See how smaller medical schemes can save you money

smaller medical schemes save money

Does the size of a medical aid scheme matter?

The only aspect about the size of a medical scheme that matters, is its ability to pay members’ claims. Put differently, the size – or strength – of a medical scheme, is not determined by the size of its membership. It is determined by the financial strength and thus sustainability of a scheme.

The financial strength of a medical scheme is measured by its “solvency ratio”. This term refers to the minimum accumulated funds to be maintained by a medical scheme as per Regulation 29 of the Medical Schemes Act. It is expressed as a percentage (%) of the gross annual contributions in a financial year. The solvency ratio may not be less than 25% of the gross annual contributions.

Smaller schemes ranked top

GTC (formerly known as Grant Thornton Capital) used to publish an annual medical aid survey. This study analysed the rates of all the open medical scheme benefit options, as well as closed scheme Profmed.  This comprehensive survey included both micro and macro ratings systems which measured, amongst others, factors such as value for money (benefits offered vs contributions levied), the size and growth of the schemes, their financial stability (solvency), net healthcare results and service levels.

According to the GTC annual medical aid survey, small and medium size medical schemes performed exceptionally well in relation to some of the larger and more “well-known” schemes.

General perception has it that large schemes should be able to negotiate lower administration and healthcare costs, which should in turn give members the benefit of richer healthcare benefits at lower contribution rates. However, the results of the survey were not consistent with this assumption.

According to latest Council for Medical Schemes (CMS) Annual Report 2021-2022, the five smallest open medical schemes in SA (of 16 open medical schemes) had the highest solvency ratios. These schemes, who have been in operation for between 27 and 62 years, are Genesis Medical Scheme, Cape Medical Plan, Suremed, Medimed and Makoti.

In contrast, 4 of the 5 largest open medical schemes had the lowest solvency ratios. At the time when Health Sqaured Medical Scheme applied for voluntary liquidation, they had some 37,000 beneficiaries and were the 9 th largest open medical scheme in SA. Their solvency ratio, however, was about 2%.

The real size if a medical scheme is therefore not determined by its membership size, but rather, their financial strength and sustained ability to settle members’ claims. According to the CMS Annual Report 2021 – 2022, some of the biggest open medical schemes in SA were beaten hands down in terms of their reserves (solvency) in comparison to some smaller schemes.

  • The largest open medical scheme in SA had the third lowest solvency ratio;
  • The second largest open medical scheme in SA had the second lowest
    solvency ratio;
  • The third largest open medical scheme had the fourth lowest solvency ratio;
  • Two of the three largest open schemes scored the lowest in a recent survey
    conducted by Consulta in terms of their “Net Promoter Score”, which
    measured the likelihood of their members recommending their scheme;
  • Two of the three largest open schemes increased their most recent (2023)
    annual contributions by more than 8% per month. This increase was despite
    the CMS’s recommended annual increase of no more than 5.7%.

Net healthcare result vs annual contribution increases

The net healthcare result of a medical scheme is calculated as follows:

[operating income (contributions levied) + investment income] minus [healthcare expenses + non-healthcare expenses]

The net healthcare result is therefore the surplus (or deficit) that is reflected at the end of the financial period once all expenses have been deducted from the income that was received by a scheme.

Medical schemes in South Africa may not borrow money. Therefore, when a medical scheme shows a negative net healthcare result, they have to “make up“ or recover the money. These losses are usually recovered by either making annual contribution increases higher than average, or by reducing certain benefits, or both.

According to latest CMS Annual Report 2021-2022, the largest open medical scheme showed the largest negative net healthcare result. It was therefore no surprise when this scheme announced the third highest average contribution increase (percentage) for 2023.

In fact, two of the three largest open medical schemes in South Africa reported a negative net healthcare result and both these schemes announced average contribution increases above 8% for 2023.

Only seven of the sixteen open medical schemes reported a positive healthcare result according to the CMS Annual report 2021-2022. Of those seven schemes, two of them (Genesis and Medimed) had less than 10 000 members. Genesis was also the medical scheme who announced the lowest percentage annual contribution increase for 2023. In fact, with the exception of 2021, Genesis has held the record for the lowest annual contribution increases (expressed as a percentage) since 2011.

Do your homework and shop around

Whilst larger medical schemes are generally speaking able to attract the bulk of new members mainly because of perceived market share / popularity, they may not necessarily offer the best value for money.  New and existing members should do their homework well to make sure that the healthcare cover they have or need, is suitable to both their needs and their budget. They also need to consider factors such as the solvency of a medical scheme, annual increase patterns and the pensioner ratio, to mention a few.

More affordable medical aid benefit options may provide similar or better cover than some more expensive options, but at the same time, the cheapest plans don’t provide unlimited and / or comprehensive cover.

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