Medical aid funds: ‘Early warning’ signs increase
At the end of the third quarter last year, 2.4% of the medical aid industry’s total contributions were in arrears, more than the 2.1% of the previous quarter.
Jo-Maré Duddy – Only two out of the ten private medical aid funds in the country recorded “no significant problems” in the third quarter of last year, according to the latest report by the Namibia Financial Institutions Supervisory Authority (Namfisa).
In the same quarter in 2016, five funds fell into this category. This category, the highest on Namfisa’s supervisory ladder, means that funds submit returns and annual financial statements, as well as pay levies.
The number of funds now regarded as “Stage 2” where “early warning” alarms went off, has doubled in the year under review. At the end of September 2017, four funds staggered their submission of returns, resulting in levies not paid.
The number of funds regarded as “Stage 3”, where there is a risk to viability or solvency, increased from one to two. These funds “irregularly” submit returns and levies.
As in the third quarter of 2016, one fund was categorised as “Stage 4” and one as “Stage 5”. The future viability of a stage-4 fund is in “serious doubt”, while a stage-5 fund is “not viable or insolvency is imminent”.
Namfisa does not identify which medical aid fund falls into which category.
Arrears
At the end of the third quarter last year, 2.4% of total contributions were in arrears, more than the 2.1% of the previous quarter. The industry-wide benchmark is 1.5%.
The about N$22.6 million in arrear contributions were made up of: 30 days (N$2.5 million), 60 days (N$3.2 million), 90 days (N$4.4 million) and 120+ days (N$12.5 million).
Namfisa says it “remains concerned with the industry’s high arrear contributions balances”. According to the watchdog, the balance of arrear contributions was largely attributable to amounts owed by state-owned enterprises (SOEs).
“In view of the above concerns, the authority intervened by directing all registered medical aid funds to take all reasonable steps to ensure that arrear contributions and interest payable thereon, if any, are fully recovered on behalf of the respective funds.
“In addition, medical aid funds are now required to provide the authority with monthly status reports on the payment of contribution premiums by each employer group, including the amounts outstanding, if any, by the 15th day of each month,” Namfisa says.
“The authority will continue to monitor the industry’s progress with regards to the collection of arrear accounts receivables through the aforementioned monthly status reports. The medical aid funds are adhering to the timely collection of contributions, which can be seen in the decline in contribution receivables balances aged between current and 60 days,” it says.
Cash coverage, solvency
The industry’s liquidity gap at the end of the third quarter was N$1.1 billion, sufficient to settle current liabilities with current assets.
Its cash coverage – the number of months for which the industry can pay claims from its existing cash and cash equivalents – reduced during the period under review. Namfisa attributes this to additional investments made with a portion of surplus cash.
The industry’s cash coverage ratio was 0.92 months, slightly less than the benchmark ratio of one month. It was the same as the second quarter, but improved from 0.58 months at the end of the third quarter in 2016.
Namfisa says the ratio “does not raise concern as the industry’s investments are highly liquid”.
The industry’s solvency ratio – its total assets versus its total liabilities – decreased from 4.2:1 at the end of the second quarter to 4.1 at the end of September 2017.
“Nonetheless, the industry’s total assets amounted to more than four times its total liabilities, which the authority deems satisfactory,” Namfisa says.
Reserves
Two open medical aid funds, representing 7.1% or about 14 000 of the industry’s total beneficiaries, had reserve levels below the required prudential minimum of 25% at the end of the third quarter.
“The authority continues to monitor the two open funds closely to ensure that remedial measures are taken to improve their reserves to comply with the minimum prudential requirements in order to minimise solvency risk as far as possible,” Namfisa says.
The industry as a whole had accumulated reserves of N$1.2 billion at the end of September. Namfisa attributes this to the net surplus reported during the quarter under review.
At the end of September, the industry reported a net surplus of about N$34.4 million, a turn-around from the net loss of nearly N$35.3 million in the second quarter and the net loss of around N$46 million in the third quarter in 2016.
Year on year, gross contributions in the quarter under review grew by 13.7% to about N$960.1 million, while net claims incurred rose by 6.7% to just over N$845 million. Total expenses rose by about 13% to approximately N$92.3 million.
The industry reported an operational deficit of nearly N$15.5 million, significantly lower than the nearly N$49.6 million in the second quarter and the N$66.3 million in the third quarter of 2016. Net investment income of about N$42.2 million – compared to N$12.5 million in the second quarter and N$18.5 million in the third quarter of 2016 – helped to boost the operational deficit to a net surplus.
In the same quarter in 2016, five funds fell into this category. This category, the highest on Namfisa’s supervisory ladder, means that funds submit returns and annual financial statements, as well as pay levies.
The number of funds now regarded as “Stage 2” where “early warning” alarms went off, has doubled in the year under review. At the end of September 2017, four funds staggered their submission of returns, resulting in levies not paid.
The number of funds regarded as “Stage 3”, where there is a risk to viability or solvency, increased from one to two. These funds “irregularly” submit returns and levies.
As in the third quarter of 2016, one fund was categorised as “Stage 4” and one as “Stage 5”. The future viability of a stage-4 fund is in “serious doubt”, while a stage-5 fund is “not viable or insolvency is imminent”.
Namfisa does not identify which medical aid fund falls into which category.
Arrears
At the end of the third quarter last year, 2.4% of total contributions were in arrears, more than the 2.1% of the previous quarter. The industry-wide benchmark is 1.5%.
The about N$22.6 million in arrear contributions were made up of: 30 days (N$2.5 million), 60 days (N$3.2 million), 90 days (N$4.4 million) and 120+ days (N$12.5 million).
Namfisa says it “remains concerned with the industry’s high arrear contributions balances”. According to the watchdog, the balance of arrear contributions was largely attributable to amounts owed by state-owned enterprises (SOEs).
“In view of the above concerns, the authority intervened by directing all registered medical aid funds to take all reasonable steps to ensure that arrear contributions and interest payable thereon, if any, are fully recovered on behalf of the respective funds.
“In addition, medical aid funds are now required to provide the authority with monthly status reports on the payment of contribution premiums by each employer group, including the amounts outstanding, if any, by the 15th day of each month,” Namfisa says.
“The authority will continue to monitor the industry’s progress with regards to the collection of arrear accounts receivables through the aforementioned monthly status reports. The medical aid funds are adhering to the timely collection of contributions, which can be seen in the decline in contribution receivables balances aged between current and 60 days,” it says.
Cash coverage, solvency
The industry’s liquidity gap at the end of the third quarter was N$1.1 billion, sufficient to settle current liabilities with current assets.
Its cash coverage – the number of months for which the industry can pay claims from its existing cash and cash equivalents – reduced during the period under review. Namfisa attributes this to additional investments made with a portion of surplus cash.
The industry’s cash coverage ratio was 0.92 months, slightly less than the benchmark ratio of one month. It was the same as the second quarter, but improved from 0.58 months at the end of the third quarter in 2016.
Namfisa says the ratio “does not raise concern as the industry’s investments are highly liquid”.
The industry’s solvency ratio – its total assets versus its total liabilities – decreased from 4.2:1 at the end of the second quarter to 4.1 at the end of September 2017.
“Nonetheless, the industry’s total assets amounted to more than four times its total liabilities, which the authority deems satisfactory,” Namfisa says.
Reserves
Two open medical aid funds, representing 7.1% or about 14 000 of the industry’s total beneficiaries, had reserve levels below the required prudential minimum of 25% at the end of the third quarter.
“The authority continues to monitor the two open funds closely to ensure that remedial measures are taken to improve their reserves to comply with the minimum prudential requirements in order to minimise solvency risk as far as possible,” Namfisa says.
The industry as a whole had accumulated reserves of N$1.2 billion at the end of September. Namfisa attributes this to the net surplus reported during the quarter under review.
At the end of September, the industry reported a net surplus of about N$34.4 million, a turn-around from the net loss of nearly N$35.3 million in the second quarter and the net loss of around N$46 million in the third quarter in 2016.
Year on year, gross contributions in the quarter under review grew by 13.7% to about N$960.1 million, while net claims incurred rose by 6.7% to just over N$845 million. Total expenses rose by about 13% to approximately N$92.3 million.
The industry reported an operational deficit of nearly N$15.5 million, significantly lower than the nearly N$49.6 million in the second quarter and the N$66.3 million in the third quarter of 2016. Net investment income of about N$42.2 million – compared to N$12.5 million in the second quarter and N$18.5 million in the third quarter of 2016 – helped to boost the operational deficit to a net surplus.
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