Laura du Preez: Personal Finance,
MEDICAL schemes are consolidating - and smaller schemes and restricted schemes for the likes of employer groups, in particular, are disappearing in liquidations and amalgamations.
This is according to a survey of medical scheme trends prepared by the office of the Registrar of Medical Schemes. The survey looked at medical scheme data for the five years between 2002 and 2006, during which period the number of schemes dwindled from 143 to 124 - a decline of 13.3 percent.
This was despite an overall increase of 3.9 percent in the membership of schemes.
"The decline was more pronounced in restricted as opposed to open schemes," the report says, noting that over the five-year period eight open schemes disappeared, leaving 41 open schemes in operation at the end of 2006.
Eleven restricted schemes closed over this period, bringing down the number of restricted schemes from 94 in 2002 to 83 in 2006.
The registrar's office categorised schemes as small (less than 6 000 members), medium (6 000 members to 30 000 beneficiaries) and large (more than 30 000 beneficiaries). It found that in 2002 more than half of the schemes were small (56.2 percent), 16.4 percent were medium and 27.4 percent were large.
Most of the small schemes were restricted schemes (79.3 percent).
By 2006, only 46 percent of the remaining medical schemes were small schemes, 22.6 percent were medium-sized schemes and 30.6 percent were large.
Difficult to survive
The report confirms what many in the medical schemes industry already know: it is difficult for small schemes to survive.
The schemes that closed down or amalgamated cited the reasons for doing so as "low membership, poor long-term financial sustainability, low economies of scale and difficult trading conditions".
Schemes rely on the contributions of younger, healthier members to subsidise the costs of treating their older, sicker members, and it is easier to achieve this cross-subsidisation with greater membership numbers.
Restricted schemes tend to have more older members than open medical schemes, which, combined with their generally smaller sizes, puts them at greater risk of high claims.
The registrar's report notes that the average age of medical scheme beneficiaries increased over the five-year period reviewed from 31 years to 31.5 years.
When the age groups of beneficiaries of schemes are analysed, the report notes, the advancing age distribution of restricted schemes seems to have been more pronounced than that of open schemes. The number of pensioners who are members of medical schemes increased over the five-year period. In 2002, the pensioner ratio was 5.9 percent and by 2006 this had reached 6.3 percent.
Equalisation fund
The proposed Risk Equalisation Fund (REF) for medical schemes is expected to help smaller restricted schemes because it will introduce cross-subsidisation of the costs of providing certain minimum benefits across all schemes. So schemes with younger, healthier members will, through the REF, subsidise certain healthcare costs of schemes with older, sicker members.
Legislation to enable the REF to start functioning is likely to come before Parliament this year and then further regulations will still have to be promulgated. It is expected that the REF will come into operation only two years after the enabling legislation is in place.
In the meantime, more smaller restricted medical schemes are likely to disappear.
The amalgamation of BHP Billiton SA Medical Scheme, a restricted scheme with about 5 000 members, with Bonitas Medical Fund, a large open scheme, was recently approved by the Competition Commission.
Meanwhile, large schemes, such as Discovery Health Medical Scheme, continue to grow. Discovery now has 840 700 members and covers 1.9 million lives.
Discovery claims its size is now giving it a competitive edge when it comes to contributions.
The new Government Employees Medical Scheme (Gems) is also growing at a rapid rate, especially because the government is incentivising its members to join the scheme by offering employees who join Gems a better subsidy than the one it pays to employees who belong to other medical schemes.
At a recent symposium, Gems said its membership has reached more than 250 000, and that it covers more than 680 000 lives.