The link between medical scheme reserves and the longevity of your medical scheme

Gary Feldman
6 June 2023
5 min read

What would you do if your medical scheme liquidated without sufficient notice, leaving you and your family without medical cover? This was the stark reality for around 14 000 members and 23 000 dependants of the Health Squared medical scheme on 1 September 2022. According to a press release issued by the Council for Medical Schemes (CMS) on 14 October 2022, Health Squared stated that the primary reason for applying for leave to voluntarily liquidate was its financial deterioration caused by the 2020 and 2021 high COVID-19 claims. In addition to this, Health Squared stated that it experienced substantial member loss which led to a solvency decline which by the end of July 2022 was at 2.15% and was projected to be between 0.2% and 2.3% by the end of the year. The link between medical aid reserves and the future existence of medical schemes is complex, but as a consumer, it is something worth tracking if you or your family members require complex treatment that, if not accessible, could present a life-or-death scenario.

What are medical reserves?

Medical scheme reserves refer to the funds set aside by medical schemes to cover future healthcare expenses for their members. These reserves act as a financial buffer so that schemes can always pay for medical treatments, services and claims. The CMS requires a minimum ratio of 25% medical reserve for all medical schemes. The future existence of medical schemes depends on various factors, including the financial health of the schemes and their ability to meet the healthcare needs of their members. Adequate reserves are, therefore, essential for the long-term sustainability of medical schemes.

What risks do low reserves pose to the insured?

In the case of the liquidation of Health Squared, both members and healthcare consultants were informed with very short notice. For members who require chronic medication or planned, regular treatments, applying to another medical scheme takes time. Furthermore, if large groups of people are moved to another medical scheme, the new scheme is likely to require full underwriting because these members may be viewed as “risky” due to the liquidation of the scheme they belonged to. This becomes an administrative nightmare for members, but even more so for healthcare consultants who assist small and large numbers of members. It takes time to onboard new members onto a different medical scheme. Especially considering every family has its own unique healthcare needs and circumstances.

What happened to the members of Health Squared Medical Scheme?

The CMS held various meetings with eight other medical schemes before the liquidation. The aim of the meetings was to appeal to the medical schemes to accept the Health Squared members without applying late joiner penalties or waiting periods. Unfortunately, these meetings failed to achieve their purpose, leaving many members scrambling for medical cover at the last minute. These members also faced condition-specific waiting periods. However, these waiting periods can’t affect the payment of prescribed minimum benefits (PMBs). This means that many members who migrated to other schemes were not entitled to claim benefits for healthcare services for any pre-existing conditions they had during the 12 months before the date that they applied to join their new scheme. This poses a significant financial risk for those members.

Some of the key lessons to heed from the Health Squared predicament

The longevity of the medical scheme you belong to depends on how it maintains its reserves over time. These reserves can drop after big events such as COVID-19 or as the membership of the scheme ages without the influx of newer, healthier members. It is important for you, as a member, to track your medical schemes’ reserve levels. By doing this, you can pick up on solvency risks long before liquidation, giving you more time to migrate to the best-suited medical scheme.You can review the results of the different medical schemes in the Council for Medical Scheme’s Industry Reports.

This is what the medical industry has learned from the liquidation of Health Squared Medical Scheme:

Rising healthcare costs: healthcare costs increase over time because of various factors, including inflation, advancement in medical treatments and technology, and a growing demand for healthcare services. Medical scheme reserves help schemes cope with these rising costs, without adequate reserves medical schemes won’t be able to provide their members with comprehensive coverage when healthcare costs rise.

Risk management: adequate reserves allow medical schemes to manage risks effectively. They provide a cushion against unexpected events, such as a sudden surge in high-cost claims or a decline in membership numbers. Reserves also help schemes mitigate financial risks and maintain their operations during challenging periods.

Regulatory compliance: medical schemes are subject to regulatory compliance and oversight by the CMS for good reason. The CMS requires schemes to adhere to certain financial regulations, including solvency and reserve requirements. Failure to comply with these regulations can lead to penalties, sanctions or even the termination of a scheme’s license.

Member protection: sufficient reserves play a crucial role in protecting the interests of medical scheme members. If a scheme faces financial difficulties or becomes insolvent, members’ access to healthcare services could be compromised. Robust reserves ensure the schemes can honour their financial obligations to members, such as paying for medical claims and provider fees.

The link between medical aid reserves and the future existence of medical aid schemes in South Africa is crucial. These reserves provide financial stability, help manage rising healthcare costs, mitigate risks, ensure regulatory compliance, and protect the interests of scheme members. The maintenance of healthy reserves within medical schemes remains a fundamental aspect of the existence, future, and longevity of medical schemes.

The healthcare consultants at NMG Benefits regularly monitor the solvency levels of the medical aids they consult for. Contact an NMG Benefits healthcare consultant to discuss the longevity of your medical scheme and assess whether you are on the most suited health plan within your medical scheme.

T&Cs apply. NMG Consultants and Actuaries (Pty) LTD is an authorised financial services provider FSP 12968


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