The medical schemes regulator is set to challenge Health Squared medical scheme’s high court application to wind up its business by August 31.
Health Squared stunned members with the news on Friday that it had applied to the Johannesburg High Court to close its doors, saying it was in such a precarious financial position that it could be insolvent by the end of the year. Quickly winding up the business while it still had reserves meant members were guaranteed their claims would be paid, it said in court papers.
The Council for Medical Schemes, the statutory watchdog charged with overseeing the interests of SA’s almost 9-million medical scheme beneficiaries, filed notice of its intention to oppose Health Squared’s application on Monday.
Health Squared’s principal officer Elias Mabena defended the short notice given to members, given eight working days to find other medical scheme cover, saying: “To ensure the success of interventions such as the one contemplated by the scheme, strict confidentiality is paramount. To alert members prior to the application being lodged would be reckless and result in panic and chaos.”
Health Squared had sought amalgamation with six medical schemes since January, without success. Its solvency ratio, a key measure of its ability to pay claims, fell from 17.3% at the end of 2020 to 6.04% at the end of 2021 and by June 2022 stood at 3.79%. The Medical Schemes Act requires schemes to maintain a minimum solvency level of 25%, ensuring they keep at least three months' contribution income in reserve as a buffer against an unexpected surge in claims.
Health Squared said its financial position deteriorated due to high Covid-19 expenditure, which contrary to the general industry trend was not offset by a drop in non-Covid-19 claims during the pandemic. It attributed this unusual scenario to its high proportion of older members. Mabena said 7,195 of the scheme’s 23,785 beneficiaries (30%) were pensioners aged 65 or older, compared to the industry average of 9%. The average age of its beneficiaries was 49.7 years, compared to the industry average of 33.6 years.
Mabena said the scheme’s high Covid-19 costs were driven by the high death rate of hospitalised patients, “in excess of 50%”, a figure significantly higher than the national picture.
Only 23% of the Covid-19 patients admitted to hospital in the first year of the pandemic died, according to a Lancet study by researchers at the National Institute of Communicable Diseases published in the Lancet.
SA’s biggest medical scheme administrator Discovery Health said overall in-hospital mortality for Covid-19 patients among its 19 client schemes was 16.16%. Hospital mortality varied between successive waves of infection, peaking at 21.27% in the third wave driven by the delta variant, but it was only 3.49% in the latest omicron-driven surge. It said the average age of the 3.6-million beneficiaries of its client schemes is 35.2 years.
Health Squared said it would seek help from the industry regulator to try to ensure its members have no break in cover when they join new schemes.
At issue is a gap in the Medical Schemes Act that allows medical schemes to impose a three-month waiting period on former Health Squared beneficiaries, during which time they must pay their contributions in full but be covered for only a limited basket of care, known as the prescribed minimum benefits. It means people needing costly treatments for conditions that fall outside this basket, such as joint replacements or spinal surgery, face the prospect of having to pay ruinous medical bills themselves.
The Medical Schemes Act explicitly protects members who involuntarily move from one scheme to another if they lose their job or their employer switches to a different scheme, but is silent on liquidations.
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