By Ashleigh Brown, journalist, Justmoney
The Council for Medical Schemes (CMS) and Discovery released their annual financial reports this week, highlighting their strengths and weaknesses over the past year.
According to the CMS there has been little growth in terms of medical schemes, but despite that, they have an optimistic outlook for the year ahead. However, Discovery has raced ahead, with a 23% increase in profit from the previous year.
What is the CMS?
The CMS engages with the development of national health policies as well as with measures to improve the quality and impact of healthcare in South Africa.
“The CMS’s activities in key regulatory areas as stated in the Medical Schemes Act 131 of 1998 are to protect the interests of beneficiaries, register medical schemes, accreditation of administrators, brokers and managed care organisations, enforcing compliance with statutory provisions and investigation and adjudication of complaints,” said a statement release by the CMS.
The CMS reported that the South African medical schemes environment remained stable; however, there was cause for concern in relation to growth. There had been a year-on-year growth of only 1.1%.
Despite the low growth, Daniel Lehutjo, acting chief executive officer and registrar of the CMS, said, “I am proud of the fact that the Auditor-General of South Africa provided the CMS with its 14th unqualified audit report in a row for the manner in which the CMS managed its financial affairs and complied with the requirements of the Public Finance Management Act 1 of 1999 (PFMA) and other applicable legislation.”
Lehutjo went on to say that many medical schemes were continuing to merge, due to the economic climate at the moment: “During the 2013 financial year medical schemes continued to merge. Such developments are an expected response to market forces and are not necessarily a negative development or an indication of instability in the South African medical schemes environment,” said Lehutjo.
Adding to this, over the past decade the number of medical schemes decreased from 133 to 87. There was a lot of consolidation of small-sized restricted schemes over this period. Last year there were 87 registered medical schemes, of which 24 were open and 63 restricted.
Lehutjo went on to say that the CMS expected moderate growth due to the decreasing growth rate of the medical schemes industry since 2010. “It is also the first time since 2006 that open schemes growth, at 1.8%, is more than that of the restricted schemes, at 0.2%,” said Lehutjo.
Despite the low growth rate of the medical schemes, the CMS was optimistic about the growth going forward. However, a hot topic at the CMS’s annual report conference was around the annual general meetings (AGM) and the board of trustees. CMS reported that governance was still lacking and that legislative framework remained unchanged.
Stephan Mmalti, head of investigations and compliance unit at CMS highlighted that the draft amendment bill looks at strengthening the governance of medical schemes, but until it is passed, CMS would have to put forward guidelines.
“We at CMS need to continue to strengthen the governance around the schemes,” said Mmalti.
Mmalti said that many of the members of the board of trustees were not skilled enough: “50% of the members [of the board of trustees] must be elected, but there is no obligation of schemes to elect people of the necessary skills.”
Mmalti moved onto the issue of curatorship of Medshield and Sizwe, where there were allegations of irregularities within the scheme. Mmalti announced that the curatorship was going to be lifted in the next few weeks.
“They [Medshield and Sizwe] have conducted elections and in a few weeks’ time we will be lifting the curatorship of the two schemes. The new board of trustees were elected. So there is no longer a need for curatorship,” said Mmalti.
Mmalti also spoke about the AGM’s of members, in particular looking at member participation. “We attended about 32 schemes, large medium and small, to see how they are run. Our observation is that there is still poor attendance. Members complain that the issue is that of the poor time and lack of accessibility of the AGM’s,” said Mmalti.
Despite the difficult financial market at the moment, Discovery’s has produced strong results. They reported strong growth, with a R4976 million profit from last year. This is due to strong activity across all of Discovery’s markets.
“The past financial year marked a period of strong performance for Discovery. There has been intense activity across our primary market in South Africa, our second primary market in the UK as well as our partner markets in China, the US, Singapore, and Australia.
“More importantly, we have done considerable work in refining the Discovery behaviour-based insurance model, which gears Discovery to address some of today’s most critical societal problems in an innovative way,” said Adrian Gore, group chief executive of Discovery.
In South Africa Discovery saw a 10% growth, due to reductions in administration fees: “In Discovery’s primary market of South Africa, Discovery Health’s performance exceeded expectation with operating profit increasing 10% to R1 854 million, after continued efficiencies were passed onto Discovery Health Medical Scheme through a planned scale-related reduction in administration fees. In addition, Discovery Health new business increased 4% to R5 000 million; and lives under management for all schemes grew to 2.9 million,” highlighted the report.
Discovery’s annual report highlighted that: “consumers globally are expecting companies to play a socially-progressive role where the bottom line is not the only driving force of a company’s actions. Given this increasing trend, insurance companies are well placed to meet this expectation, given their large risk pools and mandate to provide protection for life’s uncertainties and risks.”
Gore went on to comment that many of these risks are driven by the member’s behaviour. He also highlighted that Discovery’s business model was the powerful assets, which enables a combined view of the client’s risk behaviour. This can also include their nutrition and exercise habits, as well as their drinking behaviour.
Even though South African finds itself in tough economic times, medical schemes reports are promising. Discovery has shown strong growth and their expansions are only adding to that.