Medical schemes stronger as claims ratio falls
Medical schemes were in a relatively strong position at the end of 2017, with their claims ratio down to 88.7% from 92.1% in 2016, and they appear to be containing their non-healthcare expenditure. However, they face an ageing membership, with the average age of beneficiaries rising to 33.2 years (up from 32.1 years in 2014) and the average percentage of pensioners rising to 8.4% (7.3% in 2014).
These are some of the trends and statistics that emerge from the 2017 annual report of the Council for Medical Schemes (CMS), which was released last week.
The total number of schemes falling under the ambit of the CMS dropped from 82 to 80 in the 2017 financial year. Of these, 21 are restricted schemes, whose membership is restricted to certain companies or corporate sectors, and 59 are open schemes. Over the decade from 2007 to 2017, the number of schemes has dropped by about 25% (there were 122 schemes in 2007), signifying the ongoing consolidation of the industry.
The two largest schemes, the open Discovery Health Medical Scheme (Discovery) and the restricted Government Employees Medical Scheme (GEMS), account for 51% of all medical scheme beneficiaries (members and dependants) in South Africa. The total number of beneficiaries in 2017, according to the report, was 8872036 (slightly down from 8878081 in 2016). Of these, 18052687 belonged to GEMS and 2747898 to Discovery.
Schemes took in R179.82billion in contributions in 2017, of which total risk contributions amounted to R162.87bn. They paid out R160.6bn in healthcare benefits, either reimbursing you or paying service providers directly, including from medical savings accounts.
The amount paid out in risk benefits (the benefits that the bulk or all of your monthly contribution, the “risk” portion, covers) was R144.44bn, of which R79.2bn (55%) was for the prescribed minimum benefits, which all medical schemes are obliged to fund from the risk portion of your contribution.
As might be expected, open schemes, which are obliged by law to admit anyone (subject to waiting periods and late-joiner penalties), have a higher proportion of older people (who require more in benefits) than restricted schemes. In open schemes, the average age at the end of 2017 was 34.8 years, and the pensioner ratio was 10%. In restricted schemes, the average age was 31 years, and 6.5% of their beneficiaries were pensioners.
Contribution and claims trends
Adjusting for Consumer Price Index (CPI) inflation to 2017 prices, the report shows how contributions and claims have outpaced CPI since 2000. In 2000, each beneficiary contributed, on average, R11 827 a year (at 2017’s rand value) to a medical scheme. This almost doubled, to R20341, in 2017. Likewise, claims rose from R10 555 in 2000 to R18 163 in 2017. However, non-healthcare expenditure has not risen commensurately, rising from R1594 per beneficiary to R1698. In fact, it dropped from a high point of R2 408 in 2005.
Of the gross healthcare expenditure of R160.6bn, R59bn (36.8%) was for hospitals, R38.5bn (23.9%) was for medical specialists, and R25.81bn (16.1%) was for out-of-hospital medicines. The highest-paid health-care providers were anaesthetists, at R3131 per event, while the lowest paid were general practitioners, at R390 per event.
Concerns have been raised in the healthcare sector about the high number of Caesarian sections performed, and this is borne out by the CMS statistics: Caesarian sections accounted for 590 out of every 1000 birth admissions to hospitals in 2017 (up from 575.8 in 2016).
Further concerning health trends are the increase in prevalence of adult-onset (type-2) diabetes, as shown by figures for blood tests, and of bipolar mood disorder, as shown by the amounts paid by schemes for mood-stabilising medication.
Schemes have reined in their non-healthcare expenses over the past decade. Of the total of R15.01bn spent in 2017, R12.56bn (83.7%) was on administration and R2.18bn (14.5%) on broker fees and distribution. Measured in terms of how much an average beneficiary pays per month, the CMS report shows that this expenditure is almost double in open schemes what it is in restricted schemes - about R175 per average beneficiary per month (pabpm) versus about R98. This difference, says the report, is because restricted schemes do not incur the same level of marketing or distribution costs.
Looking at administration costs, which constitute the bulk of non-healthcare expenditure, the industry average is R140.3 pabpm. Several schemes have significantly higher costs, which may partly be attributed to the fact that they are relatively small. The five open schemes with highest administration expenses per beneficiary are:
1. Spectramed: R254.2 pabpm (11.2% of contribution income; 22777 beneficiaries);
2. Selfmed: R228.7 pabpm (11.9%; 13805);
3. Resolution Health: R190.9 pabpm (10.1%; 28839);
4. Suremed Health: R177.9 pabpm (10.2%; 2600); and
5. Keyhealth R177.2 pabpm (7.4%; 73312).
According to the CMS report, the schemes that pay their trustees the highest remuneration are the two largest: GEMS and Discovery.
GEMS had 12 trustees in 2017, down from 13 in 2016, but their annual remuneration rose by a whopping 25% between 2016 and 2017, from R580 000 to R727000 per trustee, on average. GEM’s expenditure on trustee remuneration rose from R7.54million in 2016 to R8.73m in 2017 (up 15.8%).
Discovery increased its trustees from 9 to 10, and average remuneration per trustee rose from R603 000 to R783 000 (up 30%), with total trustee remuneration rising from R5.43m to R7.83m (up 44%).