Fin24

Call to cut med schemes' solvency ratio

2012-08-01 16:15

Johannesburg - There is a need to halve the solvency ratio for medical schemes, the Health Monitor Company said on Wednesday.

"South Africa's two biggest medical schemes are each obliged to hold close to R11bn in reserve to meet solvency requirements," said CEO Christoff Raath.

He was speaking at the Board of Healthcare Funders' SA conference in the Drakensberg.

He said the current solvency model required at least 25% of one year's gross contribution income to be held in reserve.

But preliminary research suggested that a risk-based approach could release significant funds and still ensure sufficient reserves.

"The origin of the 25% figure is a complete mystery," he said.

The solvency reserve was intended to provide a buffer if something went wrong.

Raath said one of the biggest problems with the current solvency model was that it rewarded loss-making schemes - and penalised surplus-making ones.

He said research based on the annual reports of the Council for Medical Schemes (CMS) over the past decade, showed that 76% of medical schemes recorded surpluses.

* Follow Fin24 on Facebook, Twitter and Google+.