Small open medical schemes in danger (IOL)

The 2012 benefit cycle might prove more difficult for smaller medical schemes and could threaten the existence of smaller players in the open schemes environment, health insurance experts said yesterday.
Global Credit Ratings (GCR) said that medical schemes faced a number of challenges in the short term, including slow membership growth, and schemes might find the forthcoming benefit cycle tougher than expected, as the ruling on paying prescribed minimum benefits (PMBs) in full was predicted to have a negative effect on some scheme’s finances.
GCR’s head of medical scheme ratings, Sheri Few, said smaller schemes that did not have designated service provider arrangements in place, might find themselves having to subsidise claims with reserves. This would affect the scheme’s financial soundness, as well as its ratings.
These challenges could lead to mergers between schemes, particularly the swallowing of smaller players, Few said.
She said GCR was receiving an increasing number of queries from members of the public regarding the credit ratings assigned to medical schemes and the implications.
“This suggests that individuals are increasingly basing their choice of medical scheme not only on pricing and service levels, but also on the financial soundness of the scheme and its sustainable claims paying ability,” she said.
But Few said that according to GCR’s ratings distribution, which takes into account all rated schemes over the past five years, the majority of schemes remained concentrated in the upper ratings bands, and some schemes were saved by mergers.
GCR measures schemes’ claims paying ability in terms of a number of factors, including the scheme’s exposure to risk, membership size and profile, solvency and liquidity, competitive position, as well as management quality. A claims paying ability rating looks at the scheme’s ability to service its claims over a 12- to 18-month period and is reviewed at least annually by GCR.
Few said given the new ruling that schemes must pay claims for PMB conditions at the full billed rate, GCR’s ratings would continue to centre on determining a scheme’s ability to pay all claims from a financial point of view.
Barry Childs, the owner of Lighthouse Actuarial Consulting, said this year medical schemes would be under pressure to keep costs within contribution levels and the price burden of PMBs would add some extra pressure.
“PMBs will make things a little harder than before, but it’s always something, if not that then it’s something else. Overall, I don’t think it’s dramatically harder now than in some years past.”
But he said even though consolidation would not accelerate, as growth in the industry was now coming from the “lower-income options”, which typically offered restricted benefits and networks of health-care providers, open schemes might be more vulnerable than the restricted ones.
“Restricted schemes that are well reserved can remain sustainable even with relatively small membership sizes, but small open schemes will find it increasingly difficult to survive as they struggle with limited scale. I would expect that there will be five or so large open medical schemes within the next 10 years,” Childs said.
Heidi Kruger, the spokeswoman for the Board of Healthcare Funders, said for the past three years medical schemes had been operating at a deficit, paying more out in claims than they collected in contributions.
“This fact, coupled with messages from the Council for Medical Schemes that schemes must pay whatever the provider charges for PMBs and the reckless charging for PMBs by some providers, makes the medical scheme environment vulnerable,” she said.
Kruger said the lack of a proper tariff and open-ended liability for medical schemes would render the entire industry vulnerable over time.
“Our view is that the council should explore (its) powers with regards to the publishing of a tariff for PMBs, as we believe this is within (its) powers.”

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