Insurance / 13 December 2019, 11:00am / Alexander Forbes Health
Medical schemes experienced a high claims ratio last year, with some of the largest schemes failing to break-even at an operational level, says Roshan Bhana, the head actuary at Alexander Forbes Health.
Bhana was commenting on key trends in the medical schemes industry from 2000 to last year identified in Alexander Forbes Health’s latest Diagnosis publication.
Only three of the top 10 open medical schemes achieved an operating surplus, while the rest had to rely on investment income and in some cases reserves to cover claims and expenses.
The open schemes industry generated an operating deficit of R1.33 billion last year, down from the operating surplus of R1.09bn in the prior year.
Bhana said operating results in the industry seemed to follow a cyclical pattern. “Medical schemes are non-profit organisations and rely on the surplus generated in prior years to subsidise adverse claims experience, which creates some variation in financial results from year to year.”
The increase in the claims ratio is one reason open scheme contributions increased well in excess of Consumer Price Index inflation this year, as it required schemes to budget for a worsening claims profile in their pricing.
The impact of fraud, waste and abuse on the claims trends cannot be measured, but should not be underestimated. As medical schemes are NPOs, abuse in the system directly impacts the cost members have to bear through additional contribution increases.
Restricted schemes fared more favourably by comparison, with six of the top 10 schemes achieving an operating surplus last year. The restricted scheme industry experienced a stable claims ratio from 2017 to 2018, on the back of which an operating surplus of R2.55bn was realised.
Despite this, members can be confident that the country’s largest schemes, both open and restricted, have sufficient reserves to pay their claims. This insight was drawn from the Alexander Forbes Health Medical Schemes Sustainability Index which tracks key performance metrics of medical schemes and aims to provide a comparative assessment of future sustainability between schemes.
The index is calculated from a base year of 2006.
“In the open schemes industry, the sustainability index for the top 10 schemes has improved from 2017 to 2018, mainly due to stability in the membership profile and growth in the level of reserves per beneficiary,” said Bhana.
Other key trends are:
* The number of medical schemes decreased from 80 to 79 during 2018.
* The number of principal members increased marginally by 0.7 percent from 2017 to 2018, compared with a growth of 0.5 percent from 2016 to 2017.
* The average age of beneficiaries decreased to 33.1 years at the end of 2018 (2017: 33.2 years), with the pensioner ratio increasing to 8.5 percent (2017: 8.4percent).
* The average family size has remained unchanged at 2.21 from 2017 to 2018.
“Overall, the profile of the industry remained stable and the financial position is sound despite another year of operating losses for many schemes.”