Medical Schemes Battling to Retain Solvency Levels
March 3, 2017
Most medical schemes in South Africa are battling to maintain solvency levels because of huge increases in the number of claims. Here we will see how medical schemes are battling to retain solvency levels.
A report recently released by Global Credit Ratings (GCR) revealed that medical schemes were forced to dip into their financial solvency reserves to cover their costs.
This increasingly alarming trend in the medical scheme industry echoed by both Discovery Health and GEMS (Government Employees Medical Scheme).
The ongoing debate about solvency ratios continues unabated.
Regarding the Medical Schemes Act, medical schemes must set aside 25% of its income from members to maintain a solvency ratio.
However, the growing number of claims has forced several medical aid companies to dip into their reserves to meet their obligations.
To level the playing field, several medical schemes imposed increases of more than 10% in tariffs for 2017.
The dilemma facing the medical aid industry is that the major players, such as Discovery, could find themselves with reserves below the 25% solvency ratio because of membership growth.
The obverse is true of schemes losing members. Depletion of membership results in increased solvency because of the release of reserves.
The Council for Medical Schemes (CMS) says that the solvency ratio issue has to be resolved if medical schemes are to remain competitive.
Areas of concern that include:
- Finding solution to overcome the solvency ratio requirements
- Current legislation revolving around solvency ratios does not provide incentives for schemes to implement sound risk management policies
- Leaders in the industry with growing membership levels are finding it more difficult to maintain the solvency ratios. Because they have to accumulate larger reserves
The CMS is currently investigating solvency issues in conjunction with members of the medical scheme industry.
The CMS believes statutory solvency levels need to be refined because of underlying risk profiles.
Changes to solvency ratios will result in reserve levels and enhanced capital efficiency.
The Medical Schemes Act stipulates that medical schemes must maintain a financially sound business. In other words, they must have sufficient assets to conduct their business. Providing for liabilities and meeting the 25% solvency requirements.
However, if it changes to a risk solvency framework. Medical schemes will not have to retain 25% of its income. Resulting in lower annual increases in premiums.
Medical schemes will also be able to utilise excess funds held in reserve on the provision of improved services and benefits for its members.
At present medical schemes struggle to provide health care at an affordable price.
It has resulted in stagnant membership growth and increasing public discontent.
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All info was correct at time of publishing