CMS Annual Report 2019/20 – Industry faces serious sustainability challenges

The Council for Medical Schemes (CMS) released its 2019/20 Annual Report on Tuesday, revealing a concerning view of the medical schemes industry which experienced a slight increase in the total number of medical scheme beneficiaries from 8.92 in 2018, to 8.95 million in 2019.

As at 31 March 2020 the CMS regulated 76 medical schemes, 19 administrators, 41 managed care organisations, 1 078 broker organisations and 6 053 individual brokers.

A few trends:

On the positive side

The schemes have maintained an average solvency ratio of 35.61% compared to the statutory requirement of 25% throughout the period under consideration
Four schemes failed to meet the 25% statutory solvency ratio between 2014 and 2019
The number of Efficiency Discounted Options (EDOs) increased from 40 in 2014 to 69 in March 2019

On the negative side

The number of scheme beneficiaries only grew by 0.8% between 2018 and 2019
There was a reduction in the number of schemes from 83 in 2014 to 78 in 2019
The proportion of the beneficiaries covered by the EDOs remained stagnant at 25.8% throughout this period
Poor governance and financial management of schemes resulted in a number of schemes being placed under curatorship in this period
The number of accredited administrators decreased from 28 in 2014 to 26 in 2019
The number of accredited brokers decreased from 10 780 in 2014 to 10 144 in 2019
The number of accredited managed care organisations increased from 39 in 2014 to 44 in 2019

“The main conclusion that can be drawn from these observed trends is that the medical aid industry is faced with serious sustainability challenges. These challenges are characterised by low beneficiary growth, reduction in the number of registered regulated entities, increasing beneficiary dissatisfaction and an increase in the number of non-EDO scheme options,” according to the CMS.

A deeper dig into the statistics

Biggest schemes: The biggest open medical scheme continued to be Discovery Health whilst Government Employees Medical Scheme (GEMS) also kept its hold as the biggest restricted scheme. GEMS also experienced the highest year-on-year growth with 53 102 new beneficiaries.
Dependents: Principal members covered an average of 1.20 dependents, decreasing from 1.32 in 2018. The gender distribution of members was also almost equal in all schemes, although the average age for females was higher with 34.1 versus 31.9 in male members. Medical scheme members are ageing, with average age across schemes being 33 years, up from 32.8 in 2018.
Membership according to province: Based on principal member addresses, approximately 40% of all medical scheme members were in Gauteng, followed by the Western Cape, and KwaZulu-Natal with 15% and 14% respectively.

Non-healthcare expenditure

Non-healthcare expenditure (NHE) refers to all other expenditure incurred by medical schemes that is not related to relevant healthcare services i.e. claims. It consists mainly of administration expenditure, broker costs and impaired receivables.

The gross NHE for all medical schemes at the end of 2019 was reported at R16.55 billion, an increase of 4.84% from R15.79 billion in 2018 (R15.04 billion in 2017). Broker fees contribute almost 15% (14,8%) of the total gross non-healthcare expenditure. Administration expenditure was the main component of non-healthcare expenditure, namely 83,62% (2018: 83.10%) amounting to almost R14 billion.

Broker costs increased by 9.19% from R2.24 billion in 2019 to R2.45 billion in 2019 (2018: 8.17%). For schemes that pay broker service fees, the amounts paid on a per average member per month basis increased to R78.53 in 2019 from R72.75 in 2018, representing an increase of 7.95%.

Click here to access the 304-page Annual Report of the CMS.

Click here to download the Excel Annexures which contains detailed information on medical schemes.

CMS News: Click here to read “Registrar loses bid to place medical fund under curatorship”.

It appears that, despite the precarious state of the country’s economy, the die-hards are still steadfastly focused on flogging the NHI horse, rather than fixing what is already in place. Whilst the 2020 annual report will no doubt vary greatly from this one, the economic havoc wreaked on household incomes will no doubt reflect in the figures.

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