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

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Quarterly Reports for the Period ending 31 March 2019

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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 31 March 2019. Budget information for the first quarter of 2019 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. The report does not include audited 2018 comparative figures as the CMS has not yet published its Annual Report for 2018/2019. Once the CMS Annual Report is published, an updated quarterly report with audited 2018 comparative figures will be published.

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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 declined to 32.9% at 31 March 2019.

• Total reserves per Regulation 29 for all medical schemes amounted to R 67.9 billion at 31 March 2019.

• The solvency level at 31 March 2019 of 32.9% was 2.8% higher than the budgeted solvency level of 32.0% 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 4 open schemes that failed to meet the prescribed solvency level at 31 March 2019 represent 21.9% of the total open schemes’ beneficiaries.

• The 2 restricted schemes that were below 25.0%; represent 47.4% of restricted schemes beneficiaries.

• The net asset value (per Regulation 29) per beneficiary increased to R 7 615.4 at 31 March 2019. The net asset value per beneficiary at 31 March 2019 was 2.9% higher than the budgeted net asset value of R 7 403.3 for the same period.

Membership, age distribution and pensioner ratio

• The total number of principal members of registered medical schemes increased by 0.2% from 4 039 705 at 31 December 2018 to 4 047 804 at 31 March 2019.

• The number of total beneficiaries increased slightly from 8 916 695 at 31 December 2018 to 8 918 339 at 31 March 2019.

• The average number of members of 4 034 232 for the period ended 31 March 2019 was 0.1% lower than budget of 4 036 891, and the average number of beneficiaries of 8 899 299 was 0.3% lower than budget of 8 930 418.

• The industry average age for all registered schemes for the period ended 31 March 2019 was 33.7 years. The proportion of pensioners for the period was 8.9%.

Contributions and relevant healthcare expenditure

• The total gross contributions for all medical schemes amounted to R 51.4 billion for the period ended 31 March 2019, which was 0.3% lower than the budget and 7.1% higher than the R 48.0 billion for 31 March 2018.

• The gross contribution per average beneficiary per month was R 1 926.8 for the period ended 31 March 2019. Gross relevant healthcare expenditure per average beneficiary per month was R 1 844.0 for the period ended 31 March 2019.

• The gross contribution per average beneficiary per month at 31 March 2019 of R 1 926.8 went up by 6.5% from R 1 808.5 at 31 March 2018.

• Total risk contribution income of R 46.6 billion was 0.3% lower than budget, but 7.3% higher than the R 43.4 billion at the end of March 2018. The risk contribution per average beneficiary per month for the period ended 31 March 2019 was R 1 746.2, being 6.8% higher than March 2018 of R 1 635.1.

• The net relevant healthcare expenditure per average beneficiary per month for the period ended 31 March 2019 was R 1 595.2, being a 6.7% increase from March 2018 of R 1 494.7, and 1.3% lower than budget of R 1 616.8.

• Total net relevant healthcare expense for the period ended 31 March 2019 was R 42.6 billion compared to the budgeted relevant healthcare expense of R 43.3 billion, representing a 1.7% variance. Compared to the same period of the previous year, total relevant healthcare expenditure increased by 7.3% from R 39.7 billion in March 2018.

• The relevant healthcare expenditure ratio of 91.4% as at 31 March 2019 was slightly lower than the budgeted relevant healthcare expenditure ratio of 92.6%, and similar to the ratio as at 31 March 2018 of 91.4%.

• The utilisation of the prior year’s outstanding claims provision was 89.5% for all schemes as at 31 March 2019. Non-healthcare expenses

• The total non-healthcare expenses for all medical schemes amounted to R 4.0 billion for the period ended 31 March 2019, which was 8.1% lower than the R 4.3 billion budgeted for and 2.6% higher than the R 3.9 billion at the end of March 2018.

• The non-healthcare expense per average beneficiary per month for the period ended 31 March 2019 of R 149.6 was 2.1% higher than the industry average of R 146.6 at 31 March 2018.

• Non-healthcare expenses, when expressed as a percentage of risk contribution income, was 9.0% at 31 March 2018 and declined to 8.6% as at 31 March 2019.

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• At 31 March 2019, the industry averages of the various components of non-healthcare expenses expressed as a percentage of total non-healthcare expenses were as follows:

Mar ‘19

- Administration expenses 83.6%

- Broker service fees (including distribution costs and broker fees) 15.1%

- Net impairment losses: trade and other receivables 1.3%

Operating results

• Registered medical schemes incurred a net healthcare surplus (before taking investment and other income into account) of R 35.6 million compared to a budgeted net healthcare deficit of -R 907.3 million at 31 March 2019. The total net healthcare results are 103.9% better than budgeted.

• Open schemes incurred a net healthcare deficit (before taking investment and other income into account) of R 304.1 million compared to a budgeted surplus of R 12.5 million, whereas restricted schemes incurred a net healthcare deficit of -R 268.5 million compared to a budgeted deficit of -R 919.8 million.

• The inclusion of investment and other income resulted in all registered schemes making a surplus of R 2 031.8 million as at 31 March 2019 compared to a budgeted surplus of R 191.9 million, which represents an actual to budget variance of 958.6%.

Investments

• The current assets to current liabilities ratio for open schemes at quarter end of 31 March 2019 is 2.4, whereas for restricted schemes it is 2.7.

• The total assets to total liabilities ratio for open and restricted schemes is 3.1 and 4.2 respectively.

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

2014 Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019 Q1 2019 Q1 Budget

% Variance Actual 2019 vs Budget 2019

Open schemes 28.5% 28.7% 28.0% 27.1% 28.5% 28.2% 27.5% 2.7%

Restricted schemes 35.8% 35.3% 34.6% 32.6% 36.2% 39.5% 38.3% 3.1%

All registered schemes 31.5% 31.4% 30.7% 29.4% 31.6% 32.9% 32.0% 3.0%

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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 31 March 2019 Annexure E

Income statement OPEN SCHEMES RESTRICTED SCHEMES

TOTAL REGISTERED SCHEMES

Average members 2 371 879 1 662 353 4 034 232

Average beneficiaries 4 942 401 3 956 898 8 899 299

Average age Years 35.3 31.7 32.0

Pensioner ratio (65+ years) % 10.6% 6.8% 8.9%

No. of dependants per member 1.1 1.4 1.2

Gross contributions (risk + PMSA) R'000 30 135 530 21 306 156 51 441 686

Gross relevant healthcare (gross +PMSA)(Note a) 28 692 705 20 538 889 49 231 594

Gross Administration Expenses (risk + PMSA) 2 270 554 1 070 654 3 341 208

Broker service fees (including distributions costs) 568 945 32 362 601 307

Net impairment losses: trade and other receivables

R'000 36 786 14 435 51 221

Net healthcare results 304 131 (268 462) 35 669

Surplus/ (deficit) 1 255 264 776 490 2 031 754

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 31 March 2019 Annexure F

Balance sheet OPEN SCHEMES RESTRICTED SCHEMES

TOTAL REGISTERED SCHEMES

Members at 31 March 2019 2 380 273 1 667 531 4 047 804

Dependants at 31 March 2019 2 573 516 2 297 019 4 870 535

Beneficiaries at 31 March 2019 4 953 789 3 964 550 8 918 339

Non-current assets R'000 12 072 932 16 432 868 28 505 801

Current assets R'000 39 784 262 30 102 800 69 887 062

Trade & other receivables R'000 6 851 331 2 040 578 8 891 908

Contribution days outstanding 12.7 5.2 9.6

Cash & cash equivalents R'000 7 358 478 10 982 246 18 340 723

Total assets R'000 51 857 194 46 535 669 98 392 863

Members' funds (net assets per BS) 34 886 344 35 512 211 70 398 555

Accumulated funds 34 464 230 35 249 275 69 713 505

Non-current liabilities 48 198 48 332 96 530

Current liabilities 16 922 652 10 975 125 27 897 778

Trade & other payables 4 714 889 3 463 331 8 178 220

Savings liability 7 679 577 3 523 139 11 202 717

Outstanding claims provision 4 528 186 3 988 655 8 516 841

Prior year claims provision utilised % 87.4% 92.3% 89.5%

Total liabilities R'000 16 970 851 11 023 458 27 994 308

Total assets: total liabilities

3.1 4.2 3.5

Current assets: current liabilities

2.4 2.7 2.5

Gross claims incurred: cash & cash equivalents coverage

Months

4.2 0.2 0.5

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Net assets per Regulation 29 R'000 34 010 281 33 906 856 67 917 137

Solvency ratio % 28.2 39.5 32.9

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 31 March 2019 Annexure H

Actual vs Budget OPEN SCHEMES RESTRICTED SCHEMES TOTAL REGISTERED SCHEMES

Actual Budget % variance

Actual Budget % variance

Actual Budget % variance

Average members 2 371 879 2 377 805 -0.2 1 662 353 1 659 086 0.2 4 034 232 4 036 891 -0.1

Average beneficiaries 4 942 401 5 002 818 -1.2 3 956 898 3 927 601 0.7 8 899 299 8 930 418 -0.3

Gross Contribution Income (GCI)

R’000 30 135 530 30 347 702 -0.7 21 306 156 21 269 719 0.2 51 441 686 51 617 421 -0.3

Risk Contribution Income (RCI) 26 294 502 26 474 654 -0.7 20 324 365 20 281 249 0.2 46 618 867 46 755 903 -0.3

Gross relevant healthcare (incl. PMSA & managed care claims) (Note a) 28 692 705 NA 0.0 20 538 889 NA 0.0 49 231 594 NA 0.0

Relevant healthcare incurred (incl. managed care claims) (Note a) 23 113 318 23 409 658 -1.3 19 475 376 19 906 227 -2.2 42 588 694 43 315 886 -1.7

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

2 877 052 3 052 500 -5.7 1 117 451 1 294 829 -13.7 3 994 503 4 347 329 -8.1

Net healthcare results 304 131 12 495 2 334.0 (268 462) (919 807) 70.8 35 669 (907 312) 103.9

Surplus/(deficit) R’000 1 255 264 618 954 102.8 776 490 (427 031) 281.8 2 031 754 191 923 958.6

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

34 010 281 33 308 844 2.1 33 906 856 32 721 946 3.6 67 917 137 66 030 790 2.9

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 31 March 2019: 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 * For net healthcare results and net surplus or deficit, negative variances represents a deterioration against budget

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DETAILED FINANCIAL INFORMATION: ACTUAL vs PRIOR YEAR for the period ended 31 March 2019 Annexure I

Actual vs prior year OPEN SCHEMES RESTRICTED SCHEMES TOTAL REGISTERED SCHEMES

2019 2018 % variance

2019 2018 % variance

2019 2018 % variance

Average members 2 371 879 2 365 047 0.3 1 662 353 1 642 695 1.2 4 034 232 4 007 742 0.7

Average beneficiaries 4 942 401 4 950 530 -0.2 3 956 898 3 902 816 1.4 8 899 299 8 853 346 0.5

Gross Contribution Income (GCI) R’000 30 135 530 28 237 796 6.7 21 306 156 19 796 219 7.6 51 441 686 48 034 015 7.1

Risk Contribution Income (RCI) 26 294 502 24 522 831 7.2 20 324 365 18 906 558 7.5 46 618 867 43 429 390 7.3

Gross relevant healthcare (incl. PMSA & managed care claims) (Note a) 28 692 705 27 094 282 5.9 20 538 889 18 701 869 9.8 49 231 594 45 796 151 7.5

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

23 113 318 21 626 527 6.9 19 475 376 18 073 202 7.8 42 588 694 39 699 729 7.3

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

2 877 052 2 810 642 2.4 1 117 451 1 082 688 3.2 3 994 503 3 893 330 2.6

Net healthcare results 304 131 85 662 255.0 (268 462) (249 332) -7.7 35 669 (163 670) 121.8

Surplus/(deficit) R’000 1 255 264 674 695 86.0 776 490 92 859 736.2 2 031 754 767 555 164.7

Quarter end reserve position (per Regulation 29)

34 010 281 32 137 653 5.8 33 906 856 28 650 493 18.3 67 917 137 60 788 147 11.7

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 * For net healthcare results and net surplus or deficit, negative variances represents a deterioration against the prior year

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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