An unsustainable increase in claim amounts, which adversely impacted its reserve level, was one of the main causes for the medical aid fund that caters to banks, Bankmed, going insolvent.
The fund, established in 1997 as a closed medical aid fund for members of participating employers and their families, had 4 512 principal members and 5 470 dependants as at 31 December 2022. However, between 2022 to 2023, the fund experienced an increase of 13.5% in claims, which was more than double the increase in tariffs.
According to a media statement
from the fund’s trustees, the high claims trend did not only affect Bankmed Namibia but the entire domestic medical aid industry. According to the Namibia Financial Institutions Supervisory Authority (Namfisa) prudential guideline, local medical aid funds must maintain a reserve level (accumulated funds divided by annual contributions received) of 25%.
“Bankmed Namibia’s reserves have, however, declined from 52% in 2018 to an estimated 9.6% on 30 June 2023. This was mainly due to annual contributions being insufficient to cover the exponential increase in claims,” reads the statement from Bankmed’s trustees.
The statement, carried in local media this week, expounded that the fund has been experiencing exceptionally high claims in the last few years.
“The actual increase in claims since 2018 was equal to 10.1% per year, compared to the increase in the medical inflation over the same period of 4.5%. The increases in claims were mainly due to member claim behaviour, over-utilisation of benefits and related industry challenges. The unexpected cost due to the Covid-19 pandemic further contributed to high claims during 2021 and early 2022,” the trustees stated.
The trustees added that to maintain the fund’s solvency levels, contributions should have been increased every year by more than the increase in the claim expenditure, meaning the fund would have had to implement increases in excess of 10% every year.
Despite this need, the fund only increased contributions by 7.8% per year. While this was higher than the increase in the tariffs, it was still significantly lower than the increase in claim expenditure.
According to Namfisa’s Medial Aid Funds Industry Report for the first quarter of 2023, the domestic industry reported an average claims ratio of 97.6%. The industry reserve level stood at 26.28%, 1.28% above the required minimum reserve level, indicating a 7.41% reduction from the industry reserve level of 33.69% for Q1 of 2022.
“In addition to the contribution increases, the Trustees also implemented significant cost savings measures by reducing benefits in 2022 and 2023 to limit the increase in claims; however, this did not result in the expected savings. If this reduction in benefits was not implemented, the actual increase in claims would have been
even higher.
“As a closed fund with a relatively small risk pool, Bankmed Namibia is very exposed to the cost pressures experienced by the industry, as it lacks the diversity across large risk pools and various industries that the larger open medical aid funds have in Namibia,” the trustees explained.
According to the media statement, the fund’s trustees explored various options and strategies to keep Bankmed Namibia in a sustainable position.
However, following extensive consultation with stakeholders, namely Namfisa, and Bankmed Actuaries of various employer groups, the trustees recommend the fund’s voluntary dissolution with effect from 31 August 2023.
“The path to sustainability would have involved larger and possibly more frequent increases in contributions and additional limitations to benefits. This would be disruptive to the members of the fund, and most stakeholders agreed it would be beneficial for members to transfer to the larger open funds, as these funds have lower exposure to some of the factors that adversely impacted Bankmed Namibia over the past five years,” the trustees stated.
Meanwhile, most employer groups have already resigned from Bankmed Namibia, opting instead to join open medical aid funds in the domestic industry. Moreover, once a liquidator has been finalised to oversee the dissolution, the process and distribution of assets or discharge of the liabilities to members of Bankmed Namibia will proceed.
In addition, the trustees and principal officer have given assurance to members, health professionals and other service providers that the fund has sufficient assets to meet financial obligations until the dissolution date.
As such, the trustees have pledged that all valid claims will be honoured in terms of the benefit structures and rules of the fund until such a time as the fund dissolves.