/ 24 September 2011

Ensure your medical aid is not unwell

The proposed National Health Insurance has resulted in much being written about the state of the nation’s public health sector — the woefully inadequate number of doctors and nurses, particularly in rural areas, operational inefficiencies and mismanagement, poor quality of care and low staff morale.

But little has been said about healthcare in the private sector, an industry with 100 medical schemes that serve 16% of the population, or just fewer than 8.1-million people. Of these people, 3.253-million are beneficiaries of so-called closed schemes in which membership is restricted to those working for specific organisations, and the remaining 4.815-million people belong to open schemes that anyone is free to join.

It is a massive industry: members’ contributions totalled R96.5-billion last year and R84.9-billion was paid out in benefits. Earlier this month the Council of Medical Schemes, which regulates medical schemes, released its 2010/2011 annual report. It contained disquieting news that could affect millions of medical aid members.

Most telling was the announcement that 20 medical schemes — nine restricted and 11 open schemes — have failed to maintain a solvency ratio above 25%. This is the percentage of members’ contributions that has to be held in reserve, as stipulated by the Medical Schemes Act.

Among the defaulters were some of the biggest medical schemes in the country. Although some had solvency ratios that were just slightly less than the required rate, others’ ratios were alarmingly low.

So what does this mean for the members of these schemes? Basically it can mean higher-than-average increases in contributions or a decrease in the benefits they will receive. This means members must shop around, be prepared to read the small print and put brokers on the spot by asking some probing questions.

The first question should relate to your scheme’s solvency ratio, because this is largely what will determine the increase in contributions your scheme will ask of you in the future. The simple rule is the higher the solvency ratio, the more stable the scheme because it will have more reserves to cushion it from heavy claims.

Also, find out the scheme’s membership age profile. The difference of just a few months has huge implications on what a scheme has to pay out in claims because the older people become, the more health problems they have and the more they need to claim. So a scheme with an older age profile inevitably means higher increases in contributions.

Other factors to ask about are the non-healthcare costs incurred by the scheme. More spent on non-healthcare costs means less being paid for benefits. Remember, medical schemes are nonprofit organisations that exist for the healthcare needs of their members and their families and not for shareholders.

Apart from questioning the financial stability measured by solvency, contributors’ increases, operating results and the demographic profile, you should also must ask about the schemes’ risk management philosophy, including hospital authorisation, disease management and treatment protocols. Also ask about efficiency in terms of settling claims.
There is no question that the private healthcare sector has not been well for several years.

Medical inflation has skyrocketed and membership profiles are getting older. And although there was a slight increase in membership over the past year, it has stagnated for several years.

Another telling fact is that 44 medical schemes have ceased to exist since 2000 — some liquidated, others swallowed up in mergers. So make sure your medical aid is as financially healthy as can be, because the last thing you need when you get ill is a sick medical aid.

Private medical aid schemes will be the topic of Bonitas House Call on October 1 on SABC2 at 9am.