Medical scheme trustees cannot take a business as usual approach during the COVID-19 pandemic. Boards should be giving thought to the value of their reserves and whether using such reserves would be of benefit to members. At a minimum, trustees need to understand the options available to them when considering using scheme reserves.
In terms of regulation 29 of the Medical Schemes Act 1998 (MSA), medical schemes are required to maintain a minimum of 25% of the annual member contributions in reserve. The purpose of regulation 29 is to ensure that medical schemes maintain adequate capital, create efficiency in the use of member funds, manage risk and create operational efficiencies.
The use of medical scheme reserves in these extraordinary times must be considered by trustees, because members may be cash strapped and certain much needed medical supplies are at an all-time low. Although the MSA specifies the types of investments that can be made using reserves and the manner in which schemes are to spend their funds, it is doubtful that those restrictions were drafted with a pandemic such as the COVID-19 outbreak in mind.
In keeping with the above, the regulator has issued Circular 28 of 2020, which is a guideline to medical schemes during these trying times especially when seeking an exemption. The regulator is of the view that blanket exemptions cannot be granted to the industry as a whole, so individual applications have to be made for specific exemptions. In summary the circular records that:
- Schemes can apply for exemptions within the specified limits set out in the Circular. The dispensation is not available to bargaining council schemes, schemes under curatorship or schemes below the required solvency level or with a rapidly declining level of solvency.
- Where schemes are considering using reserves (which are estimated to total R60 billion) then this would only be justified where it benefits members.
- Schemes can apply, on an individual basis, for exemptions which will enable contribution holidays for members. Each application will be dealt with on its own merits.
- Schemes may use the ex gratia process to assist members in funding health services. The ex gratia process cannot be used to off-set contributions, hence the need for an exemption.
- SMMEs may seek financial relief from medical schemes to protect employee membership. SMMEs should discuss their financial concerns with schemes for schemes to ascertain the risk, and in doing so medical schemes must be mindful of the provisions of the National Credit Act.
In addition the regulator has indicated that schemes may use members’ personal medical savings accounts to off-set contributions. This can be done where:
- A member has requested such relief;
- The desired level of medical savings is for 12 months, however a lesser balance can be considered depending on the merit of the request; and
- The terms and conditions of the use of these funds are clear and members are made aware of the impact of using their savings in this manner.
Schemes that opt to offer the use of the medical savings accounts will be required to report to the regulator and communicate the impact to all members.
The restrictions and possible exemptions cannot operate in isolation. Trustees have a duty to take all reasonable steps to ensure the protection of the interest of beneficiaries in terms of the rules of the medical scheme and the provisions of the MSA at all times, including acting with due care, diligence, skill and good faith. As such trustees must ensure that they have a comprehensive understanding of their financial position, the impact of an exemption on a scheme and its members and, importantly, where a dispensation is made available to members, it is communicated in a manner that is easy to understand for all members.
The Circular must be considered by boards of schemes so that they are able to take the best decision for their members. What is immediately evident from the Circular is that it reiterates that trustees are called upon to act in a manner which is to the benefit of their membership.