Illustration: Colin Daniel

Is your scheme happy and healthy or bad-tempered and sickly? Here are several important things you should consider when assessing your medical scheme:

DOES MY SCHEME HAVE THE REQUIRED LEVEL OF RESERVES?

Seven schemes did not have the required reserve levels at the end of last year and all are being closely monitored by the Council for Medical Schemes, the medical scheme regulator’s annual report released this week notes.

Medical schemes are required by law to have reserves or a solvency level of 25 percent of gross annual contributions. Those that have reserves higher than the required levels sometimes dip into the surplus to subsidise your contributions, but this is not sustainable.

In future there could be changes to the level of reserves schemes are required to hold.

If a scheme does not have the required reserves, it must increase its contributions and/or decrease its benefits in order to raise them.

If a scheme’s membership is growing rapidly, its contribution income rises steeply. If the contributions increase without a similar increase in the reserves, the solvency ratio decreases. The converse is true of schemes that are losing members rapidly.

Schemes that did not have the required reserves at the end of last year are:

* Community Medical Aid Scheme (Commed): 21.4 percent (down from 2013). The council’s annual report notes that membership of the scheme grew by 12.7 percent but its claims and non-healthcare expenditure also increased.

* Government Employees Medical Scheme: 10 percent (down from 2013). The annual report notes that claims were higher than anticipated and the scheme has adopted measures to minimise the impact of this.

* Liberty Medical Scheme: 17.2 percent (down from 2013). Liberty had a marked decrease in younger and lower-claiming members, which led to an increase in claims.

* Resolution Health Medical Scheme: 9.4 percent (up from 2013). The increase in solvency was mostly due to a loss of members, the annual report says.

* Suremed Health: 21.4 percent (down from 2013). The scheme grew its membership significantly.

* Thebemed: 22.8 percent (up from 2013). The scheme implemented tighter management of its non-healthcare and healthcare spending, the report notes.

* Transmed: 22 percent (up from 2013). The scheme lost beneficiaries, the report notes.

At a press conference on the annual report, the acting registrar, Daniel Lehutjo, said the council's industry technical advisory panel is considering changes to the reserves that schemes are obliged to hold and the way in which the solvency ratio is calculated.

Dr Anton de Villiers, the general manager for research and monitoring at the council, said the council will publish a circular on the issue next month, but warned that should the new method of determining solvency be adopted, this could result in some schemes having to increase their reserves, while others could decrease their reserves.

At the recent Board of Healthcare Funders (BHF) conference, Alexander Forbes actuary Roshan Bhana said the council’s alternative formula for calculating reserves is based on the risk of a scheme facing unexpectedly high claims, taking into account its membership and pricing strategy, the operational risks the scheme faces and the risk to the money it invests.

When this alternative formula was applied to 19 large schemes (the 10 biggest restricted schemes and the nine biggest open schemes), it was found that only two schemes required reserves of more than 25 percent of their contributions.

In 2013, when these 19 schemes had R32.3 billion in reserves, it was estimated that, in terms of the council’s proposed new formula, the schemes had R10.8 billion too much in reserve.

Total medical scheme reserves reached R47.7 billion at the end of 2014, the council’s annual report notes, and schemes had an average solvency ratio of 30 percent.

Bhana told the BHF conference that although schemes on the whole are overfunded and are mutual funds operated for the benefit of members, it is unlikely that those with surpluses in their reserves will distribute it to their members. He says schemes could use the excess reserves in other ways to benefit you.

Check your scheme’s solvency ratio on our table linked to this story, below.

DID MY SCHEME POST AN OPERATING LOSS?

Beware of schemes that have consistently been making operating losses, especially growing losses, for a few years.

According to the Council for Medical Schemes’s annual report, schemes generally had higher claims last year than in 2013 – the average ratio of claims to contributions increased from 86.5 percent to 88.2 percent.

According to Teboga Maziya, the general manager of financial supervision at the council, larger medical schemes that experienced a big deterioration in their operating results last year compared to 2013 were:

* Bonitas: 122.8 percent;

* Fedhealth: 100.9 percent;

* Liberty: 160.3 percent;

* Medshield: 99.25 percent;

* Gems: 160 percent; and

* Polmed: 185.8 percent.

But some schemes are in a position to incur such operating losses, because their reserves are above the required minimum and they earn investment income to offset the losses.

Large losses combined with reserves of below 25 percent, as in the case of Gems and Liberty Medical Scheme, however, have the council concerned. All the schemes that have reserves of below 25 percent of annual contributions incurred operating losses last year, the report shows.

It is also worth checking the operating loss or profit of each medical scheme option. Some 80 open medical scheme options and 65 restricted scheme options incurred losses last year. About a third of loss-making options also had less than 2 500 members, and these options often have higher contributions and claims and attract higher non-healthcare costs than other options.

But Toska Kouskos, the national director of NMG Health Care, says such a strategy is not sustainable, as the scheme will eventually reach the required level of reserves and then have to play catch-up on contributions.

HOW MANY COMPLAINTS DID MY SCHEME RECEIVE?

The Council for Medical Schemes’s annual report records the schemes with the most complaints laid by either members or service providers.

The report notes that the number of complaints is not an indication that members of these schemes face bigger risks or the schemes are likely to fail, but if many complaints are reaching the council it could indicate that a scheme or its administrator isn’t dealing well with complaints.

Your complaints should go to your scheme’s dispute resolution committee before they go to the council, but the annual report indicates that generally this is not happening in schemes with the highest numbers of complaints.

The highest complaints against open schemes are shown in the table (click on link, below).

The Council for Medical Schemes’s annual report records that during 2014, four schemes were subject to inspections because the council was of the view that there may be evidence of irregularities.

The report names the schemes as Medihelp, Bankmed, Bonitas and the South African Police Medical Scheme (Polmed).

Bonitas has since challenged the council’s inspection into alleged governance irregularities in court. The High Court found in favour of the council but the matter is now subject to an appeal.

IS MY SCHEME GAINING OR LOSING MEMBERS?

A scheme should always be growing its membership base because if it does not, the scheme’s population will get older each year and the cost of the members’ claims will increase. In the absence of a fund that equalises the costs of the prescribed minimum benefits between schemes - taking from schemes with young healthy members to subsidise the costs of schemes with older, sicker members - schemes need to continually attract younger members who will subsidise the costs of the older members.

Toska Kouskos, national director at NMG Health Care, says more importantly, growing the membership base per se is not sufficient, but schemes have to ensure that the membership base is grown by the right profile of member to ensure cross-subsidisation in a scheme that is aging.

If your scheme is losing members, it could indicate that members are unhappy with the scheme’s administration, its benefits or its contributions.

Go to link below for the biggest winners and losers.