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Dear Service Provider

The Scheme is aware of the article published in Business Day on 22 August 2016 and the Scheme would like to respond to some of the matters raised in the article.

GEMS Solvency Ratio

It is correct that the GEMS solvency ratio is not at the 25% level as required by the Council for Medical Schemes (CMS). However, this is not a new situation and is not unusual within the healthcare funding industry with some of the largest, fastest-growing medical schemes reflecting a similar situation, which is generally attributed to the cost of funding high membership growth.

It is furthermore important to note that the CMS is busy reviewing the solvency ratio requirement for the industry. It has requested input from the medical scheme industry with regards to proposed changes in the calculation and targets of the solvency requirement, which will ultimately impact on the current requirement of 25%. Due to the current high hospital claims the Scheme’s solvency ratio has decreased. However, the Scheme is fully able to meet its financial obligations in providing healthcare to our members

GEMS reserves

The GEMS reserve levels have historically been under pressure following a period of rapid growth experienced during our formative years. This has more recently been compounded by the high industry-wide increase in claims.

We wish to assure you that the Scheme has a solid business plan in place, which was approved by the CMS during 2015. The plan projects that GEMS will reach the 25% solvency level in 2020.

The accumulated funds held in reserve by GEMS, in line with legal requirements, totalled R2, 6 billion while the reserve ratio was 9.46% as at the end of 2015. In the interests of members GEMS, unlike other medical scheme, does not apply waiting periods or underwriting exclusions.

The Scheme actively monitors and manages the solvency risk through the following means:

• The capital adequacy risk is documented on the risk register that is regularly reviewed by the Board of Trustees.
• Scheme management reviews the monthly management accounts where the Scheme’s financial performance is monitored.
• Monthly management accounts and the Scheme’s quarterly performance reports are submitted to, and discussed with, the Council for Medical Schemes (CMS).
• The annual budgeting process, long term projections, and prudent planning allows the Scheme to review its capital adequacy and solvency levels to ensure continuity of operations and sustainability.

High claims – an industry-wide concern

The Scheme and the greater industry are most concerned about the high claims experience, which is being experienced throughout the industry and is placing many medical schemes under considerable pressure. At the Board of Healthcare Funders Conference, both GEMS and Discovery indicated that they are experiencing increases in hospital admissions due to supply induced demand.

The Scheme was proactive with regard to these matters and engaged the Council for Medical Schemes who also confirmed that there was an industry wide experience on the increase in hospital claims and associated costs relating to the hospital admissions. Further to the engagement, the Council for Medical Schemes in their Circular 26 of 2016, “Furthermore, in an effort to contain hospitalisation costs, medical schemes are encouraged to not only monitor the number of hospital admission and length of stay, but also to focus on the utilisation of services, once beneficiaries are admitted.”

Underlying factors that relates to this increase are due to the Scheme’s non-application of underwriting which results in anti- selection, Supply induced demand in hospitals (increase in beds), Fraud, waste and abuse  and economic pressures.

• Scheme’s decision not to underwrite cost the Scheme over R350 million every year since establishment. During 2015 we saw over 8000 beneficiaries that joined the Scheme within a year and also resigned. These beneficiaries paid over R30 million in contributions and the Scheme paid well over R149 million in claims.
• During the last part of Q4 2015, there was an increase in hospital beds due to supply induced demand. Last five years there has been an increase of 6% in Scheme beneficiaries whilst beds capacity increased by 18%.
• Fraud, waste and abuse, the scheme experienced high hospital claims which we are of the view caused by hospital cash back plans.

Within GEMS our claims ratio is at present above 90%. As part of its strategic plan, the Scheme has targets in place to manage the claims ratio in line with providing value for money and addressing affordability. However, based on the Scheme’s low non-healthcare costs (7.5%) our claims ratio would be higher than other schemes.

At 7.5% the non-healthcare expenditure of GEMS, which includes administration costs, is substantially lower than the industry average of 11.8%. This careful management of the Scheme has resulted in savings of around R1.2 billion. The funds saved by the scheme have allowed us to fund more healthcare services for our members.

The scheme had commenced to meet up with Stakeholders and members to share this information and to also inform them of the measures the Scheme need to implement to curb the rising costs. One of the measures is for the Scheme to apply underwriting in certain categories our membership which are already included in the rules of the Scheme. However, the Scheme will ensure that, accessibility to the Scheme is not compromised especially to previously uncovered employees in the Public Service.

We will continue to engage with stakeholders and also put to rest fears with regard to the contents of the article that appeared in the Business Day. GEMS is in a good financial position and will be able to meet its financial obligations beyond the upcoming years.

We trust that you will find this response helpful.

Kind regards
Dr Guni Goolab
Principal Officer of the Government Employees Medical Scheme (GEMS)