The first is the announcement of a 2013 contribution increase of around 10.3% from GEMS. The second is an article titled “More fat than muscle?” that was carried in the Financial Mail last week.
My goodness. A show of hands please. Who thinks this is a flattering picture?
Anyways, the article starts out by pointing out that the average medical scheme contribution increase (approved by the C4MS – just in case anyone forgets) are quite high and above the CPI+3% mark (that has taken on a life of its own). The piece then wanders into a discussion of the balance of power between medical schemes and provider groups and apparently comes to the conclusion that this is the sole reason for the high increases. In doing so it completely misses the point.
The two largest medical schemes in the country (GEMS and Discovery) both put through double digit contribution increases for 2013. Both were quick to point out that the increases are larger than they would otherwise have been, not because the schemes are in trouble, but because they are growing and the C4MS is riding them hard to get their reserves up to the minimum levels required by regulation.
Since they are so very large their influence on the industry average contribution increase cannot be ignored when making statements about medical scheme contribution inflation. Of course the CMS Indaba held last week just highlighted again how lazy C4MS officials are when it comes to allowing for such complications. So they didn’t.
Back in July an imp of an actuary made the point at the BHF conference that the level of reserves required by regulation is plain silly, especially in the case of these super schemes.
Should GEMS and Discovery get to the minimum 25% solvency level they will be like Smaug the dragon from the Hobbit (coming soon as a movie!): sitting on a giant pile of gold. What does a dragon need gold for anyways? To buy fire extinguishers? Throat lozenges?
The regulations require these two schemes combined to hold around R11 billion in cash (or close to cash – it will still be unproductive money) to protect against a rainy day. R11 billion?! That speaks more to meteorological events of a biblical scale than your common or garden variety rainy day.
If the goal of the exercise is to protect schemes from uncertain claims experience then there are other, much more efficient ways to achieve that such as (properly regulated) reinsurance. The C4MS’s relationship with reinsurance is an interesting story in itself. Suffice it to say that the C4MS waged a successful holy war that resulted in a situation where the use of reinsurance by medical schemes is so uncommon that we can ignore it in this discussion.
Now the only legal way a medical scheme can build the required mountain of gold is by taking (more) money from their hard pressed members in the form of higher contributions. The C4MS’s blind insistence that schemes comply with Regulation 29, combined with the fact that these regulations have been left unchanged since 2000, is a significant factor making medical scheme cover more unaffordable.
Funny how they never talk about this aspect. Much more fun to bash healthcare providers I guess.
Come to think of it the current Registrar rather does like bashing everything and everyone..