CMS Annual Report: Financial health of schemes and members declining as healthcare costs soar:
Findings of the Health Market Inquiry on increasing healthcare costs in the private sector and its recommendations for far-reaching changes to the current status quo have been echoed by the Council for Medical Schemes’ (CMS) annual report for 2018-2019 released in Cape Town, yesterday.
The report again painted a disturbing picture of spiralling healthcare costs, with medical scheme members bearing the brunt as their contributions and out-of-pocket payments continued to increase. Most concerning is the steep 11.3% rise in specialist costs, amounting to R43bn, up from R38.7bn in 2017.
Medical schemes also felt the pain of escalating claim costs and the poor economy with their financial health declining significantly compared to the previous year. While the consolidated results of open and restricted schemes after investment and consolidated adjustments still showed a R5bn surplus, it was almost R4bn down from the R8.93bn in the previous year. Net investment and other income decreased by 31.66% from R5.56bn in 2017 to R3.8bn in 2018. Open schemes had an average surplus of 820 million down from R4bn in 2017, while the surplus of restricted schemes declined to R4.2bn from R4.8bn in the previous year.
Seventeen of the 21 open schemes experienced a deterioration in operating results with the top ten schemes recording a deficit of more than R1bn before investment income. However, despite these declines, solvency rates remained significantly higher than the required 25%. The industry average solvency ratio increased to 34.54%, up from 33.19% in 2017. This was due to restricted schemes experiencing a 10% average solvency ratio increase attributed to GEMS reporting a 62.55% surge in its solvency levels from 15.22% in 2017 to almost reach the required 25% for the first time since its inception in 2006. The solvency ratio of open schemes decreased slightly from 29.7% to 29.3% in 2018 with four open and three closed schemes reporting solvency levels of below 25%.
Medical schemes’ expenditure on healthcare claims rose by 8% to R173.3bn, up from R160.5bn in the previous year. Gross contributions received from members increased by almost 7% to R192.3bn (up from R179.8bn) while the number of beneficiaries only increased by 0.4% to 8.92 million. This was an improvement on the previous year when membership declined but is still out of kilter with the growth of the country’s population, showing that only 15.4% of the population now has medical aid coverage compared to 16.5% in 2000.
Concerns were also raised about the significant rise in out-of-pocket expenditure with beneficiaries now paying 30% more on co-payments than in 2014 despite the steep rise in contribution costs.
CMS General Manager of Stakeholder Relations, Michael Willie says this can be ascribed in part to benefit design, members not having a thorough understanding of the different options and an increase in co-payments for some services in the year under review. In 2018, total out-of-pocket expenditure amounted to almost R33bn, up from R31.8bn in the previous year. Most of the out-of-pocket spending (33.5%) went to medicines, followed by allied and supplementary healthcare professionals (14%) and GPs (9.7%).
“We really need to look at benefit design to see if members are protected. Contributions are already becoming unaffordable and yet members are still paying more out of their own pockets,” Willie noted, adding that the hospi-centric design of most benefit options needs a complete overhaul to change the focus to primary care.
Total gross relevant healthcare expenditure incurred by medical schemes increased by 8.46% to R174bn in 2018 (90% of total spend) from R160.53bn in 2017 (88% of total spend). Risk claims increased by 8.64% to R157bn, up from R144.5bnin 2017.
According to the report, a combination of factors impacted on the claims experience of medical schemes including changing benefit design, demographic profiles, increased utilisation of benefits and a higher number of high-cost cases. Some medical schemes were also affected by widespread fraud and abuse of benefits, as well as wastage of resources.
“The industry trend in claims experience deteriorated in 2018 compared to 2017, with most schemes experiencing claims that were worse than expected in the year under review. The increase in VAT to 15% also had an impact on claims costs,” the report notes.
Schemes with the highest claims ratio include Sizwe (98%, up from 88%), Topmed (107%, up from 99.7%) and Spectramed (102%, up from 95%).
Although the rate of increase in non-healthcare costs has been slowing down since 2005, it is still too high. Gross non-healthcare expenditure for all schemes for 2018 was R15.79bn, up from R15.04bn in the previous year. Administration expenditure grew by 4.25% to R13bn from R12.6bn.
The report again expresses concerns over the remuneration of Principal Officers and trustees of some schemes with Discovery Health Medical Scheme (DHMS) and GEMS leading the pack. In 2018, DHMS Principal Officer, Dr Nozipho Sangweni earned more than R7.6m (up from R6.9m in 2017) and Dr Guni Goolab from GEMS, R5.8m, up from 4.3m in 2017. Both medical schemes earlier rejected the HMI’s recommendation that the salaries of principal officers be capped.
Of the total healthcare benefits paid, R87.8bn or more than half of the amount paid out, went to Prescribed Minimum Benefits.
This article was written and published in BusinessTech
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