Medical scheme members’ Covid-19 contribution relief is very limited
The Council for Medical Schemes says medical schemes can grant relief, but it has decided not to grant a blanket exemption allowing them to offer contribution holidays
Contribution relief for medical scheme members in financial difficulty as a result of the coronavirus crisis is limited and will only apply to members who have surplus funds in their medical savings accounts or who work for small businesses.
The Council for Medical Schemes announced last week that schemes will grant relief, but it has decided not to grant a blanket exemption from medical scheme regulations allowing schemes to offer contribution holidays, such as those banks are offering customers with loans and credit cards.
Instead, Dr Sipho Kabane, CEO of the council, announced that schemes could allow members who have 12 months of savings contributions allocated to their savings accounts to use this money to offset their monthly premiums for three months. He added that schemes could assess on merit whether members with lesser amounts, such as six months of savings, could also enjoy this relief.
However, major schemes are only allowing members who have unspent savings from contributions they have already paid to use this money to offset contributions for three months, and a leading healthcare brokerage says very few members have these savings.
Kabane also announced that small businesses with less than 200 employees could qualify for financial relief from medical scheme contributions to protect their employees’ membership, but the businesses would have to demonstrate the financial hardship and would have to repay the contributions after the lockdown.
Small business owners will also be responsible for the repayment of the amount in arrears if, for example, an employee leaves its employ, Kabane said.
Reserves to be maintained
The limited relief announced followed calls for some R60bn in medical scheme reserves to be used to fund contribution relief, but this was not forthcoming. Instead, Kabane called on schemes to supply information about how schemes’ reserves have been affected by increased claims related to the Covid-19 pandemic, and the sharp falls in the equity and bonds markets.
In terms of the Medical Schemes Act, schemes are expected to retain reserves of 25% of the total contributions of members for the year. “The continued application of the 25% requirement surprised me,” said Jill Larkan, head of healthcare consulting at financial advisory firm, GTC.
She expected that, as the reserves were set up specifically for a catastrophic situations such as that brought on by the virus, more could be done to ensure members maintain their membership, even and despite the risk that the reserves may be required to pay higher than usual claims.
However, schemes say that using reserves to grant all members a unilateral contribution holiday will leave them in a precarious financial position.
Dr Ryan Noach, CEO of Discovery Health, said that, unfortunately, the scheme is not able to use its reserves to approve all requests for contribution concessions. “On a monthly basis, Discovery Health Medical Scheme collects more than R6bn in contributions. Providing support to cover contributions to all members would deplete all R19bn of reserves in just three months, rendering the scheme unable to pay members’ claims and sustain itself.”
Jeremy Yatt, principal officer of Fedhealth, says “medical schemes are not-for-profit entities and run at loss ratios of 90% (compared to, say, short-term insurance companies that typically run at between 55%-60%), which means that even a slight, unexpected increase in claims will put the scheme into a deficit situation — and that’s what reserves are for”.
Medical savings for premiums
While the council’s circular seems to imply that members can use the amounts allocated to their medical scheme savings accounts for contribution relief, neither Momentum Medical Scheme nor Discovery Health Medical Scheme are allowing this. Both schemes are only allowing the unused medical savings contributed from January until now to be used to offset a member’s contributions, Larkan said.
The two schemes are not allowing members to use the pro-rated portion of their savings accounts that will accumulate from contributions for the balance of the year, she said, adding that Discovery and Momentum members with carryover savings account balances from previous years may also use these savings to cover their contributions.
Larkan said only 1.9% of GTC’s healthcare clients qualify for this payment relief because most only have this year’s allocated savings, as very few members are able to carry over balances from the previous year. “Very few people use less than the allocated monthly savings amount in a year or have sufficient savings leftover or a sizeable balance to qualify for this relief.” she says.
Discovery Health said it has set aside up to about 12% of its reserves or R2.3bn for an interest-free loan to cover contributions normally paid by qualifying small or medium businesses with between 10 and 200 employees. The businesses will have to repay the loans within 12 months. Discovery will contact members with medical savings accounts who qualify for relief to confirm how many months’ relief they may apply for, up to a maximum of three months.
Momentum has advised members who have contributed to its savings scheme, HealthSaver, which sits outside the medical scheme, that they can use these savings to fund contributions. Small businesses need to write a motivation to the scheme detailing the relief required and the repayment conditions the company can commit to.
Yatt said Fedhealth will allow members to downgrade or use their savings for contribution relief. Companies can make arrangements with the scheme to suspend contributions for a short period.
Both Bonitas and the Government Employees Medical Scheme (GEMS) said they will consider applications for contributions relief on a case-by-case basis.