The medical schemes regulator is in urgent talks with seven of SA’s biggest open medical schemes to absorb Health Squared members, who were sent scrambling for alternative cover after it announced on Friday that it was seeking voluntary liquidation.
The stakes are high because the schemes need to balance the interests of their current members against those left stranded by Health Squared’s unprecedented move.
Six of the schemes — Bestmed, Bonitas, Discovery Health Medical Scheme (DHMS), Medihelp, Medishield and Sizwe-Hosmed — were previously approached by Health Squared as potential merger partners, and all rejected its overtures because they believed amalgamation would prejudice their existing members. Momentum has also been approached by the regulator.
Health Squared not only has a much older membership base than the industry average, which means higher health expenditure, but also has low and rapidly dwindling financial reserves. Its solvency ratio, a measure of its claims paying ability, has never met the statutory requirement of 25%, and has fallen precipitously from 17% in December 2020 to 2.1% in July.
Council for Medical Schemes (CMS) registrar Sipho Kabane said he hoped the schemes would waive the underwriting provisions in the Medical Schemes Act, which allow them to impose waiting periods on new members. During waiting periods, members pay contributions but do not have full cover. The act protects members who involuntarily change scheme due to changes in employment, or changes made by their employer, but is silent on liquidations.
Kabane said he had proposed the schemes share the risk of absorbing Health Squared members “in an equitable way”, but did not elaborate on how this could be achieved. A plan for Health Squared members would be finalised on Thursday, he said.
The CMS intended to oppose Health Squared’s high court application for voluntary liquidation and would seek to place the scheme under curatorship, said Kabane. This would give the regulator control over the process, and enable it to determine what had gone wrong, he said.
When asked why the CMS, which is charged with safeguarding members’ interests, had not intervened sooner to arrest Health Squared’s decline, he said: “The CMS has been trying to intervene since the merger (referring to Health Squared’s inception upon the amalgamation of Resolution Health and Spectramed in 2018). We got pushback from the board of trustees,” he said.
Business Day approached all seven schemes for comment. The majority voiced concern over the financial impact of taking on Health Squared’s older and sicker members, saying their primary responsibility was to protect the interests of their current members.
“Given the insights that have been shared, incorporating all the members of Health Squared into Momentum Medical Scheme would have a negative impact on our members not only in the short term, but also on the future sustainability of the scheme,” said its principal officer Toni van den Bergh.
DHMS estimated absorbing Health Squared’s more than 23,000 beneficiaries could result in contribution increases for 2023 that were 0.4% to 0.6% higher than current projections. Its principal officer Charlotte Mbewu said the scheme was willing to work with the regulator and other schemes to try to arrange an orderly transfer of Health Squared members.
As there were no provisions in the Medical Schemes Act to guide such a process, one option would be to appoint an independent actuarial expert to determine a fair allocation per scheme, said Ryan Noach, CEO of DHMS administrator Discovery Health.
Bonitas principal officer Lee Callakoppen said absorbing Health Squared members would impact the scheme’s solvency position and reserve levels, and in the long term could require higher contribution increases, a sentiment echoed by Medihelp, which said it had to act in the best interests of its members.
Sizwe-Hosmed’s principal officer Simon Mangcwatywa said the wellbeing of Health Squared members also needed to be considered. “We are willing to partake in whichever way can ensure these members are not worse off in these difficult times,” he said.
Update: August 23 2022
This story has been updated with new information throughout.
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