Illustration: Colin Daniel

Medical schemes appear to have passed their annual check-up. The annual report for 2014/15 of the Council for Medical Schemes, released this week, shows that most schemes’ vital signs are positive.

On the whole, schemes made operating surpluses (when their investment income is included), their reserves increased, and fewer schemes are on the critical list.

Schemes achieved these relatively good results despite some chronic conditions from which the schemes suffer. One of these is the lack of growth in the number of lives covered, coupled with the fact that membership of a medical scheme is not compulsory for those who can afford it.

Membership grew at only 0.4 percent: the slowest pace in 10 years. Membership growth since 2006 has largely been driven by new members joining the Government Employees Medical Scheme, a restricted scheme for government employees. But last year the scheme lost 15 000 members. The council’s report puts this down to resignations by public sector employees, termination of membership due to the government’s debt management policy and the death of members.

There was no net gain in membership of other restricted schemes.

On the whole, membership of open medical schemes (which must admit anyone) was up 1.1 percent, but this was largely due to the growth in the number of lives covered by the country’s largest medical scheme, Discovery Health Medical Scheme.

Discovery Health Medical Scheme grew the number of lives it covers by 2.7 percent to 2.65 million lives, but the remaining schemes as a whole lost members – a 0.8 percent decrease on last year. The bigger membership losses on open schemes were reported on Resolution Health, Spectramed, Sizwe Medical Fund, Medshield and Bonitas.

Open schemes that recorded membership growth were Topmed (47.4 percent), Compcare Wellness Medical Scheme (20.1 percent), Momentum (6.6 percent) and Bestmed (3.3 percent).

Schemes need young and healthy lives to ensure that the medical scheme population does not age overall, because as members age, their healthcare costs rise.

The council’s report shows a small increase in the average age of members of schemes to 32.1 years, from 31.9 years last year.

The ratio of pensioners to members below the age of 65 remained constant at 7.3 percent.

Barry Childs, the joint chief executive officer of Insight Actuaries and Consultants, says scheme membership needs to be seen in the context of the broader economy. Employment is the main determinant of membership, and when employment is flat or decreasing, a similar pattern among medical schemes should be expected.

Scheme membership has risen by an average of 2.1 percent a year since 2010, and employment is up on average 2.5 percent a year over the same period, he says.

At a presentation on the annual report, Dr Anton de Villiers, the general manager for research and monitoring at the council, said that the biggest loss of membership from schemes was among members 35 years and younger.

De Villiers says the council’s analysis of membership of medical scheme options provides no proof of members moving from more expensive options to cheaper ones – or “buying down”.

But the loss of members between the ages of 15 and 29 is costing schemes, particularly to provide the prescribed minimum benefits (PMBs). These are benefits that all schemes must provide, ensuring that you have cover for all emergencies, most life-threatening illnesses and common chronic illnesses.

De Villiers presented data showing that the cost to schemes of providing the PMBs last year was, on average, R567 a month per life covered (beneficiary): a 13.4-percent increase on the average R500 a month per beneficiary that the council calculated PMBs cost in 2013. (Initially, the council said the 2013 average cost was R512, but it has since revised this calculation based on restated data).

De Villiers said the increase in PMB costs may be overstated because the council’s data excludes the PMB costs of 19 schemes that submitted inaccurate data and the costs would have been lower on these schemes.

The amount paid for PMBs works out at 52.5 percent of all the benefits paid by schemes, excluding amounts paid from medical savings accounts.

The cost of providing the PMBs varies significantly, depending on your age. It rises significantly for beneficiaries over the age of 40.

The cost of the PMBs makes it difficult for schemes to reduce the cost of contributions for you, but De Villiers says the average cost of the PMBs could be reduced if schemes could increase the number of people under the age of 40 that they cover.

He says schemes need five beneficiaries under the age of 40 to subsidise the cost of providing PMBs to each beneficiary between 80 to 84. The report notes that, at this age, the average cost of providing the PMBs peaks at R2 300 per life per month.

Childs says that while schemes and their administrators have generally been keeping increases for healthcare providers close to inflation each year, increased utilisation is driving claims up faster than inflation. More people are seeing the doctor, more people are going to hospital, more people are having tests and scans and getting medicine.

Individual schemes’ increases are therefore dependent on the scheme’s membership profile (how old and sick members are). Childs says that while schemes use managed care – only paying for certain treatment or medicines – to keep this under control, anti-selection works against them.

Anti-selection occurs when members selectively join a scheme when they are in ill health, and often leave again after having obtained treatment. Only when the government makes scheme membership compulsory will this problem be resolved.

Childs says hospital and specialist claims have increased more than other claims, because the PMBs ensure these claims are paid.

QUICK FIGURES

* Schemes collected R140.2 billion in contribution income (up eight percent from 2013);

* They paid out R124.3 billion in healthcare claims (up 10 percent);

* They paid R14.4 billion in non-healthcare costs (up 7.1 percent);

* Together, they made a small operating deficit of R464.5 million;

* After adding investment income, schemes made a net operating surplus of R3.4 billion;

* Reserves increased by 7.7 percent to R47.7 billion;

* The average solvency ratio (reserves as a percentage of contribution income) increased from 29.7 percent to 30 percent.

* The average contribution per beneficiary (or life covered) is R1 329.80 a month (up 7.6 percent);

* Healthcare costs per beneficiary per year rose to R12 892 (up 10 percent.