Lynne Carlisle: Business Day,

SCOPE exists to relax solvency requirements of medical schemes, which are required by law always to hold assets in reserve equal to at least 25% of a scheme's annual contributions.

Taurayi Chinowona, consulting actuary at Lekana Employee Benefits, says this need arises following drastic solutions, such as price controls, submitted by the Health Department.

"These reserves aim to ensure that schemes remain solvent in the event that claims exceed contributions net of expenses. The actuarial profession has in the past lobbied the authorities to change to a more nuanced and flexible reserve requirement. The actuarial argument is that the appropriate size of the minimum reserves should depend on the risk levels each individual scheme faces."

He says the authorities should first look at the effect of their regulations on the cost of healthcare financing.

"The major risk factor is the size of a scheme's membership. The smaller this is the more unpredictable and variable a scheme's claims will be."

The requirement should also recognise schemes' risk mitigation measures. Under one mechanism certain benefits are largely met from that claimant's savings contributions. Therefore these claims can never exceed contributions. There are also established arrangements, known as capitation agreements, whereby a group of medical-service providers undertake to accept a fixed fee per member from a medical scheme in return for services to these members.

"Were medical schemes subject to a similar solvency regime as life insurers then minimum reserves for the largest schemes would probably be no more than 15%, while for the smallest would certainly be much greater than 25%. The sector's solvency requirement does not encourage schemes to take risk-mitigating measures," he says.