Thousands of people who belong to medical aid schemes that do not comply with a government requirement that they hold 25 percent of their income in reserve could one day find themselves without cover, Patrick Masobe, the registrar of the Council for Medical Schemes, has warned.
Masobe said the more a scheme allowed its reserves to fall below the required level, the greater the risk to its members.
The reserves served as a buffer against unexpected losses and, if they were inadequate, a scheme might not be able to meet its commitments to its members, he said.
Rising hospital costs, and the higher administration and managed health-care expenses of some schemes, last year led to the emergency reserves of 18 schemes - insuring 64 percent of medical aid scheme members on open schemes - falling below the level required by law.
This set alarm bells ringing at the Council for Medical Schemes. Each of the schemes with insufficient reserves had to explain to the council how it intended to correct the situation.
Masobe said the number of medical aid schemes had decreased in the past two years because many of the smaller schemes had amalgamated with larger ones - and because the finances of some schemes had left them with no option but to close.
As the medical schemes experience pressure on their resources, their members are being forced to bear the brunt of increasing medical costs. Between 2002 and 2006, the average increases in members' contributions to medical schemes were consistently higher than the CPIX measure of inflation.
Masobe said regulations required that medical schemes that allowed their reserves to fall below the required level for 90 days to submit a report to the registrar for the reason for the such shortfall, and they had to explain how they planned to remedy the situation.
"We constantly work with medical schemes to ensure that they meet their solvency targets. All of them submit business plans aimed at achieving solvency. Many times we accept the plans. Sometimes we turn them down and ask for a reconsideration," he said.
"We agreed on a business plan with Discovery Health in this regard early in 2006, requiring the scheme to 21 percent of gross contributions by June this year, 23 percent by December this year and 25 percent by December next year.
Discovery sought to change these targets. We found this unacceptable, turned down their plan and asked for a reconsideration," Masobe said.
Discovery was given until July 11 to submit a new plan.
"Any notion that this somehow foreshadows some dramatic fight between the council and Discovery Health is not one that I share - in fact, we have worked well together on this issue over the past few years," Masobe said.
Masobe said the council closed down two schemes, Omnihealth and Eclipse, last year because they were not able to honour their members' claims. The council is in the process of shutting down Ellerines Medical Scheme.
Several schemes amalgamated last year, including Medical Expenses Distribution Society with Oxygen Medical Scheme, Protector Health with Bonitas Medical Aid, and Klerksdorp Medical Benefit Scheme with Medicover.
Free State Medical Aid Scheme was liquidated in January last year.
In 2005, there were at least three mergers and two closures. The council said several schemes were considerably below the required level of reserves, including Discovery Health, the country's biggest private medical-aid scheme.
He said that, as more people joined medical aid schemes, the schemes' administration costs should fall, but countering this would be the increase in payments made by the schemes as more elderly and sick people signed on.
Adrian Gore, the chief executive of Discovery Holdings, told The Sunday Independent that the debate was not about solvency and financial strength, but about technical requirements and compliance.
"The 25 percent reserve requirement is onerous for successful schemes but we will meet the target by December next year," he said.
Gore said 1 000 people were joining Discovery Health every day, the scheme was financially strong and it had the highest rating for a medical aid in the country.
"It is hard to get to the 25 percent level when you are growing at the rate we are, but we are set on achieving the target."
He said Discovery had R4-billion in reserves and there should be no cause for concern among its members.
James van Vught, the principal officer of Oxygen Medical Scheme, which has 225 000 members, said the scheme had submitted a business plan to the council on how it intended reaching the 25 percent solvency ratio.
He said that, in the event of major illness affecting a higher than normal number of its members, Oxygen would be able to continue to honour its claims because it had more than R300-million in reserve.
Van Vught said one of the priorities of his scheme was growth and this would put its solvency under pressure.
"But growth is non-negotiable. As the scheme grows, we will see a drop in our solvency ratio but not in the absolute value of our reserves.
"Oxygen and its preceding schemes have been around for more than 30 years and have never defaulted on a claim."