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Healthcare
April 2, 2019

SA's medical schemes industry in good shape

<strong>By: Alexander Forbes</strong>

<h2><strong>Health of SA's medical Schemes Industry in good shape, says Alexander Forbes</strong></h2>

Alexander Forbes Health has published its latest edition of <em>Diagnosis</em>, an annual publication that analyses key trends in the medical schemes industry from 2000 to 2017.

“Members can be confident that the country’s largest schemes, both open and restricted, have sufficient reserves to pay their claims,” says Zaid Saeed, Senior Actuarial Specialist at Alexander Forbes Health.

These insights were drawn from the Alexander Forbes Health Medical Schemes Sustainability Index which tracks key performance metrics of medical schemes and aims to provide a comparative assessment of future sustainability between schemes.

The index is calculated from a base year of 2006 and considers a scheme’s membership size, membership growth, average beneficiary age, operating results, accumulated funds per beneficiary, and trends in the scheme’s solvency levels.

“In the open schemes industry, the sustainability index for the top 10 schemes has improved since 2006, meaning that the medical schemes industry has become stronger,” says Saeed.

Among restricted schemes, Polmed has been the top performer in the index over the 10-year period considered, although it was not the top performer for 2017. The scheme achieved an operating deficit for 2017 and saw a decline in its level of reserves. Transmed has consistently been one of the worst performers on the index because of its sustained loss of membership, worsening demographic profile, low solvency ratio and persistent operating deficits.

<strong>Other key findings included in <em>Diagnosis</em> include:</strong>

<ul>

<li>The number of medical schemes reduced to 80 in 2017 driven by amalgamations and liquidations in the industry.</li><li>The growth in principal members slowed to 0.5% from 2016 to 2017, compared to growth of 1% from 2015 to 2016.</li><li>The average age of beneficiaries increased to 33.2 years at the end of 2017 (2016: 32.5 years), with the pensioner ratio rising to 8.4% (2016: 7.9%).</li><li>Family size has consistently declined over the last 17 years. At 31 December 2017 the average family size was 2.21 compared to 2.59 at the end of 2000.</li>

</ul>

Saeed said affordability of medical aid cover was the reason behind decreasing family sizes. “For those in formal employment private medical cover is usually a condition of service, but in a struggling economy members are removing one or more of their children from cover before cancelling their own membership. Younger members of a household are generally healthier and therefore less in need of medical cover.”

The increasing average age and pensioner ratio of members indicates a worsening risk profile of the industry. “This is one reason why members’ contributions increase in excess of CPI inflation annually, as it requires a medical scheme to adjust its pricing to absorb a higher rate of benefit utilisation by its members.”

Saeed said operating results in the industry seem to follow a three-year cyclical pattern. “Due to volatility in claims experience, schemes tend to over- and under-compensate when correcting their pricing, which can cause peaks and troughs in operating results from year to year.”

The industry had been consistently generating operating deficits since 2014 but this trend reversed in 2017. “Overall, the demographic profile and financial strength of the industry remain stable.”

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