DA calls on Lehutjo to account for GEMS insolvency issues

22 August 2016

Today I will be writing to the Chairperson of the Parliamentary Portfolio Committee on Health, Ms. Mary-Ann Lindelwa Dunjwa, to request that she invites the acting CEO of the Council of Medical Schemes (CMS), Mr Daniel Lehutjo, to account for why the Council has allowed Government Employees Medical Scheme (GEMS) reserves to fall to below the 25% statutory requirement for solvency.

The Medical Schemes Act (Regulation 29) requires all medical schemes to maintain accumulated funds of at least 25% of gross annual contributions in reserve. CMS must be alerted if reserves drop below the threshold and take corrective action to fix the problem. GEMS’ reserves are reputedly at 5%, a catastrophic drop, and the CMS must explain how this has come about.

GEMS says that there has been a major increase in medical claims, which is certainly an unhealthy industry-wide phenomenon. But there is a need to protect medical aid members from major and unexpected increases in contributions by considering some strategic reforms of the medical aid business as whole, such as introducing: 

- Pooling scheme for medical schemes: So that medical schemes are not disadvantaged by unanticipated and uneven distributions of individuals of poor health status, a comprehensive regulatory regime for medical schemes is anticipated involving a combination of statutory risk-equalisation and reinsurance. 

- Risk-equalisation and reinsurance for medical schemes: A risk-equalisation scheme, which is now a familiar idea to the private health industry, allows for risks to be pooled across multiple schemes without the need for the consolidation of funders. This is achieved via inter-scheme financial transfers organised by a pooling scheme, or risk-equalisation fund. 

- Statutory reinsurance allows for a deepening of pooling achieved via risk-equalisation, by making formula-based adjustments based on the actual claims experience of individuals. Adjustments are consequently retrospective in nature. Pooling mechanisms serve to enhance competition between medical schemes and will thereby improve the choices available to the public. 

- Mandatory medical scheme membership: To remove the anti-selection risk associated with voluntary membership, mandating medical scheme membership for employers above a certain size, should be seriously considered. The benefits are enhanced sustainability of medical schemes and a consequent reduction in members’ medical aid contributions as a result of risk-reduction. 

The members of this medical scheme are dependent on the well-being of the scheme, and those responsible for its drastic implosion must account for their inaction in this regard. 

Issued by Wilmot James, DA Shadow Minister of Health, 22 August 2016