Are umbrella medical funds the way forward?

Jill Larkan, head of healthcare consulting, GTC

The council has acknowledged that certain schemes below this threshold are doing well on many fronts, namely advantageous average age profiles, lower non-healthcare expenditure, and positive acceptable scheme surplus levels and solvency. But of the 29 schemes in South Africa with fewer than 6,000 main members, 26 are closed schemes, and essentially these are constrained in recruiting new members, affecting both their claims experience and the number of member benefit options available within these schemes.

The most appealing of the consolidation methodologies considered by the CMS is the umbrella medical aid fund arrangement. These have successfully been implemented within the pension fund industry over the last 15 to 20 years. In my opinion, this is a very positive consideration, which would allow for risk pooling, benefit consolidation and cost reduction.

Statistical approach

The council says it is in the unique position to identify beneficial amalgamations resulting in the optimal pairings of schemes given their financial, demographic and clinical considerations, which they will extrapolate using long-term simulations of claims. These factors along with claims experience and the uniqueness of membership, should all be used to inform the consolidation basis going forward.

If, over the next year, the council gathers sufficient data on chronic medication, demographics of additional dependants, average size of claims per risk factor, eligibility criteria and subsidy policies - with a view to using these in a mathematical analysis of the interaction of these factors - to gauge how they contribute to the financial sustainability of schemes and the healthcare industry, I firmly believe the council will be in a good position to define a new set of criteria which would encourage amalgamation in the most favourable and cost-effective method, and also which would benefit scheme members first and foremost.

If the proposed umbrella medical scheme format resembles the Government Employees Medical Scheme, which could see the healthcare industry following the path of the employee benefits and pension fund industry, this would bring about a significant reduction in governance requirements and associated management costs, offer members more options and benefits, and further the objectives set out in Section 322 of the NHI White paper released in 2017 - amalgamating options and schemes.

Taking an innovative statistical approach to analysing schemes, to ensure the most beneficial outcomes for members, will lead to suitable alternatives for consideration. The role to be played by large industry players, who may be better suited to absorbing these smaller schemes, remains to be seen. It may be that the council encourages amalgamation only among smaller schemes, which I believe could still be attractive to smaller schemes because of the resultant creation of a greater geographical network and member cohort, allowing for, among other benefits, the negotiation of better rates from service providers.

The council’s pragmatic approach appears to be siding with the medical scheme member more vigorously than before, and this will deal effectively with the number of schemes under review and that the umbrella scheme format will go a long way to stabilising the industry at large.