More Info
1. Background 1.1. The Government Employees Medical Scheme (“GEMS”) was registered effective 1 January 2005 for the purposes of providing cost effective medical cover to all Public Service employees. MEDCOR was registered in 2001 as the medical scheme to provide benefits to employees (and former employees) of the Department of Correctional Services. 1.2. Since the establishment of GEMS, the Boards of Trustees of both schemes have engaged on a regular basis in order to consider the transfer of the business of MEDCOR into a single entity servicing the requirements of Public Service employees, as envisaged when GEMS was established. The Boards of both GEMS and MEDCOR have now resolved to transfer the business of MEDCOR into GEMS, for the benefit of members. The Council for Medical Schemes has directed that this transfer take place with effect from 1 January 2010. Copies of the Board Resolutions of both GEMS and MEDCOR have been supplied to the Council. 1.3. The Public Sector Co-ordinating Bargaining Council (PSCBC) Resolution 1 of 2006 envisaged such a transfer of membership, as approved by both the employer and recognised labour unions, in order to create a single scheme serving the needs of Public Service employees (and former employees). 1.4. The following background information about the two medical schemes is relevant: 1.4.1. GEMS is a restricted medical scheme with five benefit options (Sapphire, Beryl, Ruby, Emerald and Onyx) and approximately 360 000 principal members as at July 2009. As at 31 December 2008, the Scheme had Accumulated Funds of R723mil or 12.9% of Gross Contribution Income as a Solvency Ratio. Reserves have been growing annually since the inception of the Scheme. In 2008 the Scheme achieved a Net Surplus of R509mil. The target Solvency Ratio agreed with the Council for Medical Schemes at 31 December 2008 was achieved.

MEDCOR and GEMS exposition document

Page 1

1.4.2. GEMS has been growing membership incrementally since 1 January 2006, as gradually Public Service employees and retirees from the Public Service, have elected to transfer from their existing medical scheme, or to join a medical scheme for the first time. During 2008, GEMS membership grew by over 100 000 principal members. During 2009, membership is expected to grow by a further 100 000 principal members 1.4.3. MEDCOR is a restricted medical scheme with two benefit options (Core and Core Plus) and approximately 20 000 members as at July 2009. Since the operational commencement of GEMS in 2006, the Scheme’s members have been resigning their membership of MEDCOR to enrol on GEMS or other open medical schemes, as membership on MEDCOR is not mandatory for Correctional Services employees. All new employees to the Public Service, including the Department of Correctional Services, are required to join GEMS in terms of PSCBC Resolution 1 of 2006 in order to access the employer subsidy. As a result, the demographic profile of MEDCOR has deteriorated dramatically resulting in limited future sustainability for the Scheme. 2. Reasons for the transfer 2.1. PSCBC Resolution 1 of 2006 committed the Public Service, including the Department of Correctional Services and recognised public sector trade unions to work towards a transfer of MEDCOR into GEMS, within 2 years of signature of the Resolution. That time frame has since elapsed but the two Schemes have considered a transfer as contemplated in the PSCBC Resolution. The employer and parties in the Public Service Co-ordinating Bargaining Council are aware of the stipulation of the agreement. 2.2. Public Service employees appointed after 1 July 2006 have had to enrol on GEMS, in terms of PSCBC Resolution 1 of 2006, in order to access the employer subsidy. Not only has MEDCOR not been able to attract new members, but many employees of the Department of Correctional Services (DCS) have voluntarily transferred their membership to GEMS in order to access the benefits available on GEMS and to access the unique subsidy arrangements for GEMS members. Some DCS employees have also transferred to other medical schemes as membership on MEDCOR is not mandatory. 2.3. In order to prevent any individual member of MEDCOR, in particular retiree members, being left without medical scheme benefits or seriously impacted by the declining financial position of the Scheme, it is proposed that MEDCOR transfer its business to GEMS and that it is deregistered as a medical scheme thereafter, i.e. with effect from 1 January 2010. 2.4. GEMS is now the largest restricted scheme in the country and continues to grow at a rapid pace, whilst maintaining its approved targets in terms of growth in Solvency Reserves. GEMS made a Net Operating Surplus of R446mil in 2008 and a Net Surplus, after Investment Income, of R509 mil. In addition, GEMS has received three successive unqualified audit reports. To this end, the Scheme is in a sound financial position to support continued membership growth within the Public Service environment.
MEDCOR and GEMS exposition document Page 2

2.5. GEMS does offer a range of five benefit options to members, so MEDCOR members have a wider choice of efficient plans to select from. Contribution tables for all GEMS benefit options are subject to income bands, making access to benefits more affordable to those with lower incomes. 2.6. The service infrastructure of GEMS is substantial as it has been established to support the Public Service in all nine Provinces. This access to additional support will be of substantial benefit to MEDCOR members that move across to GEMS. Economies of scale are evident when considering that non-healthcare expenditure on GEMS is lower than 7% of contribution income. 2.7. GEMS contracts directly with a wide range of medical service providers, resulting in more efficient services and no co-payments for members who access their medical benefits correctly, according to the established protocols. Significant member benefits are therefore derived by members on GEMS, arising from its existing scale, operational structure and the continued future growth of the Scheme. 3. Ballot of members 3.1. The Medical Schemes Act (“the Act”) and the rules of both GEMS and MEDCOR, make provision for a ballot of members, in the event of an amalgamation or transfer of business, in terms of Section 63 of the Act. 3.2. The Council has granted MEDCOR and GEMS an exemption from a ballot of their members, as both Schemes exist in order to provide medical benefits to a single employer, and MEDCOR’s main purpose, following the full implementation of PSCBC Resolution 1 of 2006, is no longer specific. 3.3. The transfer of the business of MEDCOR to GEMS will therefore proceed without a ballot of the members. However, extensive communication will be provided to members of both Schemes in order that they can fully understand the considerations leading up to the transfer and the impact of the transaction. 4. Comments and objections 4.1. The notice of the proposed transfer will be made available for inspection by all interested parties for a period of 21 days from 23 October 2009 to 12 November 2009 at the offices of the respective schemes and at the Office of the Registrar, at the Council for Medical Schemes. Suitable notices will also be published in national newspapers. 4.2. Any representation concerning the transaction by persons whose interests may be affected, must be submitted within 21 days after 12 November 2009 in writing to the Office of the Registrar, at the Council for Medical Schemes, at Private Bag X34, Hatfield 0028.

MEDCOR and GEMS exposition document

Page 3

5. Impact of the transfer on each of the Schemes 5.1. The information provided below has been obtained from analyses and reports compiled by GEMS’ Actuaries. The analyses have been carried out based on membership data for each scheme as at April 2009. 5.2. Membership and Demographic impact 5.2.1. The membership and demographic profiles of GEMS and MEDCOR, as supplied by GEMS’ Actuaries, are summarised in the table below. We have also shown the statistics of GEMS and MEDCOR combined. Membership statistics Principal membership Beneficiaries Average family size Adult dependant ratio Child dependant ratio Average age of principal members Average age of beneficiaries Number of pensioner principals % of pensioner principals % of male principals % of male beneficiaries % Chronic Users MEDCOR 22,589 60,387 2.67 0.52 1.15 47.36 32.24 8,891 39.36% 73.28% 50.14% 28.34% GEMS 333,910 920,329 2.76 0.51 1.25 40.87 27.10 14,471 4.33% 36.36% 43.51% 10.55% Total Combined 356,499 980,716 2.75 0.51 1.24 41.28 27.42 23,362 6.55% 38.70% 43.92% 11.65%

5.2.2. Based on the analysis as at April 2009: The membership of MEDCOR has a higher average age per principal member and per beneficiary, and a higher pensioner ratio compared to GEMS. GEMS have a marginally larger average family size, adult and child dependent ratios compared to MEDCOR. GEMS have proportionately fewer beneficiaries registered for chronic medication benefits. MEDCOR membership as at April 2009 forms less than 7% of the total GEMS membership. Thus, the overall impact on GEMS is likely to be small. This can be seen by the marginal increase in the average age, as well as the marginal increase in the pensioner ratio of the Scheme. Furthermore, by 30 September 2009, GEMS had enrolled a further 39 000 members, so the impact of the transfer of MEDCOR’s membership is further diluted. GEMS will have a significantly lower average age and pensioner ratio compared to MEDCOR. MEDCOR members are currently transferring on an individual basis to GEMS, at a rate of more than 30 members per day.
MEDCOR and GEMS exposition document Page 4

5.3. Financial Impact 5.3.1. Accumulated Funds and Solvency Ratios The 2008 and 2009 projected accumulated funds and solvency ratios of the Schemes are summarised in the table below:

MEDCOR Actual to 31 December 2008 2008 Accumulated Funds (R) Solvency Ratio Projected to 31 December 2009 2009 Accumulated Funds (R) Solvency Ratio 130,507,000 20.60% 78,561,810 14.42%

GEMS 722,979,753 12.91% 1,036,988,692 11.83% have been The financial projections presented above performed by the respective Scheme Actuaries. The solvency ratio of both Schemes is quite similar, so the overall solvency impact of the transfer is not expected to be significant on either party. Accumulated Funds at MEDCOR, however, are reducing due to the decline in enrolment of DCS employees, which in turn has led to a deteriorating profile of the Scheme. 5.3.2. Projected 2009 financial position The projected financial position of both Schemes as at 31 December 2009 is shown in the table below: MEDCOR Projected year membership Gross Contributions Risk Savings Net Contributions Claims Capitation costs Underwriting result end 17,000 (R) 544,718,907 544,718,907 544,718,907 539,531,434 5,187,473 GEMS 400,000 (R) 8,764,393,453 8,587,122,286 177,271,167 8,587,122,286 7,476,932,851 290,927,799 819,261,636 564,119,271 COMBINED 417,000 (R) 9,309,112,360 9,131,841,193 177,271,167 9,131,841,193 8,016,464,285 290,927,799 824,449,109 613,688,692

Expenses including Admin 49,569,421 and Managed Care Operating Surplus/(Deficit) (44,381,948)


Page 5

MEDCOR and GEMS exposition document

Investment Income Provision for bad Debts Net Surplus/(Deficit) Accumulated funds at start Accumulated funds at end Solvency Ratio

13,938,695 20,912,637 (51,355,890) 130,507,000 78,561,810 14.42%

77,003,629 18,137,055 314,008,939 722,979,753 1,036,988,692 11.83%

90,942,324 39,049,692 262,653,049 853,486,753 1,115,550,502 11.98% MEDCOR is expected to show a deficit in excess of R50 million for 2009. GEMS is expected to yield a surplus of R314 million for 2009. The combined position has been shown for illustrative purposes. 5.3.3. Projected 2010 financial position The projected 2010 financial projection of the Scheme, after the transfer of MEDCOR, has been performed by GEMS’ Actuaries. The results of the projection are summarised in the table below:

Financial Year 2010 Projected year end membership Gross Contributions Risk Savings Net Contributions Claims Underwriting result Expenses Operating Surplus/Deficit Investment Income Provision for bad Debts Net Surplus/Deficit Accumulated funds at start Accumulated funds at end
MEDCOR and GEMS exposition document

GEMS, after transfer 475,000 (R) 11,566,892,958 11,325,445,902 241,447,056 11,325,445,902 9,716,729,097 1,608,716,805 809,025,285 799,691,520 169,150,086 9,060,357 959,781,249 1,115,550,502 2,075,331,751
Page 6

Loss Ratio Solvency Ratio

85.80% 17.94% As anticipated, transfer of MEDCOR into GEMS is expected to have a limited impact on the overall Scheme as MEDCOR membership amounts to less than 7% of the total GEMS membership. 5.4. Operational 5.4.1. There is a very limited impact on GEMS’ operational capacity, as a result of the transfer of MEDCOR membership. The Scheme already enrols approximately 10 000 members each month and has taken on employer groups in the past. 6. Managing the impact of the transfer: Advantages and disadvantages The existing Schemes will be affected by the transfer in different ways. The advantages and disadvantages of the transaction are summarised below: 6.1. Advantages to MEDCOR members 6.1.1. MEDCOR members will transfer into a larger scheme, offering a wider range of benefit options and more flexibility to choose an option, which meets individual member needs. Furthermore lower income members will benefit from the income bands within contribution table structure, designed to make the Scheme more accessible. 6.1.2. Employees in DCS, who belong to MEDCOR, currently receive a subsidy equal to 2/3rds of contributions, limited to a maximum employer contribution of R1 014 per month. MEDCOR active members who move to GEMS will receive a monthly subsidy of no less than their current arrangement, and will access the unique GEMS arrangement of 75% of contributions, limited to the maximum tax deductible allowance, up to a limit of R2390 per month, whichever is the greater. Pensioner and retired members who move to GEMS will continue to receive the same monthly subsidy arrangements as are currently enjoyed under the MEDCOR scheme. 6.1.3. MEDCOR members (both in-service members and retired members) will transfer to GEMS with no medical underwriting. 6.1.4. The scale of GEMS, after the transfer of MEDCOR members, further ensures that members enjoy the benefits of economies of scale in provider contracting. Members of such a large medical scheme benefit from greater value for money through improved provider contract terms. 6.1.5. GEMS experiences lower overall non-healthcare expenditure, resulting in more money becoming available to provide medical benefits to MEDCOR members.

MEDCOR and GEMS exposition document

Page 7

6.1.6. MEDCOR has a deteriorating risk profile, as a result of not being able to attract new DCS employees. GEMS has a more sustainable overall risk profile, which will benefit transferring MEDCOR members. 6.1.7. MEDCOR has seen a significant decline in its accumulated funds and solvency ratio. By transferring to GEMS, MEDCOR will prevent major adverse adjustments having to be made to benefits and contributions in the future. 6.1.8. GEMS already cover more DCS employees than MEDCOR. 6.2. Disadvantages to MEDCOR members 6.2.1. The benefit options available to members transferring to GEMS may not be an exact match to the current MEDCOR benefit options. However, the range of benefit options on GEMS is broad, and transferring MEDCOR members are highly likely to find a benefit option which suits both their medical needs and their level of affordability. 6.2.2. MEDCOR members will have to adjust to new procedures and protocols within the GEMS administration and managed care environments. However, the Scheme will ensure that all transferring members receive sufficient member education and communication materials to ensure that they become familiar with GEMS procedures and protocols. 6.3. Advantages to GEMS members 6.3.1. The transfer of the business of MEDCOR to GEMS will assist the Scheme in further achieving its mandate to provide medical benefits and services to all Public Service employees (and former employees). 6.3.2. Accumulated funds in the Scheme will increase, albeit temporarily (i.e. in 2010), as a direct result of the transfer of MEDCOR’s assets and liabilities. 6.3.3. A larger membership base will ensure greater bargaining power for GEMS to negotiate with service providers, administrators and other parties. This will translate into direct savings to members. 6.3.4. The transfer of the business of MEDCOR to GEMS will result in the implementation of the relevant provisions of PSCBC Resolution 1 of 2006. 6.4. Disadvantages to GEMS members 6.4.1. The membership transferring to GEMS has a poorer risk profile compared to GEMS. However the current size of the GEMS membership base ensures that absorbing a poorer risk profile membership into the Scheme has a minimal overall impact on GEMS. Importantly, members of MEDCOR can transfer to GEMS at any stage and many have already done so.

MEDCOR and GEMS exposition document

Page 8

7. Transfer Plan 7.1. The following represents the proposed timetable for the transfer of MEDCOR members to GEMS:

MEDCOR and GEMS exposition document

Page 9

Date 2-Oct-2009 15-Oct-2009 15-Oct-2009

Scheme Activities Final MEDCOR membership and chronic enrolment files passed to GEMS Exposition available at Council for Medical Schemes for inspection Both Schemes confirm with members

Member Activities

15-Oct-2009 25-Oct-2009 24-Nov-2009 30-Nov-2009 1-Dec-2009 14-Dec-2009 15-Dec-2009 31-Dec-2009 31-Dec-2009 1-Jan- 2010 1-Jan- 2010 1-Jan-2010 15-Jan-2010 15-Jan-2010 30-Apr-2010 30-Apr-2010 MEDCOR ceases to operate and Board of Trustees dissolved Transferring MEDCOR members commence membership of GEMS GEMS accepts responsibility for the wind-down transactions of MEDCOR MEDCOR deregistered First billing run commences for transferring MEDCOR members on GEMS Wind down of MEDCOR complete Audited 2009 Annual Financial Statements of MEDCOR lodged with Council Period for comments and objections closes Council to confirm transfer, including effective date Statutory declaration issued by GEMS to the Council MEDCOR pre-authorisation files passed to GEMS, also on 22and 31-Dec-2009

GEMS introduction pack, including membership application forms to be despatched to MEDCOR members Notification of chronic enrolment process on GEMS commences for all options Preliminary mapping of transferring membership onto GEMS benefit options complete Confirmation of MEDCOR pensioners transferring Member helpline available

Completed membership application forms to be returned to GEMS Membership numbers to be allocated Membership pack to be issued by GEMS New chronic applications enrolment commences

MEDCOR and GEMS exposition document

Page 10

Signed on behalf of Government Employees Medical Scheme (“GEMS”):




Signed on behalf of MEDCOR Medical Scheme (“MEDCOR”):




MEDCOR and GEMS exposition document

Page 11

To top