Why reform is needed to sustain medical schemes to the benefit of beneficiaries

The Board of Healthcare Funders of Southern Africa (BHF) welcomes the Council for
Medical Schemes Annual Report for the 2017/18, released today in Cape Town. The report
provides a comprehensive report on the status of medical schemes industry in South Africa.
Despite the strong financial performance of schemes, there are still challenges in the
medical schemes’ environment says Head of Research, Charlton Murove from the Board of
Healthcare Funders of Southern Africa, speaking after the release of the 2017/2018 annual
report by the Council for Medical Schemes (CMS).

Quality of Care — The proportion of chronic beneficiaries receiving the appropriate level of
care is often referred to as the coverage ratio, with ideal coverage ratios being 100%. The
medical schemes were most effective in managing beneficiaries diagnosed with HIV, with
coverage ratios for monitoring tests (CD4 count and Viral Load test) as high as 81%.
However, for hypertensive beneficiaries the industry coverage was low, with 19% coverage
for the ECG test and 35% for the cholesterol test. Hypertension is the most prevalent chronic
disease in South Africa and requires more industry attention, with about 1 in 7 beneficiaries
being hypertensive in 2017.

Understanding Healthcare Expenditure — In 2017, total healthcare expenditure paid from
risk benefits amounted to R144,4 billion up from 135,8 billion in 2016. The bulk of the
expenditure went to hospitals at 41% followed by medicines at 14%. Medical Specialists and
General Practitioners jointly received 13% of the healthcare expenditure.

Murove highlighted that despite the better than expected financial performance, the
contribution increases are very high. The cost of healthcare is also consistently above
inflation and membership is declining. “It is therefore necessary to have reforms in this
environment — otherwise the medical schemes will find it difficult to remain sustainable in
the long term.”

Medical schemes managed to make surpluses of R8,9 billion in 2017 while the reserves
grew by R9,4 billion to R63,6 billion in 2017. This suggests a healthy industry, but a closer
inspection reveals a different story.

Weakening Risk Profile — The membership of the industry fell from R8,878 million
beneficiaries in 2016 to R8,872 million beneficiaries in 2017. The losses in membership
were in the age band 20 to 29. The rest of the age bands experienced growth in
membership. The expenditure on chronic conditions constitutes about 50% of the Prescribed
Minimum Benefits (PMB). The age bands that declined are the ones which generate
surpluses, while the ones that declined generate losses. This means that greater financial
strain will be put on the sector in coming years.

PMB expenditure — The expenditure on the PMBs continues to grow. On average it now
costs the industry R746 per beneficiary per month to cover the PMBs up from R681 in 2016.
In 2017, PMB benefits constituted 55% of risk benefits. In 2016, PMB expenditure
constituted 53% of risk benefits. The growing proportion of PMB expenditure over other
health benefits is a signal of financial pressures on the schemes.

Increase in unresolved complaints received by the CMS — The CMS received 4 667
complaints during 2017. They managed to resolve 3 579 complaints during the year, with 2
842 complaints remaining unresolved as at 31 December 2017 compared to 1 754
unresolved complaints as at 31 December 2016. Most of the complaints in 2017 were
administrative and related to incorrect payment of benefits. About 35% of the complaints
were resolved within 30 days and a further 20% were resolved between 31 to 60 days.
Murove concluded by stating that medical schemes had strong performance in 2017
however reform is needed to ensure the industry is sustainable to the benefit of the medical
scheme beneficiary

Note to editors: The BHF is a representative body of the healthcare funding industry. BHF
members include medical schemes, administrators and managed care organisations in
Malawi, South Africa, Mozambique, Swaziland, Namibia, Botswana, Zimbabwe, Lesotho.

For more information and interviews contact:

Nhlanhla Kubeka
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Zola Mtshiya
Board of healthcare funders of Southern Africa: Head: Stakeholder Relations
Tel: +27 11 537 0236
Email: zolam@bhfglobal.com