Laura du Preez: Personal Finance, 30 September 2006
MEDICAL schemes are earning enough income from their reserves to record surpluses even though their contribution income is not enough to cover members' claims and other expenses.
This is according to the Council for Medical Schemes' annual report, which shows that schemes recorded operating deficits totalling R356 million last year.
However, when investment and other income are taken into account, overall schemes have recorded net surpluses totalling R2.3 billion.
The council's annual report says that while an operating deficit "is always a concern", it believes these deficits are a reflection of the fact that most medical schemes have attained reserves equal to 25 percent of gross contribution income and may now be reducing the build up in their reserves.
In other words, medical schemes are using money building up in their reserves, in excess of 25 percent of contributions that they are required by law to hold, to subsidise their operations.
The report notes that schemes' reserves grew by 14 percent to R23 billion last year and, as a result, the average solvency ratio (the reserves expressed as a percentage of gross contribution income) was 39.1 percent - way above the 25 percent required. Last year, the average reserve level was 37.3 percent.
The average solvency ratio of open schemes (that admit anyone as a member) was 29.6 percent last year, while restricted schemes (where membership is restricted to certain groups, such as the employees of an employer) had an average solvency ratio of 63.5 percent.
Eighteen open medical schemes and six restricted medical schemes did not meet the required solvency ratio in 2005. The council's report also notes that 19 schemes had pronounced changes in their operating results. These 19 schemes included the following open schemes: Community Medical Aid Scheme (Commed), Discovery Health Medical Scheme, Eclipse Medical Scheme (which has subsequently decided to close), Meridian Health, National Independent Medical Aid Society (Nimas), NBC Medical Scheme, Pathfinder Medical Scheme, Pharos Medical Scheme and Selfmed Medical Scheme.
According to the annual report, gross contribution income increased by 5.2 percent from R51.5 billion in 2004 to R54.2 billion last year. At the same time, claims paid increased by 12.2 percent from R40.8 billion to R45.8 billion.
Most of the money that schemes paid as claims was paid to hospitals (35.3 percent or R16.1 billion), but this was a 2.6-percentage point decrease on the proportion of claims paid to hospitals in 2004. The report notes that, in real terms (after inflation), spending on private hospitals appears to have stabilised, albeit it at very high levels.
Following the implementation of the medicine pricing regulations, there was a significant decrease in the amount spent on medicines - R7.2 billion was spent on medicines, which was 8.8 percent less than the amount spent in 2004. Medicines accounted for 15.7 percent of schemes' expenditure of benefits.
Benefits paid to general practitioners increased by 28 percent to R3.6 billion and accounted for eight percent of benefits paid by schemes, while claims paid to specialists increased by 15.2 percent and accounted for 20.5 percent of the claims paid. Benefits paid from medical savings accounts made up R5.3 billion or 11.7 percent of the benefits paid.
"Medical savings account contributions and claims have … jumped by 133.9 percent and 153.8 percent respectively since 1997. These data show that schemes are increasingly shifting benefits from the risk pool into medical savings accounts.
"Put another way, it would appear that members are effectively funding more benefits out of their own pockets rather than being funded through the risk pool," the report says.
Non-healthcare expenses rose again - this time by 9.6 percent from 2004 to R7.8 billion. Non-healthcare expenses include administration fees (up 10.4 percent), brokers' fees (up 21.5 percent), managed care fees (up two percent) and bad debts (down 5.2 percent).
The council's report states that in 30 open schemes and 27 restricted schemes, the overall administration expenditure exceeded 10 percent of gross contribution income.
The council regards 10 percent as a reasonable amount for non-healthcare expenses.
The report notes that non-healthcare expenditure has outpaced both contributions and claims since 2000.
Other findings in the report include the following:
- The average increase in contributions for all schemes for 2006 was 5.96 percent, while the average increase in contributions on open medical schemes was 6.88 percent and on restricted schemes it was 4.81 percent. The report notes that the average annual increase for medical scheme beneficiaries has been declining since 2001.
- The numbers of both principal members and beneficiaries of medical schemes increased slightly last year. The number of principal members increased 3.5 percent to 2 812 083, while the number of beneficiaries increased by 2.6 percent to 6 835 621. The number of dependants registered per member dropped by 1.3 percent, but the pensioner ratio (number of pensioners to other members) also dropped from 6.7 percent in 2004 to 6.3 percent in 2005.
- The average age of all beneficiaries on schemes dropped from 32 years to 31.7 years.
- The council's complaints division handled 1 833 complaints during 2005/6. Unpaid accounts were the biggest source of complaints (37.59 percent), followed by benefit exclusions (16.69 percent) and misunderstandings with schemes (10.58 percent).
- The number of registered medical schemes decreased from 133 to 131 in 2005. Of these medical schemes, 47 are open schemes and 84 are restricted schemes.