Insolvency scare - medical schemes

The latest government institution to cry about its financial troubles is Government Employees Medical Scheme (GEMS). It’s financial woes are so bad that they could reportedly be insolvent by the financial year-end, leaving their 1.8 million members without cover provided by GEMS. 

But all is not lost yet. In order to prevent going down that road, the scheme would either need to rely on Treasury’s financial assistance or opt to merge with another scheme. 

“If Treasury simply bails the scheme out and no strategies are employed to mitigate this kind of situation in future, then it will serve little good.  In my view, the structural issues need to be looked at.  These would include, implementing the waiting period legislation in order to protect the funds of existing members; and, the introduction of a regulated reference price list or tariff which providers of service must adhere to,” stated Heidi Kruger, an independent health communications consultant.

Should the scheme, however, fail to find a viable solution it would reflect badly on both government and the Council for Medical Schemes. 

One of the many challenges faced is that there is no formal tariff which doctors must charge. 

“This has resulted in above average charges by some healthcare providers for the Prescribed Minimum Benefit conditions.  It also means that schemes are unable to budget accurately because they do not know what these providers will charge, but must still pay in full for the benefit,” added Kruger.

Another challenge faced is that GEMS reportedly does not apply underwriting to new members joining the scheme. 

“As you know, medical schemes are run on principles of social solidarity which means that all members must be charged the same, regardless of the risk which they bring to the scheme upon joining.  However, what the Medical Schemes Act does allow, is waiting periods.  In other words, when a person applies to join a scheme, the scheme can impose either a general waiting period (where the member is not allowed to claim for a certain length of time); a condition-specific waiting period (where a pre-existing health condition will not be covered by the scheme for a certain length of time; or, both of the aforementioned.  

“Waiting periods protect the funds of the existing members.  In other words, the waiting period legislation prohibits a new member from joining the scheme, paying one month's contributions and then claiming for a high cost intervention, like an expensive hospital procedure, or expensive medicines - thereby using money from the risk pool which existing members have been building up by paying their contributions for a longer time,” stated Kruger. 

While there is no doubt that structural changes need to be made, the concern arises in relation to how this will affect scheme members and to what extent. 

“An independent industry source has stated that if the scheme solvency is currently at 5%, it will require annual contribution increases of about 14% for the scheme to reach the statutory 25% level by 2020, failing which benefits will also have to be reduced,” reported BDLive.

This further increases fears that many of the members may not be able to afford this increase.  

Along with structural changes, the scheme will most likely undergo a benefits redesign which could see members forking out more in co-payments for certain procedures. 

Questions have circulated about what this means for plans around the heavily debated National Health Insurance (NHI), as it was the hope that GEMS would act as a funding model for this programme. 

“Although the proposed NHI will be based on similar principles to those which medical schemes are based on currently, there are a number of aspects where the NHI will be quite different,” added Kruger. 

GEMS not the only scheme facing insolvency

While the spotlight currently falls on this scheme, Kruger believes that GEMS is the only scheme in this predicament. 

“Many schemes currently face the challenge of “anti-selection.  Anti-selection is where members join to utilise the benefits/funds and then leave the scheme.  I believe that an industry-wide solution must be found to mitigate this trend,” said Kruger.

*Despite being contacted, GEMS failed to provide comment at the time of publication

  Handy tip: Make sure to reassess your medical aid plan and scheme yearly to make sure it is still the one best suited to you. To compare other schemes and their benefits, click here.