Some 48 000 members and their beneficiaries will be without cover from 1 September.

Leading South African medical scheme Health Squared has become another casualty of the Covid-19 pandemic, with the company taking steps to voluntarily wind up.

A link in an SMS sent to Health Squared members on Friday (19 Aug 2022) took them to a letter dated August 18 signed by the scheme’s principal officer Elias Mabena, informing them about the planned voluntary winding up of the scheme.

The letter advises members “to seriously consider taking steps to secure new membership at other medical schemes with effect from September 1 2022”.

The scheme says it will use its best endeavours to assist members in the period leading up to 31 August 2022, by providing information necessary for them to apply for membership at new medical schemes, including the issuing of membership certificates.

Not much notice

A Health Squared member told Moneyweb they received the SMS containing the link to the letter, which includes a copy of the high court notice of motion, from the scheme’s Board of Trustees at 5.36pm on Friday (19 August).

The Registrar of Medical Schemes and the Council for Medical Schemes (CMS) are listed as the respondents to the application.

The member said Discovery Health informed them late on Friday that it had already received several calls from other Health Squared members requesting information about Discovery membership.

Health Squared says in the letter that the high court application for leave to file a winding up application will be heard on 30 August.

It says the application means “that with effect from September 1 2022 the scheme will no longer be conducting the business of a medical scheme”.

Health Squared was formed in 2018 through the amalgamation of two long-standing medical aid providers, Resolution Health and Spectramed.

Solvent but deteriorating position

According to Independent Financial Consultants (IFC), Health Squared has 48 000 members.

The letter advises members that the scheme will be wound up as a solvent business which has assets that presently exceed its liabilities.

It says the board has been advised that the scheme presently has sufficient reserves to meet claims that will have been incurred but not reported on the date of voluntary winding up.

“However, having received actuarial and legal advice, it is clear the scheme’s financial position will deteriorate further, to the extent that towards the end of 2022 the scheme will have reached such a low level of reserves that it may not be able to meet members claims as they arise,” reads the letter.

“The scheme’s ability to discharge its obligations to members relating to healthcare costs incurred by them will worsen with every passing month.”

‘Health events’ until 31 August will be covered

The letter says the scheme will from 1 September no longer be receiving contributions in return for undertaking the liability to defray member claims relating to healthcare services.

It notes that members will be covered for claims arising from health events that take place up until 31 August, provided their contributions have been duly paid.

“Claims relating to the period ending August 31 2022 and member queries will be attended to in the normal course of business until the scheme is finally wound up.”

Key reasons

The letter lists the primary reasons for the board’s resolution to apply to court for leave to wind up the scheme as follows:

  • High Covid-19 claims expenditure, which was the primary driver of the financial deterioration of the scheme during 2020 and 2021, with the scheme particularly impacted relative to medical scheme industry norms due to its older-than-average age profile;
  • A considerable loss of members in recent times; and

  • A worse-than-expected claims experience in 2021 and 2022.

In regard to Health Squared’s age profile, the letter states that as at 31 July 2022, the scheme had an average beneficiary age of 49.7 years, which is 16.1 years higher than the medical scheme industry average of 33.6 years.

It says the combined effect of these factors is that the scheme’s solvency ratio, the ratio used to measure a scheme’s reserves available to meet claims, has suffered a significant and relentless decline, despite numerous remedial interventions.

It says Health Squared’s solvency ratio was:

  • 17.32% at the end of 2020;

  • 6.04% at the end of 2021;

  • Approximately 2.15% at the end of July 2022;

  • And has been projected by the scheme’s actuaries to be between 0.2% and 2.3% at the scheme’s 2022 year-end.

(According to the CMS, the Medical Schemes Act prescribes that a scheme’s reserves must remain at (at least) 25% of annualised gross contributions, excluding new medical schemes “where case phase-in solvency ratios apply”.)

Health Squared’s letter says Health Squared has pursued various options to avoid a winding up, including proposed amalgamation transactions with various other schemes, adding that these discussions have been ongoing since the beginning of the year but have been unsuccessful.

“Prospective amalgamation partners have all expressed concern at the scheme’s risk profile as well as its low reserves as being prohibitive of possible amalgamation,” it says.

“The last response declining a proposed amalgamation was received on August 15 2022.”

It says that, if granted, the winding up application will be launched on 1 September.

“This will be the effective date of the winding up of the scheme according to the advice received by the board, albeit that it is anticipated that such an application, which must be brought on no less than 15 days’ notice to the Registrar of Medical Schemes, will be heard on September 20 2022,” it notes.

Attempts to obtain further comment from Health Squared and the firm of attorneys that lodged the high court application were unsuccessful.

The confident tone of less than a year ago

In a media statement on Heath Squared’s webpage dated 12 October 2021, principal officer Mabena proclaimed that the 2020 CMS annual industry report confirmed that conventional medical schemes were unable to match the value Health Squared Medical Scheme members could gain with the integration of health cover services exclusively available to them.

“The CMS’s 2020 reporting period reflects the arrival of the Covid-19 pandemic in South Africa,” he said.

“To date, Health Squared has paid out more than R120 million in Covid-19 related claims for 2021, including hospitalisation, lifesaving care, and home visits, as well as covering Covid-19 tests long before this was written into the regulations.”

Mabena pointed out that unlike many other schemes, Health Squared continued to cover Covid-19 benefits from its risk pool without touching its members’ savings accounts in both 2020 and 2021.

“In 2022 and beyond this will be no different and the scheme will continue to ensure cover from every angle throughout the pandemic and beyond, proving health cover is only worthwhile where it more than answers to the needs of the individual, and as the pandemic has shown this can be unpredictable – even for young people in good health.”

Mabena said the CMS report confirmed Health Squared’s claims ratio for 2020 was 89.9%.

“Taken in the context of the average age of beneficiaries and with the health risks older individuals face tending to be higher, the scheme’s claims ratio is relatively low.

“This illustrates the exceptional managed care provided by the scheme’s administrator, Agility Health, making more benefits available to members where needed, providing the tools for them to enjoy better health and quality of life well into their golden years.”

Mabena said in his 2021 media statement that the scheme’s rewards partner had announced that it was encouraging members to protect themselves against Covid-19 with a R700 cashback reward for Agility Rewards Platinum members who completed their vaccinations in 2022. He said this formed part of the more than R40 000 in simple cashback rewards that were “accessible for activities such as playing golf, going to the gym, exercising with a pedometer, paying your child’s school fees and air travel”.

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Health Squared Emergency building image