Discovery Health Medical Scheme (DHMS) has lodged an appeal against a directive from the Council for Medical Schemes (CMS) to cease and retract all communication to members about its proposed contribution and benefit changes for 2024.
In an “unprecedented” move, the CMS sent a directive to South Africa’s top five open medical schemes on 5 October, instructing them to withdraw their 2024 contribution announcements and publish them only once the regulator has formally approved the changes.
At the end of last month, DHMS, Bonitas Medical Fund, Momentum Medical Scheme, Bestmed Medical Scheme, and Medihelp Medical Aid made public their respective contribution increases.
DHMS announced a weighted average contribution increase of 7.5%. Bonitas’s weighted increase for next year is 6.9%, and Momentum’s will be 9.6%. Bestmed announced a 9.6% average weighted contribution increase across all its benefit plans, while Medihelp’s weighted average adjustment is 15.96%.
All are to take effect on 1 January 2024.
Read: Bestmed and Medihelp announce 2024 contribution increases
CMS recommendations
In Circular 27 of 2023, distributed in August, the CMS advised schemes to limit their contribution increases for 2024 to 5% – in line with headline inflation as measured by the Consumer Price Index (CPI) – plus “reasonable” utilisation estimates.
The CMS projected these estimates at 3.2% to 3.8% based on its analysis of cost increase assumptions for 2023. In other words, a recommended increase of just over 8%, give or take a percentage point or two.
While the regulator acknowledged that “industry-specific cost-push factors” could necessitate medical schemes to implement contribution increases that exceeded the CMS’s recommended increments linked to the CPI, it stated that in such cases boards of trustees had to provide the Registrar of Medical Schemes with a comprehensive business plan justifying the proposed above-inflation contribution increases.
Read: CMS releases guidelines on medical scheme increases for 2024
In a section called “Key CMS Recommendations”, Circular 27 also notes that only contribution increases that have been approved by the Registrar may be implemented by medical schemes.
“Moreover, it is advised against communicating any benefit changes or contribution increases before obtaining the necessary approval from the regulator,” the circular reads.
Jumping the gun
Shortly after the contribution increase announcements, Moonstone reported that the CMS was yet to approve DHMS’s 2024 contribution increases.
Read: Discovery Health’s 2024 contribution increases await green light from CMS
On 29 September, Deon Kotze, chief product officer at Discovery Health, told Moonstone that while the 2024 valuation report had been submitted to the CMS, it had not been approved yet. He added that this was not unprecedented, “since most medical schemes announce their annual contribution increases after submitting their valuation report to the CMS, but prior to CMS approval”. Kotze said it should be noted that CMS had approved contribution increases above CPI for medical schemes for a number of years.
However, it seems the CMS is not as blasé about its advice to schemes not to communicate benefit changes and contribution increases before they are approved by the regulator as Kotze’s quote might indicate.
According to Business Day, the CMS has instructed all five medical schemes to withdraw their contribution announcements. In a letter, signed by CMS acting registrar Zongezile Baloyi, the regulator allegedly accused the medical schemes of undermining its authority and “causing unnecessary confusion” among consumers by not waiting until the increases were signed off.
In a media statement released today, the CMS states that of the 71 medical schemes it regulates, 66 complied with the Circular 27 directive.
“To our knowledge, only five schemes made public pronouncements on changes to benefits and contributions for 2024, without indicating the planned changes are subject to approval by the regulator. The CMS Regulation Division is engaging with the identified affected schemes for finality on the matter.”
Changes subject to approval
The CMS adds that although it acknowledges that medical schemes may want to communicate the planned or proposed changes to benefits ahead of the approval by the regulator, it is important for schemes to communicate clearly that the proposed changes are subject to approval by the regulator.
“Section 31(2) of the Medical Schemes Act 131 of 1998 is definitively clear – ‘no rule amendment, recission, or addition is valid unless it has been approved by the Registrar’. Based on this rule of law, the circular further emphasised: “The Registrar will communicate the decisions (approvals/rejections) in November 2023. Only contribution increases that have been approved by the Registrar may be implemented by medical schemes.”
The CMS urged medical schemes members not to panic.
“Medical schemes have submitted benefit and contribution change proposals for 2024 and are being evaluated independently without fear or favour.”
Hope for an amicable resolution
DHMS says it is actively engaging with the CMS on the matter.
“Such an appeal is not an unusual occurrence across the medical schemes industry and is not an adversarial step. DHMS is hopeful that a resolution of this matter can be achieved without the appeal processes having to be heard, and as quickly as possible.”
According to DHMS, medical schemes typically initiate communication with financial advisers and thereafter with members in September every year, to provide product updates in respect of contribution and benefit changes for the year ahead. The medical scheme describes it as a “long-standing practice spanning more than 25 years”.
In previous years, DHMS states, the CMS’s approval for DHMS product updates was typically received, in part or in full, during late November or December, before taking effect on 1 January every year.
“Delaying communication of annual changes to financial advisers, employers, and members on this timeline would leave stakeholders compromised and unable to fully process, advise and consider changes.”
On the legal front, DHMS argues that although the Medical Schemes Act is explicit that benefit amendments may not be implemented without the formal approval of the CMS, the Act specifically makes no statement about the requirement for formal CMS approval prior to communication of intended changes.
“The practices and processes followed in 2023 were no different to prior years and fully compliant with all legal requirements. For clarity, during this specific 2023 year-end period, the DHMS executives met with the CMS Benefits Unit to explain the product updates and discuss aspects of the actuarial valuation report findings,” DHMS states.
Note: This article has been updated to include DHMS’s appeal and comment on the CMS’s directive.
One can 100% understand that above inflation increases may occur, if justified. Democracy is the freedom to be competitive. Can you imagine if all regulators had to approve pricing for all consumer goods by SKU and services?
Well done CMS. Let’s keep medical inflation costs down.
The impracticality of only starting to advise and assist clients with insufficient time would be disastrous . How will clients make informed decisions . HOW would adviser be able to assist all clients before 1st of January . DHMS is correct , launching the new years premiums has always been done September or early October – I remember many instances where many medical aids benefits were not approved by CMS until the new year.
As much as Kevin thinks the CMS is to be patted on the back (in a perfect world ) there are many factors to consider to ensure clients timeously informed with regard to medical aid benefits and affordability so they can make informed decisions.
My Medical Aid increase is 14.4%. Fedhealth