The Council for Medical Schemes and Operations of Medical Schemes During 2003/04

1. The Council for Medical Schemes and Operations of Medical Schemes During 2003/04 T. PATRICK MASOBE REGISTRAR OF MEDICAL SCHEMES

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 - R34 299 922 • Staff costs - R18 895 662 • Legal costs - R1 713 462 • Cost of accreditation - R1 200 000, and • Depreciation – R1 263 695

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

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

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

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 2 802 815. • 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 1 957 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!