Paresh Prema, Alexforbes Branch Head: Actuarial and Technical Advisory Services

Alexforbes Health’s annual Medical Aid Insights publication has revealed that the size of the industry is increasing and that the country’s medical schemes are sustainable.

The publication, compiled by the Actuarial and Technical Advisory Services team, gives a comprehensive view of the performance of the South African medical schemes’ industry, as well as changes and challenges the industry is facing.

2022/2023 highlights

“We find that with the number of registered schemes continuing to decrease, largely as a result of amalgamations, principal members covered by these schemes have increased at the end of 2021,” says Paresh Prema, Alexforbes Branch Head: Actuarial and Technical Advisory Services.

At that point, there were 73 registered schemes and principal membership grew by 0.84%. “It is important to point out that this increase in membership followed a decline of 1.56% in 2020. Similarly, the number of beneficiaries increased by 0.5% in 2021 compared to a decline of 1.15% in 2020.”

The report highlights the change in the number of members by looking at the proportions of members at various ages over the past 16 years. The graph below shows the number of members at various ages during 2005, 2015 and 2021. It is characterised by two peaks, meaning the industry has the majority of the members in the age bands 5 to 19 as well as 30 to 44.

“We have observed a concerning trend of the proportion of members per age group. The proportion of older members has increased over the last 16 years while the proportion of younger members has decreased. In order for medical aids to remain affordable and accessible, they need a balance of membership at all ages – a trend we are not seeing.” Prema says this shows that medical aids need to take steps to ensure that medical scheme coverage remains affordable and, hence, accessible to younger members in order to manage claims.

The graph highlights the changing medical aid environment based on the age of members. “This impact is measured in terms of the average age per beneficiary. Over the year to 2021, we note that this increased slightly from 33.6 to 33.7 for the industry, from 31.5 to 31.6 for restricted schemes and from 35.3 to 35.5 for open schemes.” Compcare was the oldest scheme, with an average beneficiary age of 42.2, while Polmed remains the youngest scheme with an average beneficiary age of 28.6.

Solvency ratio of schemes

In 2021, 11 of 17 open schemes, and 53 of 57 restricted schemes achieved a net surplus, compared with a net surplus for all open and restricted schemes in 2020. “This demonstrates that the Covid-19 pandemic actually resulted in schemes having improved results in 2020,” Prema says. In 2020, the average solvency for all schemes increased significantly as a result of the large surpluses due to Covid-19. In 2021, the average solvency for all schemes increased to 46.7% from 44.6% in 2020. The solvency ratio of open schemes increased from 38.7% in 2020 to 39.6% in 2021. The solvency level for restricted schemes increased from 52.5% in 2020 to 56.2% in 2021. “The solvency level is included as part of our sustainability index which showed that schemes’ sustainability measure by the index improved significantly in 2020.”

Sustainability Index

The sustainability index, a measurement tool offered by Alexforbes Health, attempts to assess the combined impact of key performance statistics on the sustainability of a medical scheme. The medical schemes are ranked from highest to lowest to show their relative sustainability. The index aims to provide a comparative assessment between schemes.

In 2021, the industry saw a 17.4% improvement in the index score, with restricted schemes showing an improvement of 19.3% while open schemes showed an improvement of 15.8%.

The index shows that the largest increase for 2021 were for Polmed, who improved their 2021 score by 23.2%, closely followed by GEMS with an increase of 21.3%. The open schemes trailed by a small margin, with Sizwe Hosmed improving their score by 19.8% followed by Bonitas with 18.9%. Polmed is the highest ranked out of the restricted schemes, followed closely by SAMWUMED, Bankmed and LA Health. Medshield is the highest ranked out of the open schemes, followed closely by Sizwe Hosmed and Fedhealth.

The index outputs a value that represents the sustainability of a medical schemes based on a number of metrics, including the:

• size of the scheme relative to other schemes in the industry
• membership growth in the scheme over time
• average age of beneficiaries of the scheme and how it changes over time
• scheme’s actual solvency relative to the requirement in the regulations to the Medical Schemes Act
• trends in the scheme’s solvency over time

It is important to note that this index is sensitive to the starting year used, which we’ve selected as 2006, Any small differences in the index between schemes do not impact on the final result.

“Our health actuarial team has been advising schemes on sustainability since the development of the index and has vast experience in advising on benefit option design and richness, as well as annual medical scheme pricing reviews,” Prema concludes.

ENDS

Alexforbes is a financial services group that impacts people’s lives by delivering insight and advice to individuals, employers and retirement funds. Listed on the Johannesburg Stock Exchange. www.alexforbes.com