Medical schemes warned against use of reserves
The CMS clarified its position after calls, including by financial services company Khusa Consulting, for the release of billions of rand from medical schemes’ emergency reserves to help treat Covid-19 patients.
However, Dr Sipho Kabane, the registrar and chief executive of the CMS, said schemes whose reserves were below the 25percent threshold could not use reserve funds for Covid-19 claims. “If this is allowed, it will endanger the solvency of a scheme utilising such funds,” said Kabane.
Kabane said the CMS invited schemes to apply individually for the use of reserves. “There should be a clear understanding that the board of trustees oversee the proposals before they are sent to CMS for consideration. Second, the regulator will monitor the usage of those approved,” he said.
Kabane said reserves were funded from members’ contributions, and the primary purpose of a medical scheme was to cover members’ health-care expenses. Therefore, the interest of members was the priority when managing cash flows from reserves.
“The reserves, which are currently at R60 billion, also act as a buffer against unforeseen and adverse developments - whether from claims, expenses or adverse market conditions. When reserves, whose sources include retained surplus between contributions and claims, income from investments, over-payment recoveries and others, fall below the prescribed solvency ratio, this serves as a warning of a medical scheme’s potential inability to meet its obligations in the long term,” he said.
The CMS said it had implemented some interventions to cover Covid-19 medical-related claims. These included the declaration of Covid-19 as a clinical emergency and as a Prescribed Minimum Benefit, meaning that the coronavirus infection was funded in full, irrespective of benefit options.
It had published clinical guidelines to support implementation and funding decisions.
The CMS had extended the convening of annual general meetings by schemes until 90 calendar days after the lockdown. The organisation had also initiated a process to develop a framework for tariff and price negotiations on key goods and services.
“In general, the interest of medical scheme members has been held supreme in the assessment of the exemption applications, notwithstanding the exceptional circumstances presented by the pandemic,” he said.
“We appreciate that Covid-19 and the associated lockdown will result in many health-care service providers facing financial distress as a result of health services that are currently being undertaken by Covid-19. Indeed, keeping these practices alive ensures future access to care for medical scheme members,” Kabane said.
“What the proposal to use the R60bn reserves lacks is a societal benefit from a medical-scheme beneficiary perspective. How can equity be ensured between different service provider groups, and servicing patients from varying socio-economic profiles across different geographical areas?” he asked.
Kabane said service providers should avail themselves of government financial-relief programmes to ensure their sustainability. Relief by banks, insurers, and other financial institutions had been extended to individual professions; thus health-care providers are not limited in options.
“Therefore, if we allow the R60bn reserve funds to be used willy-nilly to treat Covid-19 patients, the interests of medical scheme members may not be protected in the short term, as this concession only serves the preservation for one side, that of the service providers,” said Kabane.