Medical Scheme Competitor Financial Analysis

Transcription

1 Medical Scheme Competitor Financial Analysis

2 Bonitas Financial Analysis

3 Key Financial Metrics: Bonitas Medical Scheme Bonitas Discovery Health Average contribution increase % 9.8% 2008 Operating deficit -R 217 million R 293 million 2008 Net surplus R 65 million R 997 million 2008 Reserves R 2.5 billion R 5.3 billion Latest estimate of scheme reserves R 2.3 billion* R 6.1 billion 2008 Solvency 47.5% 25.4% 2009 Projected solvency 34.8% 25.5% Global Credit Rating AA- (Rating watch) AA+ (Upgraded) Active members ** Active lives ** * Global Credit Rating Report 31 May 2009 ** Year end 2008

4 Observation 1: Bonitas has experienced continued operating losses. This trend is set to continue in The scheme has consistently experienced substantial operating losses, which are forecast to more than double in 2009 Historically these losses have been supported by investment income. Less favourable investment returns have placed pressure on the scheme s financial performance. R 400 R 300 R 200 R 100 R 0 -R 100 -R 200 -R 300 -R 400 -R 500 R 355 R 255 R 269 R 243 -R 101 -R 192 -R 217 -R projected Operating result R'm Investment income R'm R 0 -R 200 -R 400 -R 600 -R 800 -R R R R R % 17% 18% -R 438 -R % 14% -R % 11% 12% 10% 10% 8% 6% -R % 2% 0% projected Operating result per average member Investment income as percentage of average reserves Note: Operating results are an indication of the extent to which the premiums received are sufficient to pay for the claims and expenses incurred by the scheme. A negative operating result implies that the scheme is under-pricing benefits. Per member operating losses have increased substantially year-on-year Investment returns as a percentage of scheme reserves have declined in recent years.

5 Observation 2: Financial performance has deteriorated significantly in 2009, placing strain on the sustainability of the scheme R 200 R 150 R 100 R 50 R 0 -R 50 -R 100 -R 150 -R 200 -R 250 -R 300 -R 350 Actual vs budgeted financial performance Period ending 31 May 2009 (R m) -R 283 R 144 Budget to May -R 139 -R 308 R 92 Actual to May -R 215 Drivers of financial under-performance 1. Worse than expected claim experience accompanied by buy-downs to lower cost options The claims experience is, however, worse than year to date and full year forecasts, with the scheme posting a loss ratio of 98%. This follows a higher than anticipated incidence of claims within the major claims categories, including general practitioners, medical specialists, medicines and private hospitals, as well as a shift in members towards lower contribution options. Global Credit Rating report 2. Further affected by the adverse impact of GEMS membership losses The change in the claiming profile of members (due to the lower proportion of government members) has adversely affected the scheme s operating performance in recent years. Global Credit Rating report Operating result Investment and other income Net result Net result was R76.2 million less than expected in the first five months as a result of worse than expected claims experience and lower than expected investment returns 3. Significantly lower than expected investment returns Poor performance necessitated a revision of the financial forecasts for 2009, which were incorporated into the scheme s Global Credit Rating report

6 Observation 2: Financial performance has deteriorated significantly in 2009, placing strain on the sustainability of the scheme Bonitas revised financial forecasts for 2009 We are of the opinion that Bonitas forecasts are not sufficiently prudent and have adjusted them where appropriate 2009 Discovery 2009 Bonitas forecast for Bonitas forecast R m R m Contributions (excl. MSA) R 6,096 R 6,096 Claims incurred -R 5,665 -R 5,806 Underwriting result R 431 R 290 Delivery costs -R 871 -R 871 Operating result -R 440 -R 581 Total investment income R 243 R 223 Other income -R 5 -R 5 Net result -R 201 -R 362 Loss ratio (before investment income) 107% 110% Reserves R 2,268 R 2,107 Solvency 36.8% 34.2% Adjustments made to financial forecasts Based on Bonitas 2008 claims experience, 42.5% of the scheme s claims were incurred by May In our opinion it is more accurate to forecast the 2009 claims experience assuming a similar emergence of claims over the year as that experienced in Based on this we believe that Bonitas has underestimated their forecast for 2009 claims incurred by approximately R140 million. The Discovery forecast allows for this adjustment. A similar adjustment has been made to the estimated investment income earned over the year. This assumes that investment income will be earned at the same rate as it was earned in the first 5 months of the year. We believe that this is a more reasonable assumption based on the current investment climate and the fact that Bonitas is not building member reserves. Discovery s revised estimates for surplus and reserves are R161 million lower than those published by Bonitas. We forecast Bonitas solvency to be in the region of 34.2% at the end of 2009, as apposed to the 36.8% published in the Global Credit Rating report.

7 Observation 3: Without significant remedial action Bonitas faces a dramatic drop in solvency in Projected financial performance Bonitas solvency is expected to fall by 8% in 2010, in the absence of any benefit reductions or membership growth Based on the forecasted results for 2009 it is possible to project the financial performance of Bonitas over R % 48.2% 47.5% Assumptions: Membership growth: 0% Premiums increase: 15.9% (published) Investment yield: 7% No change in benefit structures in 2010 No allowance for the adverse impact that buy-downs will have on the scheme s claim experience R R R R R 500 R 0 R R R % R % R % 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Estimated reserve progression Estimated solvency progression

8 Observation 3: Without significant remedial action Bonitas faces a dramatic drop in solvency in % 25% 20% 15% 10% 5% 0% Solvency: 25.9% Membership growth and the risk of selective withdrawals expose the scheme to an even greater reduction in solvency in 2010 Member growth -1% Impact of membership growth at 3% over the year Selective withdrawals -1.7% Increase = medical inflation + 5% Impact of selective withdrawals increasing claims by 2% over the year Solvency 23.3% Solvency could possibly be as low as 23% by the end of 2010 Increase = medical inflation Solvency 18.2% Solvency 14.8% Projected Projected solvency 14.8% if Bonitas increases contributions in 2011 Increase in excess of CPI+5% would be necessary if the scheme aimed to rebuild solvency to 25% in a three year period. This would result in a solvency level of 18.2% at the end of Contribution increases significantly in excess of medical inflation will be required to curb the decline in solvency

9 Implications for members and intermediaries Member affordability severely impacted through a 15.9% contribution increase Contribution increase is significantly above medical inflation of 10% Uncertainty t around benefit changes for 2010 Initial scheduled launch dates were postponed. No final launch dates or benefit material has been released as at 22 October Bonitas placed on rating watch by Global Credit Rating FAIS implications for intermediaries eda es Given the concerns raised around the financial position of the Bonitas Medical Scheme, intermediaries should demonstrate caution when advising their members as to the appropriateness of Bonitas as a scheme of choice for medical cover.

10 FedHealth Financial Analysis

11 Key Financial Metrics: Fedhealth Medical Scheme Fedhealth Discovery Health Average contribution increase % 9.8% 2008 Operating result -R 37 million R 293 million 2008 Net surplus R 77 million R 997 million 2008 Reserves R 554 million R 5.3 billion Latest estimate of scheme reserves R 591 million* R 6.1 billion** 2008 Solvency 28.2% 25.4% 2009 Projected solvency 26.1%* 25.3%** Global Credit Rating AA- AA+ (Industry Ceiling) Active members end ** Active lives end **

12 Fedhealth Medical Scheme: Key benefit changes for 2010 Reduction in reimbursement rates Reimbursement rates on Ultimax, Ultima 300 and Maxima Plus will remain at 300% of NHRPL Reimbursement rate on all other options will reduce to 200% of NHRPL Co-payments and deductibles Other benefit changes A 20% co-payment has been introduced on Maxima Standard, Basis and Core options for members who have reached Safety Net Existing co-payments on all Maxima options have increased from R1 150 to R1500. Existing co-payments for joint replacements and hiatus hernia surgery on Maxima Core have been extended to Maxima Standard and Maxima Basis co-payment will be R1 500 in 2010 A R1 500 co-payment has been introduced for upper gastro-intestinal endoscopies on all Maxima options The existing co-payment for the removal of wisdom teeth in-hospital has been increased from R1 150 to R2 500 on all options The value of the scheme s day-to-day benefits, including the Out-of-Hospital Expenses Benefit and medical savings, remain unchanged for 2010 All benefit levels and threshold levels also remain the same

13 Impact of the reduction in in-hospital related account reimbursement rates Plan Plans affected by reduction in reimbursement rates Reduction in reimbursement 92% of Fedhealth s members will be affected by the drop in in-hospital reimbursement rates Maxima Standard Reduced from 300% to 200% Not Ultima 200 affected + OHEB Maxima Basis Reduced from 300% to 200% Maxima +2.7% Ultima 200 Ultima OHEB Reduced from 300% to 200% Basis +2.9% +2.7% Ultima 200 Reduced from 300% to 200% Maxima Core Reduced from 300% to 200% Discovery Health s approach In 2007 Discovery Health reduced reimbursement rates on certain plan options. However, this was accompanied by the introduction of the Direct Payment Arrangements, guaranteeing members full cover when visiting participating specialists. Currently over 85% of specialists visits are covered in full through these arrangements. No other administrator in the market has been able to replicate this arrangement. Maxima Core +2.9% Maxima Standard +2.7% Equates to an effective benefit reduction of 2.5% of member premiums

14 Increase and introduction of new deductibles: Fedhealth Condition New / Existing Which plan affected Co-payment Incidence rate Removal of wisdom teeth in-hospital Hiatus hernia surgery Joint replacement Upper gastro intestinal endoscopies Existing New New All options Maxima Basis and Maxima Standard Maxima Basis and Maxima Standard From R1 150 to R % R % R % New All Maxima options R % Arthroscopies Existing All Maxima options Colonoscopies Existing All Maxima options Laparoscopies Existing All Maxima options Removal of gall bladder Ei Existingi All Maxima options From R1 150 to R1 500 From R1 150 to R1 500 From R1 150 to R1 500 From R1 150 to R % 0.2% 0.8% 0.2% Existing members on these options are now exposed to forced deductibles when undergoing these procedures in 2010 Effective benefit reduction equivalent to 2% of member premiums

15 Discovery s major advantages over Fedhealth Financial security and value Wide spectrum of sustainable plans Guaranteed full cover for medical specialists Access to latest treatments and richer benefits Flexible chronic cover Enhanced day-to-day cover Unique value-added benefits Vitality DHMS enjoys an AA+ rating for its claims paying ability, with over R6bn in reserves. Increases have been consistently in line with medical inflation. Fedhealth s increase for 2010 is 15.9%. A range of plans to cater for every individual need. All Discovery plans have a sustainable membership size. Three out of the 9 Fedhealth plans have fewer than members. Fedhealth does not offer low income plan options. Members guaranteed no out-of-pocket payments through participating specialists (>85% of visits). Fedhealth cannot provide this certainty of cover and has reduced reimbursement rates for 2010 on certain options. Discovery members enjoy access to richer benefits in key areas in comparison to Fedhealth such as: Specialised medicine i and technology, terminal care, external medical appliances, prescribed medicine. i Full cover for approved medicines through a medicine list or monthly amount. Fedhealth imposes annual chronic limits and members using non-formulary medicines are liable for a 40% co-payment. Insured Network Benefit significantly enhances members day-to-day cover once their annual savings deposit is depleted. Fedhealth members do not enjoy these benefits. Trauma Recovery Extender Benefit, Discovery 911, Overseas Treatment Benefit, Screening and Prevention Benefit, Discovery Medicopters, corporate wellness and HIV programme and more. Vitality provides tangible rewards to members for living a healthy lifestyle. The Medical Savings Booster provides additional day-to-day cover to Vitality and Card members through the HealthyFood benefit. Note: No information was available on the Fedhealth Blue Door option at the time of compiling this document

16 Fedhealth plan overview and key changes for 2010 Fedhealth option Ultimax Maxima Plus Ultima 300 Maxima Standard Maxima Basis Ultima OHEB Ultima 200 Maxima Core Description Plan classification New generation option with savings and threshold to cover day-to-day expenses. New generation option with savings and threshold to cover day-to-day expenses. New generation option with savings and threshold to cover day-to-day expenses. New generation option with savings and threshold to cover day-to-day expenses. Traditional option, where all benefits are paid from risk and threshold, subject to sub-limits. New generation option with savings to cover day-to-day expenses. An entry-level new generation option providing cover though minimal savings. An entry-level new generation option providing cover though minimal savings and threshold. Top end: 300% IH reimbursement PMB + non-pmb chronics (70) 7% MSA and OHEB Top end: 300% IH reimbursement PMB + non-pmb chronics (56) 9% MSA and OHEB Top end: 300% IH reimbursement PMB + non-pmb chronics (70) 8% MSA and OHEB Intermediate: 200% IH reimbursement PMB + non-pmb chronics (56) 11% MSA and OHEB Intermediate: 200% IH reimbursement PMB + non-pmb chronics (56) OHEB Limited day-to-day: 200% IH reimbursement PMB + non-pmb chronics (70) 9% MSA and OHEB Hospital: 200% IH reimbursement PMB + non-pmb chronics (56) 2% MSA Hospital: 200% IH reimbursement PMB + non-pmb chronics (56) 2% MSA Members % % % % % % Average increase Key changes for MSA, Safety Net and OHEB levels remain unchanged for 2010 No increase in benefit limits MSA, Safety Net and OHEB levels remain unchanged for 2010 No increase in benefit limits MSA, Safety Net and OHEB levels remain unchanged for 2010 No increase in benefit limits IH reimbursement drop from 300% to 200% 20% co-payment introduced once member reaches threshold IH reimbursement drop from 300% to 200% 20% co-payment introduced once member reaches threshold IH reimbursement drop from 300% to 200% 200% IH i b IH reimbursement drop from 300% to 200% % % IH reimbursement drop from 300% to 200% 20% co-payment introduced once member reaches threshold Comparable Discovery options (discount*) Executive (59%) Classic Comp (49%) Executive Classic Comp (72%) Executive (82%) Classic Comp (68%) Classic Comp (120%) Classic Priority (94%) Classic Priority (100%) Classic Saver (82%) Classic Saver (76%) Classic Delta Saver (61%) Classic Core (79%) Classic Delta Core (63%) Classic Core (66%) Classic Delta Core (53%)

17 Momentum Health Financial Analysis

18 Key Financial Metrics: Momentum Health Medical Scheme Momentum Health Discovery Health Average contribution increase % 9.8% 2008 Operating result -R 47 million R 293 million 2008 Net surplus R 15 million R 997 million 2008 Reserves R 306 million R 5.3 billion Latest estimate of scheme reserves R 316 million* R 6.1 billion** 2008 Solvency 18.7% 25.4% 2009 Projected solvency 16.1%* 25.3%** Global Credit Rating A+ (Rating watch) AA+ (Rating upgrade) Active members end ** Active lives end ** Note : * 2009 Global Credit Rating Report ** Latest Discovery Health data

19 Momentum has experienced continued operating losses The scheme has consistently experienced substantial operating losses R 80 Millio ons R60 R 40 R 20 R 38 R 33 R 62 R 40 R 0 -R 20 -R 47 -R 31 -R 40 -R 81 -R 76 -R 60 -R 80 -R projected Operating Result Investment and other income Note : Operating results are an indication of the extent to which the premiums received are sufficient to pay for the claims and expenses incurred by the scheme A negative operating result implies that the scheme is under-pricing its benefit options

20 Without significant remedial action, Momentum faces a dramatic drop in solvency in % 25% 20% 26.7% Momentum s solvency levels have continued to fall during the last 4 years (from 2006 to 2009). Solvency has dropped by 10.6% during this period 20.1% Medical inflation + 5% increase required to build additional 3.2% solvency in line with business plan. 18.7% 3.2% 15.8% solvency projected for end 2011 if contribution increases are in line with medical inflation 15% Medical inflation 16.1% 15.7% 15.8% +5% increase 10% required to build towards 25% 5% solvency in line with business plan 0% Projected 2009 (GCR) Projected 2010 based on 11.6% Projected 2011 increase Note : According to Momentum s Global Credit Rating report, the scheme s business plan requires the scheme to build towards the statutory solvency level of 25% by This will require incremental increases in solvency each year

21 Momentum Health Medical Scheme: Key benefit changes for 2010 Reduction in reimbursement rates Reimbursement rate dropped from 300% to 200% (Extender and Incentive) and from 150% to 100% (Custom) Increased self payment gaps Thresholds on Extender plans have increased resulting in a substantial increase in self payment gaps for the members on these plans Mental Health on the Access plan will now be covered up to a rand limit (and no Other benefit changes longer up to a day limit) it) New income bands introduced on the Base options, which is a low income plan Momentum Summit New day-to-day d limit it of R per beneficiary i per year introduced d on the Summit option, which is a top end plan Additional chronic conditions on Summit option limited to the new day-to-day limit (previously unlimited)

22 Discovery s major advantages over Momentum Financial security and value Affordable contributions Access to latest treatments and richer benefits Flexible chronic cover Enhanced day-to-day cover Unique value-added benefits Vitality DHMS enjoys an AA+ rating for its claims paying ability, with over R6bn in reserves. Increases have been in line with inflation. Momentum s solvency levels are projected to decline to 16.1% in 2009 Discovery is competitively priced ensuring long term sustainability and value for money. Momentum uses state facilities to reduce premiums effectively providing members with no cover Discovery members enjoy access to richer benefits in key areas in comparison to Momentum such as: Specialised medicine and technology, prescribed medicine, oncology, mental health and external medical appliances Full cover for approved medicines through a medicine list or monthly rand amount. Momentum imposes annual chronic limits and members using non-formulary medicines are liable for an unknown co-payment Insured Network Benefit significantly enhances members day-to-day cover once their annual savings deposit is depleted. Momentum members do not enjoy these benefits Trauma Recovery Extender Benefit, Discovery 911, Overseas Treatment Benefit, Screening and Prevention Benefit, Discovery Medicopters, corporate wellness and HIV programme and more Vitality provides tangible rewards to members for living a healthy lifestyle. The Medical Savings Booster provides additional day-to-day cover to Vitality and Card members through the HealthyFood benefit

23 Momentum plan overview and key changes for 2010 Momentum option Description Plan classification Members 2008 Average increase 2010 Key changes for 2010 Comparable Discovery options (discount*) Summit Extender Incentive Custom Access Base Top end: A traditional option, where 300% IH specialist reimbursement all benefits are paid from PMB + non-pmb chronics risk subject to sub-limits Day-to-day paid from Risk New generation option with savings and threshold to cover day-today expenses New generation option with savings to cover dayto-day expenses New generation option with savings to cover dayto-day expenses Low-income capitated option Low-income capitated option Top end: 200% IH specialist reimbursement PMB + non-pmb chronics Threshold and 25% MSA Limited day-to-day: 200% IH specialist reimbursement PMB + non-pmb chronics 10% MSA Limited day-to-day: 100% IH specialist reimbursement PMB chronics 7.5% MSA % % % % Low income: (network) 100% IH specialist reimbursement rsement % PMB chronics Low income: (network) 100% IH specialist reimbursement PMB chronics New day-to-day limit of R pbpa introduced Executive (87%) Additional chronic conditions accumulate to new R day to day limit (previously Classic Comp unlimited) IH reimbursement drop from 300% to 200% Classic Comp (91%) Increase in self payment gaps going g into Classic Delta Comp 2010 Classic Priority (71%) IH reimbursement reduction from 300% to 200% IH reimbursement reduction from 150% to 100% Mental Health will now be covered up to a rand limit and no longer a day limit % New income bands introduced Classic Core (88%) Classic Delta Core (78%) Essential Core (90%) Essential Delta Core (84%) KeyCare Plus (71%) KeyCare Plus (71% to 113%)

24 For more information on other competitors, please feel free to contact us.