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Mediclinic News : Medical funds in need of resuscitation — urgently

Title

Medical funds in need of resuscitation — urgently

Date

2016-10-25

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News Description

BUSINESS DAY Latest operational performance figures show industry and government need to enact reforms to prevent collapse, writes James Arens The recently released annual report of the Council for Medical Schemes shows that medical schemes are under enormous trading and operational pressure, with a consequent deterioration in the financial positions of most of them. The average operating profit margins of medical schemes have worsened and in some cases, plummeted to negative levels for the reporting period 2015 compared with previous years. The operating profit margin of a medical scheme is expressed as net health-care results as a percentage of risk-contribution income. The average operating profit margin for all schemes for 2015 was -0.9%. For open schemes, the figure was -0.7%. Restricted schemes, which have a closed membership, had an average operating profit margin of -1.1%. These levels are very low and are unsustainable for some schemes. While not all schemes performed so dismally, 56% had an operating profit margin of zero or less, down to as little as -69%. This suggests a severe financial haemorrhage in the system that threatens to collapse the entire medical scheme industry if no drastic measures are taken urgently by the industry and the legislature. The financial picture of schemes tends to look healthier when examining the net profit margin, which for medical schemes is expressed as net surplus or deficit as a percentage of risk-contribution income. The net profit margin is the consolidated result of schemes after investment income has been added, concealing the real operational performance of most schemes. But even the average net profit margin of all schemes has been declining consistently since 2013. The slight decrease in the solvency level for all registered schemes by 0.6percentage points from 33.3% in 2014 is not reassuring, as it is a matter of time before solvency levels dip to unsustainable levels at this rate of decline in operational profit. There has been significant amalgamation among schemes lately as a result of low solvency levels, but this provides only short-term relief. A low operating profit margin often suggests that a business is under competitive pressure or is trading under operational pressure. Medical schemes’ competitive pressures are as a result of their inability to differentiate their offerings, mainly because of the legislative constraints that regulate the products and benefits schemes can offer members. But schemes have also not been innovative in enhancing the service experience of their members. With no differentiation in their offerings, schemes are unable to attract members from other schemes or significantly increase their contributions without members leaving to join another scheme.
Created at 2016/10/31 09:09 AM by Mediclinic
Last modified at 2016/10/31 09:09 AM by Mediclinic