When choosing a Medical Scheme you need to find one that has the highest probability of being around in the long term. In this post we examine the important factors that you need to consider when choosing a Medical Scheme.
WHAT IS THE SCHEMES SOLVENCY?
A Medical Scheme’s solvency level is the amount of money the scheme has in reserves as a percentage of its contribution income. Medical Schemes are are required by law to have 25% of their contributions in reserves to cushion the scheme in the event that it suffers underwriting losses in a particular year. When choosing a Medical Scheme you should consider whether the Medical Scheme you are looking at meets with these requirements. A Medical Scheme whose reserves are way below the required level will either have to raise contributions steeply or reduce benefits it offers to its members or a combination of both.
DOES THE MEDICAL SCHEME HAVE CRITICAL MASS?
The Council for Medical Schemes states that a Medical Scheme should have at least 6000 members. Any Scheme under 20 000 principle members is relatively small, especially when it comes to negotiation power and achieving economies of scale. The larger the Medical Scheme, the greater negotiating power the scheme has when it comes to negotiating the rates to healthcare providers like doctors and specialists and hospital groups.
HAS THE SCHEME LOST OR GAINED A SIGNIFICANT NUMBER OF MEMBERS IN THE LAST 12 MONTHS?
You should look at a Scheme that is consistently growing by attracting new members. Such Schemes are more likely to serve member well and remain financially stable. A sudden loss or gain in the number of members may well be a result of a merger. Scheme members who are not happy with the change may leave the newly merged Medical Scheme. It is difficult for a growing Medical Scheme to maintain its reserve ratio. As, when new members join a scheme, this automatically reduces the the Scheme’s reserve ratio because the contribution income increases without there being a corresponding increase in the amount of money held in reserve.
If a Medical Scheme experiences a dramatic loss in membership you need to ask why? Maybe it is because the Medical Scheme has increased its contributions and rescued its benefits and members see better value elsewhere. Or maybe the Medical Scheme is experiencing administration and service delivery problems. You also need to ask the question that if the Medical Scheme is losing members what kind on membership profile is being left behind? This may well be an issue if the young and healthy are moving elsewhere and leaving the older and not to healthy behind. This does not bode well for any Medical Scheme out there.
HAVE THE SCHEME INCREASES BEEN ABOVE AVERAGE?
An important factor when looking at a Medical Scheme is its history of annual contribution increases. There are a number of factors that drive increases in Medical Scheme contributions.
- Increases in healthcare costs; what doctors, hospitals and other healthcare providers charge.
- Changes in the demographics of the Medical Scheme e.g. If a Medical Schemes members are getting older and there is not adequate young and healthy member joining the Medical Scheme to cross-subsidise the older and not to healthy.
- Whether or not the contributions have been adequate to cover the claims being paid out.
WHAT PORTION OF YOUR CONTRIBUTIONS ARE SPENT ON “NON HEALTHCARE” EXPENSES?
The non-healthcare expenses that your Medical Scheme pays includes administration costs, managed care fees, broker commissions and bad debt, while healthcare expenses include hospital costs, fees for specialists, general practitioners, dentistry, allied services and medicines. The Council for Medical Schemes has focused attention on the containment of these costs and has suggested that these costs should be less than 10 percent. Members need to be satisfied that they are receiving value for money in terms of these non-healthcare expenses.
WHAT IS THE SCHEME’S CREDIT RATING?
This is an important factor when looking at a Medical Scheme. Most Medical Schemes in South Africa are rated by a ratings agency, Global Credit Ratings, and these ratings measure each scheme’s ability to pay claims. If a Medical Scheme has an A or higher rating, it is generally stable. Your Scheme’s Website should provide you with the Scheme’s credit rating, if it has been rated.
IS THE SCHEME RUNNING AT AN UNDERWRITING PROFIT?
Check whether the Medical Scheme you plan to join is making an operating profit or loss. If it is making a loss the scheme is likely to put up contributions and or impose benefit restrictions or a combination of both. Some Medical Schemes purposely run options at a loss to gain members as the contributions are favourable, but the discounting contributions are not sustainable.
WHAT IS THE IMPACT OF THE GOVERNMENT EMPLOYEES MEDICAL SCHEME (GEMS) ON THE SCHEME YOU PLAN TO JOIN?
The Government Employees Medical Scheme (GEMS) is a restricted scheme and began operating in 2006. The Government gives incentives to its employees to join GEMS by offering them a higher subsidy on their contributions if they join the scheme than if they join any other Medical Scheme. It is therefore important to find out what percentage of members are Government employees and what the risk exposure could be should these members move across to GEMS.
DOES THE SCHEME HAVE A MEANINGFUL WELLNESS PROGRAMME?
Even if you have no interest in joining a wellness programme, you should regard such a programme as an advantage for the Medical Scheme you plan to join. This is because Medical Schemes who offer these programmes are generally more successful in attracting young and health members – who in turn subsidise the older and not to healthy. These programmes also have a positive impact on the health and lifestyle choices of existing members.