Health Squared Medical Scheme applies to be liquidated

Published Aug 22, 2022


Health Squared Medical Scheme, a small open scheme with about 48 000 members, has applied to the High Court for voluntary liquidation after running into serious financial difficulties in the past two years. Its members face being without medical scheme cover from the end of this month, because the scheme was unable to secure a merger deal with any other scheme. This means there is no arrangement for members to transfer to another scheme without a break in membership.

In a letter to members, principal officer, Elias Mabena, said the board of trustees of Health Squared Medical Scheme “had resolved to approach the High Court in terms of Section 51 of the Medical Schemes Act for leave to apply for the voluntary winding up of the scheme in the interest of its members.

“It is important that members be advised that the scheme will be voluntarily wound up as a solvent business which has assets which presently exceed its liabilities. The board is also advised that the scheme presently has sufficient reserves to meet claims, which will have been incurred but not reported on the date of voluntary winding up.”

The letter gives the following reasons for the board’s decision to liquidate the scheme:

• The primary driver of the financial deterioration of the scheme during 2020 and 2021 was high Covid-19 claims expenditure. The scheme was particularly impacted relative to medical scheme industry norms due to its older than average age profile. As at July 31, it had an average beneficiary age of 49.7 years, which is 16.1 years higher than the medical scheme industry average of 33.6 years.

• The scheme has experienced a considerable loss of members in recent times.

• The scheme has also had a worse than expected claims experience in 2021 and 2022.

• The combined effect of the above factors is that the scheme's solvency ratio (the ratio used to measure a scheme’s reserves available to meet claims) has suffered a significant and relentless decline, despite numerous remedial interventions. At the end of 2020, it was 17.32%; at the end of 2021, it was 6.04%; at the end of July 2022, it was approximately 2.15%. The scheme's 2022-year end solvency ratio is projected by the scheme actuaries to be between 0.2% and 2.3%. (The Council of Medical Scheme requires schemes to have a solvency ratio of at least 25%).

• The scheme has pursued various options to avoid a winding up, which included proposed amalgamation transactions with various other schemes. These discussions have been ongoing since the beginning of the year and have been unsuccessful. Prospective amalgamation partners have all expressed concern at the scheme’s risk profile as well as its low reserves as being prohibitive of possible amalgamation.

Health Squared’s application for leave to file a winding up application will be heard in the High Court, Johannesburg on August 30. If leave is granted, the winding up application will be launched on September 1. In effect, the scheme will cease operating as a medical scheme at the end of this month, and members will be covered for claims arising from health events which took place up until August 31.

The letter says the scheme will try to assist members to apply for membership at other medical schemes, including the issuing of membership certificates.


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