Five restricted schemes and one open scheme were merged or closed last year, bringing the number of restricted medical schemes to 63 and open schemes to 24, the annual report showed.

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