T. PATRICK MASOBE REGISTRAR OF MEDICAL SCHEMES The Council for Medical Schemes and Operations of Medical Schemes During 2003/04 T. PATRICK MASOBE REGISTRAR OF MEDICAL SCHEMES Give you the key findings & summarise the AR Encouraging to note that returns were submitted more timeously Quality of return improved

Presentation Outline Objectives of the Act Accountability structures of the Council Our Vision and Strategic Objectives Regulatory approach Our activities during 2003/04 Monitoring performance of schemes Resolution of complaints Consumer education and trustee training

Medical Schemes Act, 131 of 1998: the enabling Act The key policy objectives of which include to: Promote non-discriminatory access to privately funded health care Reduce unnecessary financial burden on the public sector Improve governance of medical schemes in the interests of members Promote greater financial stability in the industry Improve consumer protection through enhanced trustee and governmental oversight

CMS Accountability Structures MINISTER OF HEALTH Dr Manto Tshabalala-Msimang COUNCIL Chairperson: Prof. Nicky Padayachee CEO & REGISTRAR T. Patrick Masobe

Our Vision To regulate fairly and effectively in order to protect the interests of members and to promote fair and equitable access to medical schemes

Our 7 Strategic Aims Secure an appropriate level of protection for beneficiaries of medical schemes and the public by authorizing the conduct of medical schemes business and monitoring the financial performance and soundness of schemes Provide support and guidance to trustees and promote understanding of the medical schemes environment by trustees, beneficiaries and the public Foster compliance with the Act by medical schemes, administrators and brokers and initiate enforcement action where required Investigate and resolve complaints raised by beneficiaries and the public Monitor the impact of the Act, research developments and recommend policy options to improve the regulatory environment Foster the continued development of the CMS as an employer of choice Develop strategic alliances nationally, regionally and internationally

Our budget for 2003/04 Budget - R34 563 808 Actual expenditure - R34 299 922 Staff costs - R18 895 662 Legal costs - R1 713 462 Cost of accreditation - R1 200 000, and Depreciation – R1 263 695

Our Regulatory Approach Over the last two years we have focused on prioritising strategic interventions with greatest impact on the stability and sustainability of medical schemes This approach is based upon 2 key tenets Risk based framework; and Thematic regulation

Risk Based Regulation Focuses on identifying and solving problems which are most critical to achieving our statutory objectives Schemes are categorized into high, medium and low impact bands in terms of the extent to which their operations, and potential failure, may impact on the medical schemes environment Risk assessments are conducted for each high impact scheme, and risk mitigation plans developed for each such scheme Compliance with risk mitigation plans will be carefully monitored through frequent reporting, market intelligence and on-site visits This enables proactive management of risks before problems materialize, and allows for effective prioritization of resources

Thematic Regulation Our activities are increasingly integrated in “theme projects” whose results have greatest impact on our regulatory objectives: Fair treatment of members of medical schemes: Objective was to understand potential causes of unfairness to consumers and formulate strategies to respond to them Consultations were held with consumer bodies, schemes, trade unions and others in Feb 2004 Initial recommendations were shared with stakeholders and these have provided a basis for schemes to review their treatment of members Recommendations have also resulted in greater emphasis on fair treatment in our 2004/05 operational plan. Managed Health Care and Risk Transfer, to: Review current capitation contracts Assess the appropriateness of forms of risk transfer Propose mechanisms to ensure the appropriateness of risk transfer

Regulatory developments during 2003/04 Extension of prescribed minimum benefits (PMBs) to include 25 chronic conditions, from January 2003; Introduction of Designated Services Provider (DSP) settings for delivery of PMBs, Inclusion of HIV/AIDS treatment (HAART) within PMBs – as of Jan 2005.

Fostering compliance Improving governance within schemes Enforcing the ‘demarcation line’ between medical schemes and ‘health insurance’ products, Evaluating and approving the rules and constitutions of medical schemes; Accreditation of managed care and administration organisations.

Monitoring performance of medical schemes Operating results Solvency Ability to pay claims Trends in contributions and benefits Administration and other non health expenditures Membership

Finding 1: A sustainable financial recovery In 2000 schemes made a operating loss of R1bn. This began to be turned around in 2001 with an operating surplus of R169m, and R1bn in 2002 In 2003, operating surplus increased by 114% to R2,4bn – the third year in succession that schemes have enjoyed operating profits. Net surplus increased to R4,4bn - an increase of 78% on 2002

Trends in operating results

Overall scheme solvency has surpassed target Net assets increased by 43,6% to R14,7bn. Accumulated funds grew by 43,3% to R13,7bn Industry solvency improved by 27,9% to 29,2% This is already higher than the required 25% by end 2004. Translates into increasing protection for members Solvency levels provide an indication of the financial soundness and sustainability of a medical scheme. Ability to pay claims

Industry solvency trends since 2000

Solvency within open schemes

Solvency within restricted schemes

Average claims covered by cash and cash equivalents Financial soundness is also measured by its ability to pay claims. Number of months claims that scheme is able to cover from existing cash and cash equivalents

Finding 2: Total contributions and claims paid Total contributions increased by 12,5% to R48,6bn. Total claims expenditure increased by 8,6% R38,7bn. Total benefits – largest proportions:- hospital services (34,3%); medicines (22,3%); and medical specialists (19,7%).

Total benefits paid during 2003

Trends in claims paid per beneficiary

Claims ratio trend

Finding 3: Administration expenditure has risen less sharply Total administration expenditure increased by 10,4% to R4,5bn Open schemes - went up by 10,9% to R3,5bn Restricted schemes - went up by 8,8% to R978 million

Finding 4: Expenditure on managed health care has increased Managed care expenditure increased by 14,2% to R1,1bn from R966 million in 2002 Membership covered by these interventions has remained unchanged.

Finding 5: Continued increases in fees paid to brokers Fees paid to health care brokers rose by 64,1% to R581 million This, in the context where membership increased only 1,5%. These fees also reflect increases in contribution income & reclassification of co-admin fees.

Finding 6: Reinsurance losses continue to decrease In 2001 and 2002, schemes had lost R334m and R297m, respectively to reinsurance. New amendments of Act took effect during 2002 requiring approval of reinsurance. In 2003, these losses were down 58,5% to R123m, down 58,5%. Current data show even lower losses – R8m. Open schemes made a loss of R128 million. Restricted schemes made a profit of some R4,8 million Restricted schemes made a profit of some R5 million (only 4 out of 36 incurred profits >R1m) Note also that not a single scheme has collapsed because it did not have reinsurance. In fact most schemes that terminated these have done better financially, as their solvency levels show.

Trends in total non-health care expenditure

Finding 8 – Trends in membership Number of principal members of schemes increased by 1,5% to 2 802 815. Number of dependants declined by 1,9%. Total number of beneficiaries remained at approximately 7million.

Trends in membership

To summarise: industry is in good shape, but there are challenges Improvements in operating results appear sustainable

To summarise, industry is in good shape, but there are challenges Solvency has surpassed expectations

To summarise, industry is in good shape, but there are challenges Ability to pay claims has increased

To summarise, industry is in good shape, but there are challenges Non-health care costs are still high

In summary, industry is in good shape, but there are challenges Private hospital costs have increased Private hospital expenditure increased in real terms from R96,88pbpm in 1997 to R160,60pbpm in 2003 – annual increase of 8.8% above inflation. Ward fees have increased from R42,44pbpm to R61,60pbpm – 6.4% above inflation. Medicines have gone up from R15,16 to R27,97pbpm – 10,7% above inflation.

And, of course, contributions have to come down Annual increases of 12,5% still too high. These have to come down. As of 2005, schemes will have to justify increases above inflation, Gratified by current announcements of lower increases.

Resolution of members’ complaints We received 2 275, and 1 957 were found to be valid 40% of complaints were about unpaid accounts by schemes 12% were about outstanding refunds due to members 10% were about (unfair) exclusion from benefits Council has also adjudicated many appeals referred to us by members.

Consumer education and trustee training We conducted fifteen trustee training workshops and road-shows across the country, focusing on functions and responsibilities of trustees and the Act; Consumer education was also extensively covered, working with provincial consumer offices, advice centers, trade unions and other NGOs But consumer education is a massive challenge that requires resources!