Three medical aid schemes – Medihelp, Sizwe Hosmed Medical Scheme, and Transmed Medical Fund – did not maintain their medical scheme solvency ratios at or above the statutory minimum of 25% in 2023. This was a key finding in the Council for Medical Schemes (CMS) Financial Performance Industry Report 2023, released last week.
While the total number of medical aid beneficiaries saw a slight increase from 9,039,259 in 2022 to 9,127,453 in 2023, overall medical aid coverage has declined from 16% of the population in 2000 to just 14.7% in 2023. Medical scheme solvency remains an essential concern for the industry's sustainability.
Spotlight on Affected Schemes' Performance
The CMS report detailed the specific solvency situations of the three schemes:
- Transmed Medical Fund: Improved its solvency ratio to 23.79% in 2023 from 17.7% in 2022. However, this marks at least the fourth consecutive year it has failed to meet the 25% threshold, having recorded ratios of 19.72% in 2021 and 22.37% in 2020, underscoring ongoing challenges with medical scheme solvency.
- Sizwe Hosmed Medical Scheme: Experienced a significant deterioration, with its solvency ratio plummeting to 15.73% in 2023 from a compliant 25.59% in 2022.
- Medihelp: Saw its solvency ratio decline to 23.84% in 2023 from a healthy 33.93% the previous year.
Industry Solvency Dips but Remains Robust Overall
Despite these individual failings, Dr Musa Gumede, CMS Chief Executive and Registrar, noted in the report that the overall industry solvency, while declining from 47.14% in 2022 to 43.45% in 2023, "exceeds pre-Covid-19 pandemic levels" (34.54% in 2018 and 35.61% in 2019) and remains "significantly higher than the minimum required level of 25%." Medical scheme solvency, therefore, continues to be a balancing act involving multiple factors.
Dr Gumede attributed the mathematical decline in the industry’s solvency ratio, despite schemes incurring a net surplus, to the calculation method, where the denominator (contributions) increased. He anticipates this level will continue to decrease in the coming years before stabilising.
Rising Claims and Ageing Membership Exert Pressure
A significant factor straining medical schemes is the escalating cost of healthcare. "Relevant healthcare expenditure" (claims) per average beneficiary per month surged by 8.7% in 2023, from R1,840.48 in 2022 to R2,000.57, continuing a pre-pandemic trend of above-inflation increases.
Gumede said increased expenditure is a function of changes in utilisation and tariffs, with utilisation increases closely linked to the worsening demographic profile of medical schemes. Medical scheme membership grew by 1.04% in 2023, while the average age of beneficiaries increased by 0.27 years.
Post-Pandemic Adjustments and Pricing Challenges
The aftermath of the COVID-19 pandemic continued to influence medical schemes in 2023, with "increased utilisation due to the release of pent-up demand noted across the industry." This trend has reportedly continued into 2024 and has been factored into 2025 contribution increases.
During 2021 and 2022, many schemes implemented contribution increases below consumer inflation to provide financial relief to members. While this was possible due to reserves built up during the pandemic, Dr Gumede stated it led to "underpricing at an insurance service result level, resulting in a deficit of R6.73 billion for the 2023 financial year." He confirmed the CMS has encouraged schemes to correct this pricing gradually rather than through a single large adjustment to ensure medical scheme solvency.
Specific Scheme Challenges and Regulatory Responses
The CMS report provided further details on the schemes that failed to meet solvency requirements:
Sizwe Hosmed Medical Scheme: It saw that its relevant healthcare expenditure significantly outpaced contribution increases. After submitting three business plans during 2023 (the first retracted, the second rejected due to issues with claims assumptions, and the third rejected as actual 2023 results differed significantly from projections), the board and registrar agreed to appoint a statutory manager to address the medical scheme solvency issues. The scheme’s business plan for 2025 has since been approved.
Transmed Medical Fund: Its demographic profile is worse than the industry average, putting it at risk of a "death spiral" if pricing adjustments lead to the loss of younger members. Specific funding from the employer group supports its Guardian option, which has a high pensioner ratio. Except for its small Prime option (average age 75.51), its other options incurred surpluses in 2023. The registrar has approved the scheme’s business plans for 2024 and 2025.
Medihelp: Deliberately underpriced its benefits during the COVID-19 pandemic to provide member relief. The scheme corrected its pricing for the 2024 financial year, and the registrar approved its submitted business plan, ensuring future medical scheme solvency.