The financial pressures on consumers have not been conducive to the growth of medical schemes, and one often reads of stagnant membership and members buying down to cheaper options. But Bonitas Medical Fund reported an increase in members and a reversal in the buying-down trend last year.
To be sure, the increase in membership was not spectacular, and Bonitas commented that “new organic member acquisitions were lower than expected”.
Principal membership increased by 4%, from 340 119 at the end of December 2021 to 353 763 at the end of last year, and the number of beneficiaries rose by 2.4%, from 709 881 to 727 041, according to the scheme’s financial results for 2022.
The net gain of 13 644 members was the result of organic growth of 47 446 members and acquiring 14 585 members from the amalgamation with Nedgroup Medical Aid Scheme, less 48 387 (2021: 44 418) membership terminations.
Bonitas, the second-largest open scheme in South Africa, covers 15% of open medical scheme beneficiaries, according to the Council for Medical Schemes (CMS) 2021/22 annual report.
Net buying-up
Bonitas experienced a net buy-up of 375 members, with 5 242 (2021: 6 629) members moving to lower-cost options and 5 617 (2021: 4 459) moving to higher-cost options between December 2022 and January 2023.
Asked to explain the buy-up trend, Luke Woodhouse, the scheme’s chief financial officer, said Bonitas made some changes to the benefits on its efficiency discounted options (EDOs). An EDO offers the same level of benefits as a main option, but the contributions are lower because members are restricted to using certain healthcare providers.
Woodhouse said Bonitas observed that the EDOs were attracting a higher-risk membership profile relative to the main options and relative to similar EDOs offered by competitors. There was also not sufficient differentiation between the main options and the EDOs, which was beginning to erode the discount offered to members on the EDOs.
The scheme made changes to the hospital networks, medication formulary, and structure of the day-to-day benefits to ensure better option alignment and greater differentiation with the main option. This resulted in higher-claiming members buying up to the main option to maintain their claim patterns and have better access to care, Woodhouse said.
“We do not anticipate that this trend will continue into the future,” he said.
Membership trends by option
BonStart experienced impressive membership growth last year: up 144%. BonStart is one of the scheme’s two “edge” plans, which are aimed at new entrants to the workplace between the ages of 18 and 35.
BonFit, a savings option, also saw good growth, with membership up by 52%. BonFit was the most affordable of the scheme’s traditional and savings options last year.
The report expressed disappointment that BonCap, the scheme’s income option, did not grow as expected, gaining only 353 principal members in 2022.
Medical schemes sometimes run options at a loss to provide members with affordable healthcare. Of Bonitas’s 12 registered benefit options in 2022, six were loss-making on a net healthcare result basis – that is, before taking investment income into account. This was a reduction from seven loss-making options in 2021.
Click here for a table that shows the membership and beneficiary trends across the scheme’s options in 2022 relative to 2021.
Record high solvency ratio
On the subject of finances, the annual report highlighted that the scheme’s solvency ratio increased to 41.3% in 2022, well above the minimum of 25% required by law and above the average ratio for open schemes of 39.6%.
Bonitas ended the year with reserves of almost R8.8 billion, up from R7.4bn in 2021.
Bonitas made a surplus of R699 million in 2022, but this was 49% lower than the surplus of more than R1.3bn in 2021.
Risk contribution income increased by 5.7% to R19.1bn, while net claims increased by 7.45% to R17.1bn.
Overall, net claims were 3% higher per member per month than in 2021. Claims included Covid-19 costs of R425.9m (2021: R2.6bn). Net claims were impacted by factors such as an increase in elective procedures, infectious disease admissions, and injury and trauma admissions to similar levels as before the pandemic, the report said.
The net claims ratio for the year was 90.9% (2021: 89.8%). The ratio was 88.7% (2021: 75.7%) excluding Covid-19 costs.
Net impairment losses on healthcare receivables jumped from R63 000 to R5.9m.
Administrator fees increased by 10.7% to R1.01bn because of net membership growth of 4% and CPI-related fee increases. Broker fees increased by 6% to R382m.
Bonitas went from a net healthcare surplus of R210.9m to a deficit of R14.1m.
Other income, mainly from investments, resulted in the scheme ending the year with an overall surplus of R699m. However, investment income was 36% than in 2021, from R1.2bn to R781m in 2022. The scheme targeted an investment return of 10.4% in 2022, but the return was 7.2%.
The market value of Bonitas’s investment portfolio, excluding cash and cash equivalents, was R9.97bn at the end of December 2022 (2021: R8.32bn), representing growth of 20%.
Will R8.8bn in reserves translate into low contribution increases?
This year, Bonitas used some of its reserves to implement lower contribution increases. It announced an average increase of 5.9%, or 4.7% after deferring the increase to 1 April, across all plans. The CMS recommended in July 2022 that contribution increases for 2023 should be below 5.7%, which was the South African Reserve Bank’s forecast average inflation rate for the year. It also recommended that schemes in a strong financial position should implement increases lower than 5.7%.
With the scheme sitting on reserves of R8.8bn, members may ask why Bonitas can’t implement contribution increases well below the inflation rate. Moonstone asked Bonitas what it considers when deciding on contribution increases.
Woodhouse said the main factor to consider is the gap between the level of average monthly contributions and average monthly claims expenditure. If this gap widens (monthly contributions become increasingly less than claims), it becomes very difficult to narrow the gap in future years without higher contribution increases (so-called “corrective” increases) to bring the contributions back in line with the claims base. This trend is further intensified by the compound nature of claims inflation. If there is under-pricing (contributions increase by less than claims increase), the rate of the gap will accelerate year-on-year.
Therefore, even if solvency can support a very low increase for the next year or even the year after that, schemes must consider their financial sustainability over the medium to longer term and prevent members from incurring a very high increase in a single year, Woodhouse said.
Responsibly utilising reserves is therefore a very difficult balancing act between immediate short-term contribution relief and longer-term contribution increases, particularly in an environment where the claims landscape has many uncertainties because of the short-term indemnity nature of medical schemes (the cost of claims is not known).
He said Bonitas prefers to adopt a responsible and sustainable approach whereby reserves are utilised to benefit members over the longer term.
For the reasons above, aggregated weighted average increases of 1% to 2% are unlikely. However, this does not mean that increases of that nature are not plausible at an option level. For example, in 2022, Bonitas announced increases of 2% on BonStart Plus, 1.5% on BonFit Select, and 0% on BonStart for the 2023 benefit year, Woodhouse said.
Achievements
The annual report highlighted the scheme’s recent achievements.
One of these was banking recoveries of more than R55m from its programme to combat fraud, waste, and abuse (FWA). Bonitas spent R49m with Medscheme on its FWA programme.
“Banked recoveries represent a small portion of the actual savings emanating from successful FWA detection and preventions, as service providers who engage in FWA are likely to continue doing so if they are not held to account,” the scheme said.
Bonitas estimates it has saved R1.1bn from changed behaviour since it initiated its FWA programme in 2016.
Bonitas commissioned Deloitte to conduct a Transactional and Relational Governance Review for 2020 and 2021, and the results were received in November 2022. The review found that Bonitas obtained significant value for money from its primary contracted service providers. For every R1 spent on administration and managed care, Bonitas derived R1.49 for 2020 and R1.78 for 2021, an increase of 19%.
For 2021, Bonitas also surpassed the industry proxy of R1.59 for the first time. “This indicates that, in 2021, Bonitas derived more value from our primary contracted service providers than other comparable schemes from their administrators,” the scheme said.
Bonitas was received a Titanium Award from the Board of Healthcare Funders for Operational Performance in May 2023 for the second year running. The award benchmarks industry excellence and rewards medical schemes, administrators, and managed-care organisations that provide best value and service to their members.
Earlier this year, Bonitas was named Medical Scheme of the Year at the News24 Business inaugural awards. The scheme was also voted South Africa’s number-one medical scheme in the Ask Afrika 2021/22 Orange Index.
