Annual Report of the Council for Medical Schemes Dr Monwabisi Gantsho Chief Executive & Registrar Presentation to the Health Portfolio Committee Cape Town, 11 October 2013

Introduction of delegation -CE & Registrar -Council member: Prof. Bonke Dumisa -CFO: Mr Daniel Lehutjo -Head Financial Supervision: Ms Tebogo Maziya 2

Contents 1. Legislated mandate 2. Strategic goals 3. Challenges to strategic goals 4. Performance of medical schemes 5. CMS Annual Financial Statements 3

Legislated mandate Medical Schemes Act 131 of 1998 Act governs Council and industry -Medical schemes -Administrators of medical schemes -Managed care organisations -Brokers Heart of the Act: protection of beneficiaries and regulating medical schemes industry Entire health system benefits 4

Strategic Goals Goal 1 – Access to good quality medical scheme cover is maximized Goal 2 – Medical schemes are properly governed, are responsive to the environment, and beneficiaries are informed and protected Goal 3 – CMS is responsive to the needs of the environment by being an effective and efficient organisation Goal 4 – CMS provides influential strategic advice and support for the development and implementation of strategic health policy, including support to the NHI development process 5

Challenges to achieving strategic goals Demarcation: medical schemes vs health insurance Medical Schemes Act is a unique piece of legislation that serves the public interest through social security provisions & the protection of human rights Medical Schemes Act & the protection it offers is currently under threat from unregulated health insurance products (such as gap, cash back schemes & top-up cover) Health insurance products discriminate against the most vulnerable groups in society (the sick & the elderly); they also threaten the National Health Insurance (NHI) system Only medical schemes offer adequate protection If you do the business of a medical scheme, you must be registered & regulated by the CMS through the Medical Schemes Act. The CMS remains a national asset in the changing environment. 6

Challenges to achieving strategic goals Gap cover – Through risk rating, restricted enrolment, and no minimum benefits, GAP cover, and other short term insurance products erode the cross subsidisation from young & healthy to sick & old. High healthcare and non health costs – Competition Commissioners enquiry. Price determination body Complaints – High volume of complaints are still received, especially arising from Clinical resolution. Limited capacity in this area. Legal fees – Regulatory environment is highly litigious. Limited resources. 7

Challenges to achieving strategic goals Governance in Schemes – Lack of skills and expertise in some boards – No arms length relationships between trustees and third parties – No fit and proper standards established  As a result of these governance issues schemes are normally placed under curatorship. 8

Challenges to achieving strategic goals Payment in full provision challenged – Some schemes challenge the “payment in full provisions” in the regulations and Cover PMBs ( ) only in terms of scheme rules Managed care interventions Increase in utilisation, tariffs and technology present affordability challenges – Cost: Absent health price determination framework Increasingly larger portion of benefits go towards PMBs GAP cover drives up professional fees 9

Consolidation 10

Consolidation cont. Projections based on a median of 3 mergers per year 11

Performance of the medical schemes industry

Trends in number of schemes and beneficiaries 13

Trends in age of beneficiaries 14

Monies spent by schemes (risk pool) 15

Total benefits paid 16

Claims costs papa: 2012 prices 17

Non healthcare expenditure : 2012 prices 18

Net healthcare results 19

Solvency 20

CMS Annual Financial Statements 21

Audit Report Report on the financial statement – Unqualified Opinion Emphasis of matter Restatement of corresponding figures – Useful life re-estimation (note 10.2) – Reclassification of expenditure from function to nature (note 10.1) – Procurement and contract management The preference point system was not applied (above R30,000 and below R500,000) 22

Statement of financial position 23

Statement of financial position 24

Statement of financial position 25

Statement of financial position 26

Statement of financial performance 27

Revenue from exchange transactions 28

Other income 29

Statement of financial performance 30

Statement of financial performance 31

Statement of financial performance 32

Statement of financial performance 33

Tenders CMS adjudicated two (2) tenders in the period – Internal audit services – Lease of office accommodation Over R10 mil Followed National Treasury guidelines Internal audit issued a certificate 34

THANK YOU 35