Medical schemes’ new financial reporting standards: What members need to know

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While this changes the reporting terminology, it will not affect medical scheme members or the way their funds are managed.

“The move from IFRS 4 to IFRS 17 is aimed at making the financial information of insurers, including entities that offer insurance type products such as medical schemes, more easily comparable across countries and industries offering a broad range of cover,” explains Craig Comrie, chairperson of the Health Funders Association (HFA).

“For medical scheme members, these changes make no difference to the way their funds and benefits are managed, and it is important to understand that medical schemes will continue to operate on a not-for-profit basis.

"Also, the fiduciary obligations of medical scheme trustees to manage these funds for the benefit of medical scheme members remain firmly in place, as do the social solidarity principles that underpin how medical schemes operate.

"The disclosures of surpluses and/or deficits are no longer visible in the new disclosure requirements where medical schemes are regarded as mutual funds, as any retained surpluses belong to the members of a scheme,” Comrie points out.

“In IFRS 17 terms, medical schemes’ contractual agreements with members are providing insurance cover for healthcare costs, as contained in their rules and as regulated by the Council for Medical Schemes [CMS] under the Medical Schemes Act just as before,” he says.

“Although the international financial accounting language describes the service medical schemes provide in insurance terms, these semantics do not have any bearing on the way health cover is managed or on the medical scheme members’ experience.”

Financial reporting updates

The HFA, a professional body representing medical schemes in South Africa, provides a basic summary of the updated aspects and terminology to assist the public in better understanding the industry’s annual reports.

Under the new IFRS 17 terminology, medical schemes’ reserves are reported as ‘insurance liability to future members’, and the HFA emphasises that this does not affect the financial sustainability or solvency of the medical schemes.

“Although it is now reported as a liability, this describes the scheme’s accumulated surplus funds in line with regulatory obligations to ensure additional protection in the event of extraordinary costs, such as the Covid-19 pandemic” Comrie says.

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Reporting on risk aggregation is now at the overall scheme level, reflecting total membership as standard. Personal Medical Savings Accounts (PMSAs) are no longer reported separately on the Statement of Financial Position and are now included as ‘insurance contract liabilities’.

The line items incurred but not yet reported (IBNR) and outstanding claims provision are replaced with ‘liability for incurred claims’ (LIC).
Contribution income will, from now on, be shown as ‘insurance revenue’.

Members and advisors will also note that relevant healthcare expenditure is now reported as ‘insurance service expenses’, and similarly, net healthcare result will from now on be referred to as ‘insurance service result’.

“The language may take some getting used to for healthcare consumers, and reminds members that they effectively own the scheme they belong to. The new phrases will not impact the financial soundness or position of medical schemes, and most importantly, there are no changes affecting the rights or benefits of medical scheme members, which are defined in each scheme’s rules and the Medical Scheme Act.”