Renaissance Medical Scheme was placed under curatorship last week after a report showed it is insolvent and more than R30million in the red.
The industry regulatory authority, the Council for Medical Schemes (CMS), applied for the scheme to be put under curatorship to protect its 30Â 000 beneficiaries.
Renaissance at first indicated it would oppose the curatorship application but in the event did not oppose the granting of the order.
The curator, Mzi Nkonki, is expected to provide a report on the situation and potential solutions within 21 days.
One possibility would be to liquidate the scheme, which would leave members with no insurance cover and potentially facing massive legal claims for unpaid medical bills.
Negotiations with creditors are under way. Netcare executive Mark Bishop said that as far as possible his group works with curators and the regulator in such situations. “We generally find schemes that are placed under provisional curatorship are responsibly run and inevitably turned around. It is our policy to support medical schemes and members that find themselves in this situation as far as possible.”
The curatorship leaves Renaissance’s 13 646 principal members facing the prospect of raised contributions and cuts in benefits as the curator nurses the scheme to better financial health. If he succeeds Renaissance will be probably amalgamate with another scheme.
The court papers, filed by the registrar of medical schemes, detail problems of information flow between the medical scheme and its administrators, Prosperity Health.
In his affidavit to the court registrar Patrick Masobe said: “[Renaissance] is not in a sound financial position and … a material irregularity has come to my notice in that [Wilhelm] Bekker (the principal officer) and the scheme’s trustees are not in control of the scheme.”
Medical schemes are supposed to keep financial reserves — a “solvency level”– of 25% of gross annual contributions to protect members. Falling below this level can indicate problems at the scheme or very fast growth that distorts the solvency ratio temporarily.
According to Masobe’s affidavit Renaissance’s solvency level was just 0,51% by the end of the third quarter of 2007. Masobe details a meeting in April at which Renaissance managers and trustees were told “that the scheme was insolvent, that assets were not sufficient to cover for current obligations and as such they could be considered to be trading recklessly”.
Masobe also quotes from a letter sent to Prosperity Health by Renaissance’s principal officer, Wilhelm Bekker. In the letter Bekker says the scheme was operating at a solvency of about -0.1% at the end of 2007.
“Since December 2007 myself and the board of trustees continuously requested Prosperity Health to furnish us with the correct financials … I place on record that the financials that were furnished to myself and the board of trustees during March 2008 differed substantially from the financials that were furnished to us at the end of 2007.
“We are nearing the end of April 2008 and myself and the board of trustees are still in the dark as to the true financial position of the scheme. … I am currently in a position where I am of the opinion that Prosperity’s actions and failures are seriously placing the future sustainability of the scheme in danger, with the result of endangering the wellbeing of this scheme’s members and their lives.”
Bekker’s letter said that Prosperity had told him in February this year that the scheme’s unaudited losses were about R8million.At the time of writing he said he still did not have the correct figures but had heard rumours of R50-million operating losses.
Bekker wrote that the best solution for Renaissance would be to amalgamate with another medical scheme: “Your failure to deliver the requested financials (and then the correct financials) is resulting in a situation where the scheme cannot conduct its affairs properly and is hampered from approaching other medical schemes for amalgamation. At the rate at which we are losing members currently, there would not be much left to amalgamate.”
At the end of April the CMS received a report by auditor Deloitte & Touche revealing that by the end of this year Renaissance’s solvency ratio was expected to be 23,66% and the fund was expected to be more than R53-million in debt. Next month the scheme’s debt is expected to be more than R38million.
Prosperity’s response
Renaissance Medical Scheme is about R43-million in debt, says Bertus Struwig, CEO of Prosperity Health, the scheme’s administrator. Speaking to the Mail & Guardian, he said that he had negotiated a deal which would see healthcare providers write off R36-million of the medical scheme’s debts. Prosperity Health would then guarantee the payment of the money to the providers, thus making a “grant” to the scheme. He said the discrepancies in the scheme’s financial statements mentioned by Bekker were caused by normal extended closing-out of the accounts, exacerbated by claims unpaid because of a lack of funds.