Some 48 000 members and their beneficiaries, who will be without medical cover from 1 September when South African medical scheme Health Squared dissolves the company, have been told by the Council of Medical Schemes (CMS) not to rush hastily into joining other schemes, saying they risk penalties and exclusions if they do.
As yet another casualty of the COVID-19 pandemic, the organisation is taking steps to voluntarily wind up, it said on when a link in an SMS sent to members took them to a letter signed by principal officer Elias Mabena, informing them about the planned voluntary winding up of the scheme.
The letter advises members “to seriously consider taking steps to secure new membership at other medical schemes with effect from 1 September 2022”.
Not much notice
A Health Squared member told Moneyweb they received the SMS containing the link to the letter, which includes a copy of the High Court notice of motion, from the scheme’s Board of Trustees at 5.36pm on Friday.
The Registrar of Medical Schemes and the CMS are listed as the respondents to the application.
The member said Discovery Health told them late on Friday that it had already received several calls from other Health Squared members requesting information about Discovery membership.
Health Squared said in the letter that the High Court application for leave to file a winding up application will be heard on 30 August.
The company was formed in 2018 through the amalgamation of two long-standing medical aid providers, Resolution Health and Spectramed, and has 48 000 members.
Solvent but deteriorating position
The letter advises members that the scheme will be wound up as a solvent business, which has assets that presently exceed its liabilities.
It says the board has been told the scheme presently has sufficient reserves to meet claims that will have been incurred but not reported on the date of voluntary winding up.
“However, having received actuarial and legal advice, it is clear the scheme’s financial position will deteriorate further, to the extent that towards the end of 2022 the scheme will have reached such a low level of reserves that it may not be able to meet members’ claims as they arise,” reads the letter.
“The scheme’s ability to discharge its obligations to members relating to healthcare costs incurred by them will worsen with every passing month.”
Health events until 31 August will be covered
The letter says the scheme will, from 1 September, no longer be receiving contributions in return for undertaking the liability to defray member claims relating to healthcare services.
“Members will be covered for claims arising from health events that take place up until 31 August, provided their contributions have been duly paid.”
The letter lists the primary reasons for the board’s resolution to apply to court for leave to wind up the scheme as follows:
• High COVID-19 claims expenditure, the primary driver of the financial deterioration of the scheme during 2020 and 2021, with the scheme particularly affected compared with medical scheme industry norms, due to its older-than-average age profile;
• A considerable loss of members in recent times; and
• A worse-than-expected claims experience in 2021 and 2022.
Regarding Health Squared’s age profile, the letter said that as at 31 July 2022, it had an average beneficiary age of 49.7 years, which is 16.1 years higher than the medical scheme industry average of 33.6 years.
The combined effect of these factors is that the scheme’s solvency ratio, the ratio used to measure a scheme’s reserves available to meet claims, has suffered a significant and relentless decline, despite numerous remedial interventions.
Health Squared’s solvency ratio was:
• 17.32% at the end of 2020;
• 6.04% at the end of 2021;
• Approximately 2.15% at the end of July 2022;
• And has been projected by the scheme’s actuaries to be between 0.2% and 2.3% at the scheme’s 2022 year-end.
The letter says Health Squared has pursued various options to avoid a winding up, including proposed amalgamation transactions with various other schemes, and these discussions have been ongoing since the beginning of the year but have been unsuccessful.
“Prospective amalgamation partners have all expressed concern at the scheme’s risk profile as well as its low reserves as being prohibitive of possible amalgamation,” it says.
“The last response declining a proposed amalgamation was received on 15 August 2022.” It says that, if granted, the winding up application will be launched on 1 September.
However, the CMS warns members to “avoid panic-inspired movements that might leave them worse off” while it engages with seven other medical schemes to “move current Health Squared members to other schemes”, reports TimesLIVE.
“We are conscious of the urgency of the matter and will endeavour to assist the regulator in finding a solution in the best interests of their respective schemes, current membership and as duly mandated by their boards of trustees,” the regulator said.
Mark Hyman, CEO of medical claims assessors MediCheck, reiterated that affected members would be burdened with penalties and exclusions if they hastily jumped on to another scheme.
Many of the members fear they will be unable to secure alternative cover by the end of the month, with ill members are putting their faith in the CMS negotiating their move to another medical scheme, without a waiting period or additional costs.
Health Squared said in court papers it had approached six medical schemes with merger proposals since January, without success.
Rare Diseases SA’s founder and CEO Kelly du Plessis said her organisation had been inundated with calls from Health Squared members.
“All are chronic patients requiring ongoing care,” she said. “We have contacted the registrar of the CMS to determine if members seeking new membership will be treated the same as in the case of a merger or acquisition, removing imposed waiting periods and exclusions.”
The Medical Schemes Act states that medical schemes must accept anyone who can afford their premiums. “You cannot be excluded from joining a scheme due to pre-existing conditions, race, age, sex, gender, ethnic or social origin, sexual orientation or disability,” Du Plessis said.
“But schemes are able to impose waiting periods: three months as a general waiting period and 12 months for specific conditions and pre-existing conditions.”
Given Health Squared members are not voluntarily seeking to move to another scheme, industry commentators have expressed doubt that such waiting periods will be imposed.
Meanwhile, the fact that Health Squared’s service centre and that of its administrator, Agility Health, is no longer operating is stoking members’ anxiety.
“Our patients are wanting membership certificates which are required to apply to a new scheme,” Du Plessis said.
Industry sources told TimesLIVE that last November the CMS called on Health Squared to appoint a statutory manager — a paid actuary — to steer the business back to financial health. “But no one was appointed.”
Moneyweb article – Health Squared Medical Scheme applies to be wound up (Open access)
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