1. 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

2. 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

3. 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

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

5. 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

6. 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

7. Our budget for 2003/04 Budget - R34 563 808
Actual expenditure - R
Staff costs - R
Legal costs - R
Cost of accreditation - R , and
Depreciation – R

8. 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

9. 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

10. 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

11. 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.

12. 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.

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

14. 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

15. Trends in operating results

16. 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

17. Industry solvency trends since 2000

18. Solvency within open schemes

19. Solvency within restricted schemes

20. 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

21. 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%).

22. Total benefits paid during 2003

23. Trends in claims paid per beneficiary

24. Claims ratio trend

25. 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

26. 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.

27. 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.

28. 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.

29. Trends in total non-health care expenditure

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

31. Trends in membership

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

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

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

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

36. 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.

37. 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.

38. Resolution of members’ complaints
We received 2 275, and 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.

39. 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!