• Roshan Bhana

SA Medical Schemes remain healthy despite a tough year, says Alexander Forbes Health

Alexander Forbes Health has published its latest edition of Diagnosis, an annual publication that analyses key trends in the medical schemes industry from 2000 to 2018.

“The industry as a whole experienced a high claims ratio in 2018, with some of the largest schemes failing to break-even at an operational level,” says Roshan Bhana, Head Actuary at Alexander Forbes Health.

Only 3 of the top 10 open medical schemes achieved an operating surplus, while the rest had to rely on investment income and in some cases reserves to cover claims and expenses. The open schemes industry generated an operating deficit of R1.33 billion in 2018, down from the operating surplus of R1.09 billion generated in the prior year.

Bhana said operating results in the industry seem to follow a cyclical pattern. “Medical schemes are non-profit organisations and rely on the surplus generated in prior years to subsidise adverse claims experience, which creates some variation in financial results from year to year”

The increase in claims ratio is one reason why open scheme contributions increased well in excess of CPI inflation for 2019, as it required schemes to budget for a worsening claims profile in their pricing. The impact of fraud, waste and abuse on the claims trends cannot be measured but should not be underestimated. As medical schemes are non-profit organisations abuse in the system directly impacts the cost members have to bear through additional contribution increases.

Restricted schemes fared more favourably by comparison, with 6 of the top 10 schemes achieving an operating surplus in 2018. The restricted scheme industry experienced a stable claims ratio from 2017 to 2018, on the back of which an operating surplus of R2.55 billion was realised.

Despite this, members can be confident that the country’s largest schemes, both open and restricted, have sufficient reserves to pay their claims. This insight was drawn from the Alexander Forbes Health Medical Schemes Sustainability Index which tracks key performance metrics of medical schemes and aims to provide a comparative assessment of future sustainability between schemes.

The index is calculated from a base year of 2006 and considers a scheme’s membership size, membership growth, average beneficiary age, operating results, accumulated funds per beneficiary, and trends in the scheme’s solvency levels.

“In the open schemes industry, the sustainability index for the top 10 schemes has improved from 2017 to 2018, mainly due to stability in the membership profile and growth in the level of reserves per beneficiary,” says Bhana.

Other key findings published in the Diagnosis include:

  • The number of medical schemes reduced from 80 to 79 during 2018.

  • The number of principal members increased marginally by 0.7% from 2017 to 2018, compared to a growth of 0.5% from 2016 to 2017.

  • The average age of beneficiaries decreased to 33.1 years at the end of 2018 (2017: 33.2 years), with the pensioner ratio increasing to 8.5% (2017: 8.4%).

  • The average family size has remained unchanged at 2.21 from 2017 to 2018.

“Overall, the profile of the industry remained stable and the financial position is sound despite another year of operating losses for many schemes.”