After its initial application for voluntary liquidation was opposed by the Council for Medical Schemes (CMS) registrar, who wanted to place the scheme under curatorship and then wind it up, the Johannesburg High Court has granted Health Squared Medical Scheme leave to apply for voluntary liquidation on 27 September, but has yet to decide on the industry regulator’s urgent application to place it under curatorship.
In an order handed down on 2 September, Judge Allyson Crutchfield instructed Health Squared to inform its members of its application to wind up the scheme – via email, newspaper adverts and a notice on its website. She also made an order of the court, the last-minute resolution by the board of trustees undertaking to extend cover to gravely ill members until 30 September. It stipulated that this protection could not be scrapped by a curator, should one be appointed, reports Business Day.
Crutchfield has yet to indicate whether she will decide on the registrar’s curatorship application based on heads of argument submitted at the weekend, or hear oral argument.
Last week, trustees of the scheme threw a lifeline to members with grave health conditions, agreeing to cover their claims until the end of September, after a legal challenge from the SA Nephrology Society.
The society intervened in the scheme’s liquidation application to try to protect patients from a potentially fatal break in treatment, giving them a chance to try to find alternative cover. The kidney specialists were trying to delay the liquidation of Health Squared Medical Scheme by two months, arguing that the troubled scheme has enough funds to cover patients while they secured appropriate alternative cover.
Their intervention in Health Squared’s High Court application for voluntary liquidation has not only highlighted the plight of severely ill patients, but also raised questions about how much longer it can cover claims.
Health Squared had announced on 18 August that it was seeking voluntary liquidation and would pay no more claims from 1 September, reports Business Day.
The scheme has about 50 beneficiaries who are kidney patients requiring regular dialysis or transplant treatment, without which they will die, according to SA Nephrology Society president Shoyab Wadee. Treatment is expensive, and they cannot risk even a short break in care, he added.
Kidney dialysis costs up to R30 000 a month in the private sector, and public sector facilities were not a viable alternative. “The public sector is full, and they will be sent home to die,” he said. “All of our patients are scrambling. They are desperate.”
Health Squared’s advice to members seek alternative cover immediately had been contradicted by CMS registrar Sipho Kabane, who suggested they wait as he sought to broker a transfer agreement with other schemes.
Kabane had hoped to fix the unprecedented crisis facing Health Squared members by persuading other schemes to waive the waiting periods usually applied to new clients.
The Medical Schemes Act contains provisions that prohibit risk-rating and require schemes to accept anyone who can afford their premiums. In return, schemes are allowed to apply a variety of waiting periods to new joiners. During this time, members pay their contributions in full, but have only partial cover, exposing them to the risk of large medical bills they must pay out of their own pockets.
However, his talks with medical schemes collapsed on 31 August.
The resolution taken by Health Squared’s board of trustees provides a temporary buffer for its most vulnerable members, as it guarantees their claims will be covered while they organise other cover. It specifically mentions renal dialysis patients, kidney transplant recipients and patients requiring continuous oxygen, but also applies to any member “experiencing grave, life-threatening risks”. It also applies to members in hospital, whose claims will be paid until their discharge, said the scheme’s principal officer, Elias Mabena.
The CMS said that only a few of the eight medical schemes it approached had committed to the migration concession without underwriting, and it was not enough to ensure cover for all Health Squared members.
Insight Actuaries joint CEO Barry Childs said the process started too late. “If
more time and more detail had been provided to schemes, then I think an agreement might have been reached,” he said.
Kabane had called a series of urgent meetings with seven open medical schemes and the Government Employees Medical Scheme, hoping they would agree to each take a share of Health Squared’s members without imposing the underwriting provisions permitted by the Medical Schemes Act, reports BusinessLIVE.
Such an arrangement would have protected Health Squared’s members from waiting periods, during which time members pay their monthly contributions but have limited cover.
The open schemes involved in the talks were Bestmed, Bonitas, Discovery, Medshield, Medihelp, Momentum and Sizwe. All but Momentum had been previously approached by Health Squared for potential amalgamation, without success.
Open schemes must enroll anyone who can afford their premiums, but may impose a variety of waiting periods depending on the new client’s circumstances. Restricted schemes operate under the same rules, but limit their membership to specific professions or employer groups, such as the police or civil servants.
The CMS said the schemes involved in the talks had been chosen because they had more than 100 000 members, a solvency ratio above 25%, and an age profile that could absorb the risk of Health Squared members. The company has a relatively older age profile, with 30% of its members aged 65 or above.
Discovery Health, which administers Discovery Health Medical Scheme (DHMS), said the process for allocating Health Squared members should have been overseen by an independent actuary to ensure a fair allocation of members, but this had not been done.
DHMS also wanted all open medical schemes to take a share of Health Squared members, so that no scheme was disadvantaged by taking on these high-risk members.
Health Squared has previously said 30% of its members were older than 65, a pensioner ratio more than triple the industry average.
“DHMS was at the table and ready to continue discussions when the registrar elected to call off the talks after it appeared likely (they) would not be successfully concluded with all the schemes,” said Discovery Health CEO Ryan Noach.
Bonitas principal officer Lee Callakoppen said the scheme had been amenable to Kabane’s proposal. “Based on the information made available to use by the CMS, and having performed our own analysis, we were agreeable to support,” he said.
Health Squared was formed by the amalgamation of Spectramed and Resolution Health in 2019, and has never met the statutory minimum solvency requirement.
It obliges schemes to keep at least a quarter of their annual contribution income in reserve as a buffer against unexpectedly high claims, reports BusinessLIVE.
It has been under CMS supervision for more than two years, and was required to submit monthly management accounts. Yet its financial position has deteriorated sharply since the end of 2020, with its solvency ratio falling from 17% to 2% by the end of July 2022.
Its High Court application for voluntary liquidation had been opposed by the registrar, who wanted to place the scheme under curatorship and then wind it up.
Health Squared rejected the regulator’s proposal that it oversee the winding up of the scheme, saying it would cause unnecessary delays and risk a further deterioration of its precarious financial situation, as a curator would provide no added benefit and cost the scheme at least R280,000 a month. These funds could be better used for members’ medical treatment, it said.
Business Day PressReader article – Health Squared granted leave to apply to wind up (Open access)
Business Day PressReader article – Health Squared extends lifeline (Open access)
See more from MedicalBrief archives:
Health Squared spent millions on non-essentials as membership shrank, court papers show
Health Squared medical aid scheme applies to be wound up
Spectramed and Resolution medical schemes merge