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State medical aid may go bust

 

The Government Employees Medical Scheme (Gems) could be insolvent by financial year-end if drastic cost-containment measures are not instituted.

This would mean the scheme would need to be bailed out by the Treasury or amalgamated into a different scheme, forcing significant changes in benefits for its 1.8-million members. Several sources within the industry, who spoke to Business Day on condition of anonymity, claim the scheme’s solvency ratio has plummeted in the first eight months of 2016, and may be as low as 5% or 6% — almost 20percentage points below the required level. Internal documents that Business Day has seen, show if the current trend continues, the schemes’ deficit for 2016 could increase to R1.2bn, and its reserves could fall as low as 2% by February 2017. The scheme’s strained financial position means that if it is to survive, its members will face contribution increases that are almost double inflation, and will have their benefits curtailed drastically. The scheme’s principal officer, Guni Goolab, confirmed last week benefit redesign was already under way, and the scheme would introduce underwriting for the first time to protect itself from entry selection. According to the internal communication, the scheme "would need a 15% contribution increase to balance the books. It is hoping for a 2%-3% decrease in this increase to be made possible by intensified managed care and benefit design." It will also introduce co-payments on some procedures, such as Caesarean sections. Goolab was unwilling to respond to claims that the scheme’s current solvency ratio is in the region of 5-6%, but disclosed that reserves had declined to 9.46% at the end of December 2015. Since then, reserves have fallen further. "In the last six months, we have picked up a significant increase in our claims," Goolab said. "We have seen a decrease in reserves during this year but it is being managed." 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. "Over the past several years, Gems’s demographic and risk profile has remained stable. However, we have seen an increase in the number of members who join for only a few months," said Goolab. In 2015, the scheme identified 5,000 members who joined the scheme for less than a year. Of those members, almost 70% were admitted to hospital — way above the industry average. Goolab says the scheme claims ratio was more than 90%.