No profit pulse
Medical aid suffers huge losses
Despite persistent losses, liquidity pressure and declining reserves, Namfisa says the medical aid industry in Namibia remains healthy.
The medical aid industry in Namibia continued to suffer a loss in the second quarter of this year, ending the period by being about N$139.3 million the red.
This followed a net loss of some N$144.6 million in the first quarter of 2022.
The latest data released by the Namibia Financial Institutions Supervisory Authority (Namfisa) shows the medical aid industry only managed to achieve a quarterly net surplus once since the second quarter of 2021, when it reported green figures of nearly N$119.4 million in the final three months of the year.
The industry suffered a net loss of around N$41.6 million for the 2021 financial year, the first overall industry loss in Namfisa’s records dating back to 2005.
Despite the net deficit suffered in the second quarter of this year, Namfisa said the industry remained well capitalised as it held a high percentage of free assets as at 30 June 2022. Additionally, the industry’s reserves level exceeded the minimum prudential reserves level requirement of 25% and was thus deemed to be financially sound, the watchdog said.
MORE MEMBERS, PENSIONERS
Total membership increased by 0.5% quarter-on-quarter (q/q) and by 1.5% year-on-year (y/y) to 205 905 beneficiaries at the end of June 2022.
According to Namfisa, employer groups appointed more employees during the quarter under review, which resulted in increased membership for medical aid funds industry.
Pensioner beneficiaries increased by 1.1% q/q and by 6% y/y. At the end of June, the 12 926 pensioners constituted nearly 6.28% of total membership, compared to June 2021 when the 12 594 pensioners represented 6.18%.
The open funds’ pensioner ratio at the end of the second quarter was 6.1% while that of closed funds was 7.5%.
According to Namfisa, the higher ratio for closed funds was expected due to the high proportion of continuation members within the closed medical aid funds sub-industry. A continuation member is a member who retired from employment (normal or early retirement), but continues to be a member of the medical aid fund to which they belonged during employment.
“The sustained annual increase in pensioner members may present higher claims risks for the industry as older members generally claim more than younger members,” Namfisa said.
“Pensioner beneficiaries are generally expected to incur more healthcare costs than younger beneficiaries over the long term. Therefore, enrolling younger and healthier beneficiaries at a higher rate than pensioner beneficiaries would be beneficial to the industry as it would contribute to the long-term sustainability of the industry,” the authority added.
CONTRIBUTIONS, CLAIMS
Total contributions grew by 0.4% to N$1.2 billion for the June quarter and by 6.6% on an annual basis. Quarterly growth corresponds with the growth in membership of 0.5%, Namfisa said.
The average contribution income per beneficiary was N$5 942 for the quarter under review, a slight decrease of 0.04% q/q and an increase of 4.7% y/y.
Average claims per beneficiary increased by 0.1% q/q and by 0.4% y/y, to N$5 957.
The industry claims increased by 0.6% q/q to N$1.2 billion, and by 2.1% y/y.
“Claims behaviors were similar to those observed before the Covid-19 pandemic, where claims generally rose during the second quarter as a result of winter-related illnesses,” Namfisa said.
The industry reported an average claims ratio of 100.3% during the second quarter of 2022, which was slightly higher than the 100.1% reported for the previous quarter, and lower than the 104.6% reported for the corresponding quarter of 2021.
According to Namfisa, claims related to hospital admissions, medicines dispensed by pharmacists and visits to general practitioners and specialists were reported at 75.5% of total healthcare expenditure during the quarter under review. This was higher than the 74.1% reported for the previous quarter and the 70.6% reported for the corresponding quarter of 2021.
LOSS RATIO
Non-healthcare expenditure incurred by the industry consists of administration costs, managed healthcare costs (fees for managing health benefits), operational expenditure and net-reinsurance expenditure.
The industry’s non-healthcare expenses amounting to N$131.4 million during the quarter ended 30 June 2022, up 4% q/q and 7.6% y/y. Administration costs remained the highest contributor to total non-healthcare expenditure, Namfisa said.
Namfisa said the industry recorded a loss ratio of 111% during the quarter under review, indicating that its total expenditure was higher than its income from contributions. The reported loss ratio was slightly higher than the 110.5% reported for the previous quarter, but lower than the 115.1% loss ratio reported for the corresponding quarter of 2021.
LIQUIDITY
Total assets held by the industry at the end of June 2022 amounted to about N$2 billion, down 9.3% from the previous quarter and a decrease of 12.5% year-on-year (y/y).
The liquidity position of a fund is measured by its ability to pay claims from cash and cash equivalents. The industry’s liquidity gap - difference between the industry’s current assets and its current liabilities - was positive during the quarter under review, with current assets exceeded current liabilities by N$1.4 billion.
Cash coverage is the number of months for which the industry can pay claims from its existing cash and cash equivalents.
During the quarter under review, the industry reported higher claims than the previous quarter. This resulted in a cash coverage ratio of 0.2 as at 30 June 2022, lower than the 0.3 reported as at 31 March 2022 and 30 June 2021.
“The ratio indicates that the industry had cash and cash equivalents that was not sufficient to settle one month’s worth of claims as at 30 June 2022,” Namfisa said.
This, however, Namfisa added, does not pose a significant threat to the industry’s viability. The industry held sufficient liquid investments to disinvest in order to settle claims where cash resources are insufficient, it said.
The industry’s total investments decreased by 7.9% q/q and by 10.3% y/y to N$1.9 billion, mainly a result of the reduction in the market value of the investments held by the industry during the quarter under review.
“The industry continues to hold the majority of its investments in liquid assets such as unit trusts and cash and cash equivalents in order to have sufficient cash to settle unexpected healthcare expenses,” Namfisa said.
RESERVES
The industry’s accumulated reserves – total assets minus total liabilities – decreased by 8.9% q/q and by 15.9% y/y to N$1.5 billion at 30 June 2022, as a result of the net deficit reported during the quarter under review.
Medical aid funds are required to maintain a minimum prudential reserves level or solvency margin of 25% of gross contributions.
“The industry’s reserves level decreased by 3.1% to 30.6% as at 30 June 2022. The open funds industry reported a reserves level of 29.1%, a decrease of 3.4% and the closed funds industry r reported a decrease of 3.7% to 38.4%,” Namifisa said.
All closed medical aid funds reported reserves level above the prudential requirement, the watchdog reported. According to Namfisa, one open medical aid fund, which represented less than one percent of the industry’s total beneficiaries as at 30 June 2022, reported a reserves level below that of the minimum prudential requirement of 25%.
“This entity had been required to submit strategies to meet the minimum prudential reserves requirement. In addition, the fund remains under close monitoring, i.e. required to submit monthly management accounts through which the implementation and progress of the abovementioned strategies are monitored,” Namfisa said.
This followed a net loss of some N$144.6 million in the first quarter of 2022.
The latest data released by the Namibia Financial Institutions Supervisory Authority (Namfisa) shows the medical aid industry only managed to achieve a quarterly net surplus once since the second quarter of 2021, when it reported green figures of nearly N$119.4 million in the final three months of the year.
The industry suffered a net loss of around N$41.6 million for the 2021 financial year, the first overall industry loss in Namfisa’s records dating back to 2005.
Despite the net deficit suffered in the second quarter of this year, Namfisa said the industry remained well capitalised as it held a high percentage of free assets as at 30 June 2022. Additionally, the industry’s reserves level exceeded the minimum prudential reserves level requirement of 25% and was thus deemed to be financially sound, the watchdog said.
MORE MEMBERS, PENSIONERS
Total membership increased by 0.5% quarter-on-quarter (q/q) and by 1.5% year-on-year (y/y) to 205 905 beneficiaries at the end of June 2022.
According to Namfisa, employer groups appointed more employees during the quarter under review, which resulted in increased membership for medical aid funds industry.
Pensioner beneficiaries increased by 1.1% q/q and by 6% y/y. At the end of June, the 12 926 pensioners constituted nearly 6.28% of total membership, compared to June 2021 when the 12 594 pensioners represented 6.18%.
The open funds’ pensioner ratio at the end of the second quarter was 6.1% while that of closed funds was 7.5%.
According to Namfisa, the higher ratio for closed funds was expected due to the high proportion of continuation members within the closed medical aid funds sub-industry. A continuation member is a member who retired from employment (normal or early retirement), but continues to be a member of the medical aid fund to which they belonged during employment.
“The sustained annual increase in pensioner members may present higher claims risks for the industry as older members generally claim more than younger members,” Namfisa said.
“Pensioner beneficiaries are generally expected to incur more healthcare costs than younger beneficiaries over the long term. Therefore, enrolling younger and healthier beneficiaries at a higher rate than pensioner beneficiaries would be beneficial to the industry as it would contribute to the long-term sustainability of the industry,” the authority added.
CONTRIBUTIONS, CLAIMS
Total contributions grew by 0.4% to N$1.2 billion for the June quarter and by 6.6% on an annual basis. Quarterly growth corresponds with the growth in membership of 0.5%, Namfisa said.
The average contribution income per beneficiary was N$5 942 for the quarter under review, a slight decrease of 0.04% q/q and an increase of 4.7% y/y.
Average claims per beneficiary increased by 0.1% q/q and by 0.4% y/y, to N$5 957.
The industry claims increased by 0.6% q/q to N$1.2 billion, and by 2.1% y/y.
“Claims behaviors were similar to those observed before the Covid-19 pandemic, where claims generally rose during the second quarter as a result of winter-related illnesses,” Namfisa said.
The industry reported an average claims ratio of 100.3% during the second quarter of 2022, which was slightly higher than the 100.1% reported for the previous quarter, and lower than the 104.6% reported for the corresponding quarter of 2021.
According to Namfisa, claims related to hospital admissions, medicines dispensed by pharmacists and visits to general practitioners and specialists were reported at 75.5% of total healthcare expenditure during the quarter under review. This was higher than the 74.1% reported for the previous quarter and the 70.6% reported for the corresponding quarter of 2021.
LOSS RATIO
Non-healthcare expenditure incurred by the industry consists of administration costs, managed healthcare costs (fees for managing health benefits), operational expenditure and net-reinsurance expenditure.
The industry’s non-healthcare expenses amounting to N$131.4 million during the quarter ended 30 June 2022, up 4% q/q and 7.6% y/y. Administration costs remained the highest contributor to total non-healthcare expenditure, Namfisa said.
Namfisa said the industry recorded a loss ratio of 111% during the quarter under review, indicating that its total expenditure was higher than its income from contributions. The reported loss ratio was slightly higher than the 110.5% reported for the previous quarter, but lower than the 115.1% loss ratio reported for the corresponding quarter of 2021.
LIQUIDITY
Total assets held by the industry at the end of June 2022 amounted to about N$2 billion, down 9.3% from the previous quarter and a decrease of 12.5% year-on-year (y/y).
The liquidity position of a fund is measured by its ability to pay claims from cash and cash equivalents. The industry’s liquidity gap - difference between the industry’s current assets and its current liabilities - was positive during the quarter under review, with current assets exceeded current liabilities by N$1.4 billion.
Cash coverage is the number of months for which the industry can pay claims from its existing cash and cash equivalents.
During the quarter under review, the industry reported higher claims than the previous quarter. This resulted in a cash coverage ratio of 0.2 as at 30 June 2022, lower than the 0.3 reported as at 31 March 2022 and 30 June 2021.
“The ratio indicates that the industry had cash and cash equivalents that was not sufficient to settle one month’s worth of claims as at 30 June 2022,” Namfisa said.
This, however, Namfisa added, does not pose a significant threat to the industry’s viability. The industry held sufficient liquid investments to disinvest in order to settle claims where cash resources are insufficient, it said.
The industry’s total investments decreased by 7.9% q/q and by 10.3% y/y to N$1.9 billion, mainly a result of the reduction in the market value of the investments held by the industry during the quarter under review.
“The industry continues to hold the majority of its investments in liquid assets such as unit trusts and cash and cash equivalents in order to have sufficient cash to settle unexpected healthcare expenses,” Namfisa said.
RESERVES
The industry’s accumulated reserves – total assets minus total liabilities – decreased by 8.9% q/q and by 15.9% y/y to N$1.5 billion at 30 June 2022, as a result of the net deficit reported during the quarter under review.
Medical aid funds are required to maintain a minimum prudential reserves level or solvency margin of 25% of gross contributions.
“The industry’s reserves level decreased by 3.1% to 30.6% as at 30 June 2022. The open funds industry reported a reserves level of 29.1%, a decrease of 3.4% and the closed funds industry r reported a decrease of 3.7% to 38.4%,” Namifisa said.
All closed medical aid funds reported reserves level above the prudential requirement, the watchdog reported. According to Namfisa, one open medical aid fund, which represented less than one percent of the industry’s total beneficiaries as at 30 June 2022, reported a reserves level below that of the minimum prudential requirement of 25%.
“This entity had been required to submit strategies to meet the minimum prudential reserves requirement. In addition, the fund remains under close monitoring, i.e. required to submit monthly management accounts through which the implementation and progress of the abovementioned strategies are monitored,” Namfisa said.
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