Fake news: medical aid premium holiday
Medical aid ‘premium holiday’ offered to members and companies has been found to be lacking substance, says GTC Healthcare
The circular released on the 10th April 2020 by the Council for Medical Schemes (CMS) entitled “COVID-19 Medical Schemes Industry Guidelines” outlines the relief measures which schemes may offer their members – individuals and employer groups – detailing what they can and can’t do to alleviate the economic suffering during this pandemic and lockdown period.
“This circular offers very little ‘premium relief’ for individuals and companies during an extremely financially strained time,”says Jill Larkan, Head: Healthcare Consulting at leading wealth and financial advisory firm, GTC. “Very few individual medical aid members qualify for the CMS’ allowance announced to offset premium payments, while the ‘premium holiday’ being offered to small businesses must be repaid when the lockdown ends, simply delaying the economic strain experienced.”
Larkan details a few of the CMS’ circular’s measures further.
A medical scheme:
- May not allow the exemption period to be longer than three months, and this should logically dovetail with the lockdown period.
“This must take into consideration the schemes’ ability to self-sustain during this period,” says Larkan.
- May not allow the solvency ratios to decline below the specified threshold of 25% granting schemes with higher solvency levels – as opposed to those who have carefully managed their premium allocations to closely meet the required 25% threshold – to offer greater relief to their members and groups.
“The continued application of this 25% restriction surprised me,” Larkan says. “My understanding was that this solvency requirement of 25% was set up under the Medical Schemes Act specifically for a catastrophic situation just like this, and whilst there is no doubt that some of it may be used for the payment of extraordinary COVID-19 claims to be experienced in the not too distant future, I believe that more could have been done to ensure that members are financially able to maintain membership until then.”
She outlines that according to the circular the surpluses carried by medical schemes total around R60 billion and were built up as a result of:
- The difference between what was paid in premiums and paid out in claims, with the surplus being retained by the scheme;
- Investment returns achieved by these surpluses based upon the schemes investments;
- Tax credits and subsidies allowed by SARS and the Government; and
- Over-payment recoveries and fraud management activities provided by the scheme.
“A small amount of comfort can be gained from the knowledge that every cent held by the medical aid belongs to its members, and the CMS’ circular does emphasise that any allowance made by the schemes in reference to the use of the surplus must be for the benefit of the members,” she continues. “Let’s hope that members are able to sustain membership until they need it.”
Relief allowances announced:
- Members may use their personal savings account to offset premiums (over a maximum of three months)
“The circular allows for members to use their personal savings account to offset their premiums for a maximum of three months,” says Larkan.
Medical aid savings accounts are allocated for a 12-month period every January, covering savings which would be available and ascribed for use during the period from January to December every year. The CMS has advised that medical aid members who have between six- and 12-months’ worth of accumulated savings remaining, will be allowed to utilise these accumulated amounts to fund premiums for the three months.
The CMS also advises that schemes may consider granting this option to members with less than six months’ worth of savings but schemes must ‘exercise their fiduciary duty by assessing the merit of each case due to the debt recovery risk it carries’.
Larkan outlines that the member relief benefits announced after the CMS’ circular, from both Momentum and Discovery – with Discovery being South Africa’s largest open medical scheme and also the scheme responsible for the introduction of Medical Savings Accounts and ‘New Generation’ schemes to our industry – provide guidance for members as to how they may use their savings to help pay for premiums.
“Both schemes state that if any member has not used their prorated medical savings account to date – in other words only the unused amount (if any) which is available in savings from January to the present date – they may use this remaining allocation to offset their premium, and provide their own premium holiday by using their savings account,” advises Larkan. “Discovery and Momentum also state that, for members with carryover savings account balances from previous years, they may also use these savings to cover their premium.”
Larkan states that under the Medical Schemes Act, this use of the Medical Savings Account for contribution funding, is not normally allowed, but it has been permitted by the special dispensation granted by the CMS in this latest circular.
Discovery will be making personal contact with any member who qualifies for this relief to confirm with individual members regarding how many months’ relief they may apply for, to a maximum of three months.
“Analysis of our own healthcare clients, here at GTC, reveals that only 1.9% of our members actually qualify for this payment relief option as most people only have this year’s allocated savings, with very few members who were able to carry over balances from the previous year,” she says. “Further, very few people use less than the allocated monthly savings amount in the current year or have sufficient savings leftover or a sizeable balance to qualify for this ‘holiday’.”
- Small businesses with less than 200 employees can request a ‘premium holiday’
“Small, medium and micro enterprises (SMMEs) with less than 200 employees may approach their medical aid scheme to request a ‘premium holiday’ on the understanding that although premiums are not payable during this period, cover for their members is maintained,” advises Larkan. “But premiums will need to be repaid to the medical aid as soon as the ‘holiday’ is over.”
Larkan confirms that Discovery may grant small businesses a holiday period of up to two months to qualifying pre-existing employers who have between 10 and 200 employees and who make an application in writing (with special forms being available from Discovery). Discovery also states that provisions of the National Credit Act must be adhered to, that the repayment period may be a maximum of 12 months with a 0% interest rate.
For Momentum clients, a special written motivation is required detailing the financial effect COVID-19 has had on their company. This must be signed by the CEO or CFO and must provide details of what financial assistance is required, the period of time this is applicable to and what repayment conditions the company is able to commit to. It may be that some of these prerequisite determinants are difficult to determine under current conditions.
Larkan reiterates that whilst laudable in its motivation, the CMS’ circular is still short of practical solutions to help South Africa’s ailing economy through SMME support and assistance for the ever-increasing number of medical aid members who may currently have little or no income, specifically as regards the maintenance of current retained reserves ratios.
“While we all understand that at this time it is important for medical aid schemes and regulators to maintain their viability, unless more is done for members – who have no fault in their inability to pay premiums in the short term – there may be far fewer members on these schemes in the foreseeable future. This is because members may soon start leaving the scheme and forfeiting any claim to the reserve which they helped to build up and adding unnecessary additional burden to the already ailing public healthcare system,” Larkan concludes.
Some important notes to consider:
- The Premium holiday payable by the Savings Account may be used to claim Medical Tax Credits in reference of contributions paid. Thus, it will reflect as such on the Income Tax Certificate provided by the medical aid at Tax Year End. (This according to the latest Discovery COVID-19 FAQ documentation).
- If the member receives a subsidy from their employer and they elect to use their medical savings account to fund their premium, they will need to ask their employer to stop making contributions during this period.
- When considering the SMME size, their full staff complement must be taken into account (between 10 and 200) and NOT only those members who form part of the Discovery Medical Aid scheme.
- The employer remains responsible for the repayment of the amount in arrears at the end of lockdown. Should an employee leave, it is the employer responsibility to recoup any outstanding balance from the employee and NOT that of the medical aid.
- It is possible to apply the concession to only a certain category of employees. It is not necessary to apply this to the whole company.
GTC is a leading financial advisory business, specialising in the areas of retirement fund administration, consulting and counselling; healthcare consulting; private client wealth management; short term risk solutions; investment and asset management, fiduciary services and other areas of financial advice. GTC also operates a unit trust management company and is a licensed investment manager for both retirement funds and private clients in accordance with the Financial Sector Conduct Authority (FSCA).
Collectively the GTC group employs approximately 120 staff in three major national centres. Assets under management and administration total R42 billion.
Over 100 000 fund members participate in 350 retirement funds, most through one of several GTC umbrella funds. Additionally GTC consults to approximately 3 000 private clients in terms of their wealth management goals.
GTC was established in 1991 from within the Grant Thornton Johannesburg audit practice, itself part of Grant Thornton International. Effective late 2012, GTC was obliged to separate itself from Grant Thornton due to various international regulations imposed by the SEC in the United States, with Grant Thornton Capital changing its name to GTC and rebranding.
GTC has consistently been recognised within the industry for its leading principles when conducting best practice, and GTC has been awarded various awards over the years, culminating in the 2019 PMR.africa Diamond Arrow Award, being honoured as the highest rated company in the category of pension fund administrators and consultants administering between 100 000 and 150 000 members in this survey.
GTC is an enthusiastic supporter of the Arts. The financial advisory and wealth business is a proud sponsor of the Rotary Art Expo and specifically is the sole sponsor of the GTC Portrait Awards, a competition which has run for the last four years. GTC also contributes to the collection of art at our corporate offices in Illovo, culminating in several hundred pieces, many regarded as important South African artworks.
Additionally, GTC sponsors the Johannesburg Symphony Orchestra (JSO) as well as the Wanderers Golf Club. These projects are a social responsibility, a support of South African youth, and a BEE initiative. But the real reason why GTC enthusiastically supports these various initiatives is that they are all strong commitments to building a community. GTC believes this is as strong a commitment as a company can make. Most importantly, it feels to them like the right thing to do.
All info was correct at time of publishing