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SA medical aid schemes’ challenging financial performance

By: Roshan Bhana, Head of Technical and Actuarial Consulting at Alexander Forbes Health

Corporate healthcare consultancy Alexander Forbes Health Technical and Actuarial Consulting Solutions has published Diagnosis, an annual publication that analyses key trends in the medical schemes industry.

Most medical schemes had posted poor financial results. In 2015, 49 of 83 medical schemes failed to achieve an operating surplus and had to draw on their investment returns, an unsustainable strategy for the future security of the medical aid.

Here is an overview of this year’s publication:

Medical scheme numbers

The top 10 open medical schemes by principal members have remained unchanged since December 2014, but Bestmed has overtaken Medihelp as the fourth largest open medical scheme, while Bonitas and Liberty have since merged. The top 10 restricted medical schemes by principal membership also remained unchanged during 2015, but SAMWUMED is now the sixth largest restricted scheme, and Transmed has gone down to seventh place as a result of losing 15.4% of its membership.

Growth in dependants for the majority of schemes was lower than the growth in principal members, with the number of dependants registered on medical schemes reducing by 0.7% in 2015, resulting in the average family size in the industry reducing from 2.25 in December 2014 to 2.23 in December 2015. This may indicate financial pressures, resulting in fewer dependants being added to cover.


In terms of operational performance, only four of the country’s top 10 open and top 10 restricted schemes – Discovery Health Medical Scheme, Sizwe Medical Fund, SAMWUMED and LA Health – achieved the required operational surplus (contribution income sufficient to cover all claims and expenses) in 2015. This trend is expected to continue for 2016.


The gap between medical scheme contribution inflation and CPI inflation continues its downward trend, partly as a result of efforts by medical schemes to manage the costs charged by providers. Over the last 16-year period, medical care and health expenses inflation has been on average 7.7% per year, while CPI inflation averaged 5.7%, resulting in a gap of 2% per year. During the same period average medical scheme contribution inflation was 7.6% per year, resulting in actual increases in medical scheme contributions per principal member exceeding CPI inflation by at least 1.9% per year. However since this calculation includes buydowns to lower options and reduction in family size this is not indicative of the true picture. Thus, headline increases of schemes are between CPI plus 2.5% and CPI plus 4.5%.

Healthcare expenditure

The industry as a whole experienced a worse claims year in 2015 than in 2014, with the highest claims ratio since 2009. The risk claims ratio is the ratio of risk claims to risk contributions, or the proportion of contributions that are used to fund claims, excluding any allowance for medical savings accounts. The risk claims ratio for all medical schemes increased from 88.2% in 2014 to 91.4% in 2015. The generally accepted claims ratio benchmark is 85%.

Non-healthcare expenditure

Total non-healthcare expenditure as a proportion of gross contribution income continued to decrease in 2015 for the medical scheme industry as a whole, driven by the continued reduction in the proportion of contribution income spent on non-healthcare expenditure by open medical schemes.

Financial Performance

The noticeable deterioration in the overall operating results of the industry from 2013 to 2014 continued with further deterioration of financial performance in 2015. The industry ended 2015 with a significant operating deficit of R1.219 billion, with open schemes recording a deficit of R565.63 million at an operational level and restricted schemes showing a deficit of R653.78 million.


In 2015, 49 of 83 medical schemes (59.0%) failed to achieve an operating surplus and had to draw on their investment returns, placing additional pressure on solvency levels. Alexander Forbes Health is of the opinion that this strategy is not sustainable unless investment returns are able to keep pace with, and preferably exceed, claims inflation.

Medical Schemes Sustainability Index

With the continued consolidation of medical schemes in the industry as well as rising claims costs, the sustainability of medical schemes and the assessment thereof have become increasingly important for all industry stakeholders. The Alexander Forbes Health Medical Schemes Sustainability Index analyses the collective impact of key statistics on the sustainability of medical schemes in future years

The biggest increases in the index for 2015 were seen once again for LA-Health and SAMWUMED, who improved their 2014 scores 15% and 20% respectively. Polmed is once again the top performer in the index. The profile of the industry remains stable and the overall financial position is sound.

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