Chairperson: Dr C Mini Acting Chief Executive & Registrar: Dr S Kabane Block A, Eco Glades 2 Office Park, 420 Witch-Hazel Avenue, Eco Park, Centurion, 0157

Tel: 012 431 0500 Fax: 086 206 8260 Customer Care: 0861 123 267 Information@medicalschemes.com www.medicalschemes.com

Quarterly Reports for the Period ending 30 September 2018

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Table of Contents

INTRODUCTION ................................................................................................................................................................................. 3

REGULATION 29: MINIMUM ACCUMULATED FUNDS ................................................................................................................... 6

SOLVENCY RATIO GRAPH .............................................................................................................................................................. 7

PRESCRIBED SOLVENCY LEVELS AND NUMBER OF BENEFICIARIES GRAPH ....................................................................... 8

NET ASSETS PER REGULATION 29 GRAPH .................................................................................................................................. 9

STATEMENT OF COMPREHENSIVE INCOME ............................................................................................................................... 10

STATEMENT OF FINANCIAL POSITION ........................................................................................................................................ 11

NUMBER OF BENEFICIARIES GRAPH .......................................................................................................................................... 13

DETAILED FINANCIAL INFORMATION: ACTUAL V BUDGET ..................................................................................................... 14

TOTAL NON-HEALTHCARE EXPENDITURE GRAPH ................................................................................................................... 16

NET RELEVANT HEALTHCARE EXPENDITURE RATIO: RISK BENEFITS GRAPH ................................................................... 17

NET RELEVANT HEALTHCARE EXPENDITURE RATIO: SEASONALITY ................................................................................... 18

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INTRODUCTION This report represents the results of the analysis of the quarterly statutory returns for the period ended 30 September 2018. Budget information for the third quarter of 2018 is also provided for comparative purposes. This report reflects consolidated industry data only, as data on an individual scheme level has not been audited and can therefore not be made available to the public. The Council for Medical Schemes (CMS) provides no assurance on the reliability of budget figures contained in this report. It should be noted that there will always be a time lag between reporting date (i.e. 30 September 2018) and publication date due to finalisation of management accounts by schemes, capturing and submission of return data, and analysis by CMS thereafter. The publication of this report is the final process post analysis. It should also be noted that information for Community Medical Aid Scheme (COMMED) has been excluded from any comparison data from 2017.

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Monitoring the financial performance and soundness of medical schemes – a brief summary of the key trends Accumulated funds and solvency levels

• The overall industry average solvency level decreased by 1.7% from the audited solvency level of 33.2% at 31 December 2017 to 32.6% at 30 September 2018.

• Total reserves per Regulation 29 for all medical schemes amounted to R 62.7 billion at 30 September 2018, which was 5.1% higher than the reserves of R 59.7 billion as at 31 December 2017.

• The solvency level at 30 September 2018 of 32.6% was 1.4% higher than the budgeted solvency level of 32.2% for the same period.

• On an industry level, the solvency level exceeded the required minimum level of 25.0%, as per Regulation 29(1) of the Medical Schemes Act 131 of 1998, for both open and restricted schemes.

• The 5 (2017: 3) open schemes that failed to meet the prescribed solvency level at 30 September 2018 represent 21.7% (2017: 15.7%) of the total open schemes’ beneficiaries.

• The 3 (2017: 3) restricted schemes that were below 25.0%; represent 48.0% (2017: 48.0%) of restricted schemes beneficiaries.

• The net asset value (per Regulation 29) per beneficiary increased by 4.7% from R 6 726.6 at 31 December 2017 to R 7 044.3 at 30 September 2018. The net asset value per beneficiary at 30 September 2018 was 0.2% lower than the budgeted net asset value of R 7 059.8 for the same period.

Membership, age distribution and pensioner ratio

• The total number of principal members of registered medical schemes increased by 0.6% from 4 012 722 at 31 December 2017 to 4 035 360 at 30 September 2018.

• The number of total beneficiaries increased by 0.3% from 8 872 036 at 31 December 2017 to 8 902 813 at 30 September 2018.

• The average number of members of 4 016 649 for the period ended 30 September 2018 was 0.01% lower than budget of 4 017 201, and the average number of beneficiaries of 8 866 418 was 0.4% higher than budget of 8 832 946.

• The industry average age for all registered schemes for the period ended 30 September 2018 was 33.5 years, which is similar to the 33.2 years as at 31 December 2017. The proportion of pensioners for the period was 8.7%; an increase from 8.4% as at 31 December 2017.

Contributions and relevant healthcare expenditure

• The total gross contributions for all medical schemes amounted to R 144.2 billion for the period ended 30 September 2018, which was 0.01% lower than the budget and 7.0% higher than the R 134.8 billion for 30 September 2017.

• The gross contribution per average beneficiary per month was R 1 807.4 for the period ended 30 September 2018. Gross relevant healthcare expenditure per average beneficiary per month was R 1 676.3 for the period ended 30 September 2018.

• The gross contribution per average beneficiary per month at 30 September 2018 of R 1 807.4 went up by 6.3% from R 1 700.7 at 30 September 2017.

• Total risk contribution income of R 130.5 billion was 0.1% lower than budget, but 6.9% higher than the R 122.0 billion at the end of September 2017. The risk contribution per average beneficiary per month for the period ended 30 September 2018 was R 1 634.8.

• The net relevant healthcare expenditure per average beneficiary per month for the period ended 30 September 2018 was R 1 501.9.

• Total net relevant healthcare expense for the period ended 30 September 2018 was R 119.8 billion compared to the budgeted relevant healthcare expense of R 120.2 billion, representing under 0.3% variance. Compared to the same period of the previous year, total relevant healthcare expenditure increased by 8.8% from R 110.2 billion in September 2017.

• Relevant healthcare expenditure per average beneficiary per month at 30 September 2018 of R 1 501.9 went up by 8.0% from R 1 390.5 at 30 September 2017.

• The relevant healthcare expenditure ratio of 91.9% as at 30 September 2018 was slightly lower than the budgeted relevant healthcare expenditure ratio of 92.1%, and 1.8% higher than the ratio as at 30 September 2017 of 90.3%.

• The utilisation of the prior year’s outstanding claims provision was 104.5% for all schemes as at 30 September 2018.

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Non-healthcare expenses

• The total non-healthcare expenses for all medical schemes amounted to R 11.8 billion for the period ended 30 September 2018, which was 2.5% lower than the R 12.1 billion budgeted for and 6.4% higher than the R 11.1 billion at the end of 30 September 2017.

• The non-healthcare expense per average beneficiary per month for the period ended 30 September 2018 of R 148.3 was 5.7% higher than the industry average of R 140.4 at 30 September 2017, and 4.8% higher than the industry average of R 141.5 of as 31 December 2017.

• Non-healthcare expenses, when expressed as a percentage of risk contribution income, was 9.1% at 31 December 2017 and remained similar at 9.1% as at 30 September 2018.

• At 30 September 2018, the industry averages of the various components of non-healthcare expenses expressed as a percentage of total non-healthcare expenses were as follows:

Sep ‘18 Dec ‘17

- Administration expenses 83.3% 83.7%

- Broker service fees (including distribution costs and broker fees) 14.2% 14.5%

- Net impairment losses: trade and other receivables 2.5% 1.8%

Operating results

• Registered medical schemes incurred a net healthcare deficit (before taking investment and other income into account) of R 1 231 million compared to a budgeted deficit of R 1 830 million at 30 September 2018. The total net healthcare results are 32.7% better than budgeted.

• Open schemes incurred a net healthcare deficit (before taking investment and other income into account) of R 1 594 million compared to a budgeted deficit of R 536.3 million, whereas restricted schemes incurred a net healthcare surplus of R 362.6 million compared to a budgeted deficit of R 1 293.7 million.

• The inclusion of investment and other income resulted in all registered schemes making a surplus of R 2 112.4 million at 30 September 2018 compared to a budgeted surplus of R 1 513.7 million, which represents an actual to budget variance of 39.6%.

• In the 2017 annual results all schemes incurred a net healthcare surplus of R 3.4 billion and an overall net surplus of R 8.9 billion.

Investments

• The current assets to current liabilities ratio for open schemes at quarter end of 30 September 2018 is 2.4 (2017: 2.6), whereas for restricted schemes it is 2.6 (2017: 2.6).

• The total assets to total liabilities ratio for open and restricted schemes is 3.1 (2017: 3.2) and 4.2 (2017: 4.8) respectively.

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REGULATION 29: MINIMUM ACCUMULATED FUNDS Annexure A (SOLVENCY RATIO) INDUSTRY AVERAGE:

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 %

Change 2017

2017 Quarter 3 Actual

2018 Quarter 3 Actual

2018 Quarter 3 Budget

% Variance

Actual 2018 vs Budget

2018

Open schemes 29.8% 27.4% 27.6% 28.7% 29.1% 29.7% 30.0% 29.2% 28.6% 29.7% 3.8% 28.6% 28.6% 29.1% -1.7%

Restricted schemes 49.7% 42.5% 38.6% 38.3% 37.4% 38.2% 37.8% 37.5% 35.8% 38.1% 6.4% 34.3% 38.3% 36.7% 4.5%

All registered schemes 36.6% 32.9% 31.8% 32.5% 32.6% 33.3% 33.2% 32.6% 31.6% 33.2% 5.1% 30.9% 32.6% 32.2% 1.4%

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SOLVENCY RATIO GRAPH Annexure B

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PRESCRIBED SOLVENCY LEVELS AND NUMBER OF BENEFICIARIES GRAPH Annexure C

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NET ASSETS PER REGULATION 29 GRAPH Annexure D

PB – Per beneficiary

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STATEMENT OF COMPREHENSIVE INCOME for the period ended 30 September 2018 Annexure E

Income statement OPEN SCHEMES RESTRICTED SCHEMES

TOTAL REGISTERED SCHEMES

Average members 2 372 070 1 644 579 4 016 649

Average beneficiaries 4 956 338 3 910 080 8 866 418

Average age Years 35.2 31.3 32.0

Pensioner ratio (65+ years) % 10.4% 6.6% 8.7%

No. of dependants per member 1.1 1.4 1.2

Gross contributions (risk + PMSA) R'000 84 403 679 59 822 102 144 225 781

Gross relevant healthcare (gross +PMSA)(Note a) 78 754 466 55 009 599 133 764 065

Gross Administration Expenses (risk + PMSA) 6 644 375 3 211 898 9 856 273

Broker service fees (including distributions costs) 1 597 030 82 738 1 679 768

Net impairment losses: trade and other receivables

R'000 215 514 83 319 298 832

Net healthcare results (1 594 360) 362 587 (1 231 773)

Surplus/ (deficit) 272 665 1 839 686 2 112 351

NOTES: a) Including accredited managed care: healthcare benefits as well as the results of risk transfer arrangements. * PMSA = Personal Medical Savings Account

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STATEMENT OF FINANCIAL POSITION at 30 September 2018 Annexure F

Balance sheet OPEN SCHEMES RESTRICTED SCHEMES

TOTAL REGISTERED SCHEMES

Members at 30 September 2018 2 384 445 1 650 915 4 035 360

Dependants at 30 September 2018 2 588 414 2 279 039 4 867 453

Beneficiaries at 30 September 2018 4 972 859 3 929 954 8 902 813

Non-current assets R'000 11 760 770 16 884 338 28 645 108

Current assets R'000 36 719 992 25 291 927 62 011 919

Trade & other receivables R'000 6 365 142 1 788 674 8 153 816

Contribution days outstanding 13.5 5.1 10.0

Cash & cash equivalents R'000 5 832 054 10 266 563 16 098 617

Total assets R'000 48 480 762 42 176 265 90 657 027

Members' funds (net assets per BS) 33 030 335 32 216 096 65 246 431

Accumulated funds 32 375 380 31 316 445 63 691 825

Non-current liabilities 26 635 53 634 80 270

Current liabilities 15 423 791 9 906 535 25 330 326

Trade & other payables 3 921 472 2 991 793 6 913 265

Savings liability 7 201 326 3 307 974 10 509 300

Outstanding claims provision 4 300 993 3 606 768 7 907 761

Prior year claims provision utilised % 104.6% 104.3% 104.5%

Total liabilities R'000 15 450 427 9 960 169 25 410 596

Total assets: total liabilities

3.1 4.2 3.6

Current assets: current liabilities

2.4 2.6 2.4

Gross claims incurred: cash & cash equivalents coverage

Months

0.3 0.1 0.2

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Net assets per Regulation 29 R'000 32 102 316 30 611 439 62 713 755

Solvency ratio % 28.6 38.3 32.6

NOTES: * In respect of trade and other receivable outstanding days, the denominator used is annualised gross contributions. * In respect of prior year claims provision utilised = prior year payments / provision at the beginning of the year. * We do not express an opinion on the accuracy of the split between current and non-current assets, and current and non-current liabilities.

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NUMBER OF BENEFICIARIES GRAPH Annexure G

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DETAILED FINANCIAL INFORMATION: ACTUAL V BUDGET for the period ended 30 September 2018 Annexure H

Actual vs Budget OPEN SCHEMES RESTRICTED SCHEMES TOTAL REGISTERED SCHEMES

Actual Budget % variance

Actual Budget % variance

Actual Budget % variance

Average members 2 372 070 2 381 934 -0.4 1 644 579 1 635 267 0.6 4 016 649 4 017 201 0.0

Average beneficiaries 4 956 338 4 987 662 -0.6 3 910 080 3 845 284 1.7 8 866 418 8 832 946 0.4

Gross Contribution Income (GCI)

R’000 84 403 679 84 936 208 -0.6 59 822 102 59 308 892 0.9 144 225 781 144 245 100 0.0

Risk Contribution Income (RCI) 73 318 546 73 885 032 -0.8 57 134 173 56 655 091 0.8 130 452 719 130 540 122 -0.1

Gross relevant healthcare (incl. PMSA & managed care claims) (Note a) 78 754 466 NA 0.0 55 009 599 NA 0.0 133 764 065 NA 0.0

Relevant healthcare incurred (incl. managed care claims) (Note a) 66 454 891 65 904 366 0.8 53 393 631 54 326 371 -1.7 119 848 523 120 230 736 -0.3

Gross (incl. PMSA)/net non-health expenses

8 458 014 8 516 975 -0.7 3 377 955 3 622 388 -6.7 11 835 969 12 139 363 -2.5

Net healthcare results (1 594 360) (536 309) 197.3 362 587 (1 293 668) 128.0 (1 231 773) (1 829 977) -32.7

Surplus/(deficit) R’000 272 665 1 217 846 -77.6 1 839 686 295 825 521.9 2 112 351 1 513 670 39.6

Quarter end reserve position (per Regulation 29) (Note c)

32 102 316 32 919 594 -2.5 30 611 439 29 038 910 5.4 62 713 755 61 958 504 1.2

NOTES: a) Including accredited managed care: healthcare benefits as well as the results for risk transfer arrangements. b) Net non-healthcare expenses = administration expenses, broker costs (including broker fees and distribution fees) and net impairment losses. c) The budgeted amount was calculated by using the budgeted accumulated funds per Statement of financial position as basis, and adjusting it for the following actual amounts as at 30 September 2018: cumulative net gains on disposal of investments and property plant and equipment included in the Statement of comprehensive income, specific assets encumbered for third-party liabilities and sub-ordinated loans as approved by the Council. * PMSA = Personal Medical Savings Account * GCI = Gross Contribution Income * RCI = Risk Contribution Income * N/A = information not available

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DETAILED FINANCIAL INFORMATION: ACTUAL vs PRIOR YEAR for the period ended 30 September 2018 Annexure I

Actual vs prior year OPEN SCHEMES RESTRICTED SCHEMES TOTAL REGISTERED SCHEMES

2018 2017 % variance

2018 2017 % variance

2018 2017 % variance

Average members 2 372 070 2 343 064 1.2 1 644 579 1 647 459 -0.2 4 016 649 3 990 523 0.7

Average beneficiaries 4 956 338 4 896 669 1.2 3 910 080 3 908 657 0.0 8 866 418 8 805 326 0.7

Gross Contribution Income (GCI) R’000 84 403 679 78 923 001 6.9 59 822 102 55 854 290 7.1 144 225 781 134 777 291 7.0

Risk Contribution Income (RCI) 73 318 546 68 569 955 6.9 57 134 173 53 474 532 6.8 130 452 719 122 044 488 6.9

Gross relevant healthcare (incl. PMSA & managed care claims) (Note a) 78 754 466 71 728 506 9.8 55 009 599 52 461 083 4.9 133 764 065 124 189 589 7.7

Relevant healthcare incurred (incl. managed care claims) (Note a)

66 454 891 60 136 052 10.5 53 393 631 50 056 826 6.7 119 848 523 110 192 878 8.8

Gross (incl. PMSA)/net non-health expenses

8 458 014 7 816 928 8.2 3 377 955 3 306 178 2.2 11 835 969 11 123 106 6.4

Net healthcare results (1 594 360) 616 975 -358.4 362 587 111 528 225.1 (1 231 773) 728 503 -269.1

Surplus/(deficit) R’000 272 665 2 625 099 -89.6 1 839 686 1 832 856 0.4 2 112 351 4 457 955 -52.6

Quarter end reserve position (per Regulation 29)

32 102 316 30 069 382 6.8 30 611 439 25 471 840 20.2 62 713 755 55 541 223 12.9

NOTES: a) Including results of risk transfer arrangements. b) Gross non-healthcare expenses = administration expenses, broker costs (including broker fees and distribution fees) and net impairment losses. * PMSA = Personal Medical Savings Account * GCI = Gross Contribution Income * RCI = Risk Contribution Income

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TOTAL NON-HEALTHCARE EXPENDITURE GRAPH Annexure J

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NET RELEVANT HEALTHCARE EXPENDITURE RATIO: RISK BENEFITS GRAPH Annexure K

PABPM = per average beneficiary per month

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NET RELEVANT HEALTHCARE EXPENDITURE RATIO: SEASONALITY Annexure L