Medical Schemes Industry Presentation

Transcription

1 Global Credit Rating Co. Medical Schemes Industry Presentation Marc Chadwick 28 October

2 Agenda 1. Brief background to GCR 2. Membership trends 3. Financial and operating performance 4. Medical scheme credit ratings 5. Operating & regulatory environment Key topical issues/views 6. GCR s outlook 2

3 Background to GCR Established in 1996 as Duff & Phelps Africa Renamed Global Credit Ratings in 2001, to expand and specialise in Emerging Markets Full service rating agency Regional offices in 3 African countries Market leadership established in Africa International institutional shareholders - DEG/KFW group, French government owned PROPARCO 3

4 Private sector penetration SA population versus private beneficiaries 55,000,000 50,000,000 45,000,000 40,000,000 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000, * 2011 Mid 2014 Population Private beneficiaries % Private beneficiaries / Population 4

5 Medical vs short term insurance penetration 5

6 Open vs restricted schemes 160 Number of schemes No. of open schemes No. of restricted schemes Total no. of schemes Linear (No. of open schemes) 6

7 Consolidation January 2010, PUREhealth liquidated, Medicover merged with Liberty, and Telemed amalgamated with BESTmed. October 2010, Oxygen merged with Medshield, liquidation of Gen-health - Medshield absorbed most members. August 2012, Resolution concluded merger with NIMAS. January 2013, Bonitas merged with Pro Sano. March 2013, Discovery merged with Nampak (closed), followed by merger between Discovery and IBM in July. BESTmed merged with Sappi (closed) April Discovery & Altron November

8 Consolidation Top 5 open schemes represent 79% of membership from 50% a decade ago GCR expects industry consolidation to continue amidst persistent healthcare cost pressures Benefits of scale; negotiating power Market could still exist for some small niche schemes Consolidation positively considered by GCR as schemes have generally become financially more stable 8

9 Membership Membership trends Open scheme principal members Restricted scheme principal members Open scheme beneficiaries Restricted scheme beneficiaries 9

10 Membership 30 Membership trends Open scheme principal members Open scheme beneficiaries Restricted scheme principal members Restricted scheme beneficiaries 10

11 Membership government Segmental composition of principal membership 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Government Private sector 11

12 Membership 3,000 Principal members Membership - GEMS vs top 4 open schemes Beneficiaries 2,500 2,000 1,500 1,000 Discovery Bonitas Medihelp Medshield GEMS

13 Membership Average beneficiaries by administrator (no. schemes administered) 11% 7% % 3% Discovery Health Metropolitan Health Medscheme Momentum 14 9 Self administered Other 27% 25% 13

14 Membership Average beneficiary age Average age open schemes Average age restricted schemes Average age combined 14

15 Contribution trends CPI vs medical contribution increases Average CPI Contribution Rate Increase Real increase 15

16 Claims expenditure % Risk benefits Other benefits Medicines Hospitals (excl. medicines) Support professionals Dental specialists Dentists Medical specialists General practitioners 16

17 Claims expenditure 100% Medical savings benefits paid 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 33% 34% 34% 34% 34% 35% 36% 17% 17% 16% 17% 17% 17% 17% 21% 21% 20% 20% 20% 21% 20% 14% 14% 16% 16% 16% 14% 15% Medicines Hospitals (excl. medicines) Support professionals Dental specialists Medical specialists Dentists General practitioners Other Benefits 17

18 Claims expenditure (open) Rands Average contributions and claims PMPM NPI Claims 18

19 Claims expenditure Key drivers PMBs New medication and technological advancements Increased disease burden Benefit abuse / fraud Corrective measures Enhanced risk management procedures and ongoing benefit design (ongoing process) Schemes have established their own DSP networks (hospital, GP, specialists), in particular for PMB diagnosis & treatment Switch from patent to generic drugs for chronic 19

20 Delivery costs (open) 16 Delivery cost composition / GPI (%) Administration fees Acquisition costs Managed care fees Other management expenses 20

21 Financial performance (open) Net healthcare and net result (Rbn) Financial performance (%) 2, ,000 1,500 1, ,000-1, Net healthcare result Net result Net annual surplus : net premium income (RHS) 21

22 Liquidity (open) 5 Cash coverage ratios (months) Net Gross 22

23 Statutory solvency Statutory solvency requirement Accumulated funds expressed as a % of GPI (minimum of 25%) In GCRs view, this measure has various shortcomings; doesn t accurately convey overall scheme financial position, risks etc Should be risk based, incorporating balance sheet strength and asset/liability composition, underlying member risk profile etc ICU schemes on close monitoring by CMS Close monitoring justified for rapidly falling solvency CMS approach submit business plan and monthly/quarterly management accounts to CMS, trustees attend regular monitoring meetings 23

24 Statutory solvency 24

25 Accumulated funds Rand (billion) Accumulated Funds 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, % 46% 48% 48% 47% 46% 46% 47% 45% 46% 55% 54% 53% 54% 54% 53% 52% 52% 54% 53% Accumulated funds - Open schemes Accumulated funds - Restrcited schemes 25

26 Accumulated funds (open) Reserves per principal member (Rands) 4.9 Accumulated funds : Ave monthly claims (x) 10, , , , , Reserves per member (Accumulated funds per principal member) Accumulated funds: Ave monthly claims 26

27 Ratings 3 Key areas to consider when selecting a medical scheme: 1. Price vs benefit / product offering 2. Service 3. Financial strength Rating agency focuses on financial strength: - Ratings reflect an independent opinion of a company s financial position, as well as how the financial position may change in the future (under reasonable & stressful scenarios) 27

28 Process of assigning ratings Procedure Gathering of information, including historical operational & financial records, industry specific & economic data Desk top analysis Relevant risks, financials & forecasts Meetings with management, in-depth information discussed Draft rating report compiled & forwarded to management Feedback from management obtained, a rating panel is convened & relevant issues discussed, ratings accorded Ratings communicated directly to management Ongoing monitoring & contact with management is crucial in maintaining the integrity of the ratings accorded 28

29 Credit ratings Benefits of medical scheme ratings Increased pool of members Increased distribution network - Note: a number of leading intermediaries in SA wont place business with medical schemes that don t carry a minimum GCR rating. Management benefit Useful in business development 29

30 Medical scheme rating definitions Claims paying ability ( CPA ) rating scale: AAA - Highest CPA AA band - Very high CPA A band - High CPA BBB band - Adequate CPA BB band - Moderate CPA B band - Speculative to a high degree CCC - Scheme has been, or is likely to be, placed under order of the court Notes: Categories further subdivided by a +/- Industry risk ceilings Rating watch, or positive or negative rating outlook 30

31 Credit ratings 31

32 Credit ratings 32

33 National Health Insurance Operating & regulatory environment Government has a long term horizon (NHI phased in over 14 years) Clarity so far only on initial stage (building and preparation) increasing health budgets to rehabilitate public healthcare infrastructure (hospitals, nursing homes etc), bolstering human resource capacity Initial stage: general taxes will remain primary funding mechanism; thereafter funding uncertain (VAT and/or income/company tax) Risks: Role of schemes? Loss of younger, healthy members? Top up cover only? Short term: don t expect impact on private sector schemes/administrators Medium term: Opportunities for schemes/administrators? Service provider arrangements could be extended to upgraded public health institutions; Opportunity for schemes to build relationship with public sector; look at success of GEMS Long term: opportunities for schemes/administrators to be involved in NHI? Administrative aspect; existing platform; sharing of skills, data, expertise? Ultimately cost vs benefits/quality healthcare 33

34 Operating & regulatory environment Prescribed Minimum Benefits 2011: unsuccessful court challenges by BHF i.e. scheme tariff vs invoiced cost CMS opinion unchanged: schemes must pay for PMBs in full at invoice price However, CMS has approached DoH regarding possible amendments to Medical Schemes Act, which could see some compromise? In the interim, PMBs expected to continue to drive elevated medical inflation (in particular hospital, medicine and specialist costs) These higher claims factored into contribution increases (spiral effect) Competition Commission s inquiry into rising medical costs (and system abuse) and the negative impact on affordability/sustainability of the industry expected to be finalised in Positive findings would likely be beneficial to schemes and their members 34

35 Operating & regulatory environment Demarcation Goal: Establish clear distinction between medical schemes & health insurance Address the risk of possible harm caused by s/t insurers drawing younger, healthier members away from medical schemes ( gap cover impacting cross subsidisation) Regulations on demarcation between health insurance policies and medical schemes expected late While gap cover and hospital cash plan insurance is expected to remain, this must rather complement medical schemes as opposed to a negative effect Current vs future impact on schemes is uncertain, but not deemed significant 35

36 Outlook Overall - GCR has a stable outlook for the sector, expect ratings to generally remain sound Expect key financial metrics (solvency & liquidity) to be upheld Ongoing risk management interventions and enhanced management oversight is expected to continue delivering sustainable benefits & stable claims trends for foreseeable future Industry consolidation expected to continue Regulatory outlook presents certain challenges albeit unresolved 36

37 Closing Thank you 37