The Council for Medical Scheme’s (CSM) plan to consolidate or dissolve small medical schemes poses huge risks to the people who belong to them and may force some to drop their cover entirely, industry sources warned this week.

More than 228,000 people belong to 31 medical schemes that had less than 6,000 members at the end of December 2015, according to the CMS 2015-16 annual report. All but three of these schemes are restricted employer groups, and all were in sound financial health with solvency ratios above the statutory requirement of 25%. Restricted employer group schemes generally subsidise members on low incomes, including pensioners, enabling them to buy cover they could not afford on the open market.

CMS acting registrar Sipho Kabane said the decision to consolidate the industry was in line with the government’s White Paper on National Health Insurance (NHI), published in June. He said medical schemes with less than 6,000 principal members had been identified as potential targets for consolidation, as they failed to meet the requirements of the Medical Schemes Act. While the Act says schemes must have 6,000 members to register, the CMS has, for the past 17 years, permitted schemes to operate below this threshold.

Consolidation of the industry was necessary because fragmented risk pools were expensive, and limited the scope for cross-subsidisation, said Kabane. "It isn’t just about non-compliance [with the Act]. This is just the beginning. In NHI we will have one risk pool: from 83 we will consolidate into one. We are going, through a consultative process, to come up with a clear mandate on how this will be [achieved]," he said in a telephone interview.

A consultative framework would be in place by the end of January, he said. "We are not going to do something to put medical scheme members at risk."

However, Insight Actuaries and Consultants’ joint CEO Christoff Raath said forcing members of small, restricted schemes, that provided relatively generous benefits by industry standards, into the open market would force many vulnerable members to reduce their cover. The most vulnerable members were high claimers on low incomes, including pensioners.

"These people won’t be able to get similar benefits on the open market, and may ironically get dumped on the state," he said. "Consolidation on its own will not solve much and could even exacerbate the very problems it is supposedly intended to address. The broader reforms required to ensure sustainability actually have little to do with consolidation."

University of the Witwatersrand chairperson of social security systems administration and management studies Alex van den Heever said industry consolidation would be to consumers’ detriment as it would limit choice. Closing down small schemes on the basis of their size could not rationally be defended, he added, predicting any such move by the regulator would be met with legal challenge.

Discovery Health administers seven of the restricted schemes that had less than 6,000 principal members at the end of 2015. Its CEO Jonathan Broomberg said: "There are a number of complexities to this issue, including the legality of forcing small schemes to close and, more importantly, concerns about the impact on the members of many small schemes. We are actively engaging our restricted scheme clients and the CMS to address and resolve these issues."

Discovery Health administers University of the Witwatersrand Staff Medical Aid Fund, BMW Employees Medical Aid Society, University of KwaZulu-Natal Medical Scheme, Anglovaal Group, Tsogo Sun, Malcor and Quantum.

Medscheme CEO Kevin Aron said any attempt by the CMS to de-register medical schemes for having less than 6,000 principal members would likely be met with opposition, including legal and constitutional challenges. Medscheme administers five schemes that have less than 6000 principal members: Parmed, Barloworld, Horizon, SABC and MBMed Medical Schemes.

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