NAMAF CONFERENCE SEPTEMBER 2014

“OTHER DRIVERS OF HEALTHCARE COSTS. WHAT STORY DO THE NUMBERS TELL.”

Koos du Toit CA (NAM) CA (SA) COPFinancial Director

Paramount Healthcare Group

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OTHER COST DRIVERS – THE STORY NUMBERS TELL

MY MENU

•Benchmark for comparison•Basic MAF Income Statement •Administration cost•Drilling down into the numbers • The MAF industry in comparison

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OTHER COST DRIVERS – THE STORY NUMBERS TELL

SOURCES • CMS Annual Report 2012/13 (December 2012) information – report

issued 03/09/2014• Audited annual financial statements for the year ended 31 December

2013 of 4 Namibian Open Funds• SA Statistics Bureau 2011 population census• Namibian Bureau of Statistics 2011 population census • NAMFISA 2013 Q4 Statistics Bulletin

ONLY DISCUSSING OPEN FUNDS

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OTHER COST DRIVERS – THE STORY NUMBERS TELL

CHOOSE A BENCHMARKCOMPARABILITY CREATES RELEVANCE

WHERE OBSERVATION ASSESSMENT

USA OBAMA CARE- BANKRUPT? NOT DESIRABLE NORTH KOREA NO INFORMATION N/ALESOTHO 1 FUND ON BHF LIST TOO SMALLBOTSWANA 2 FUNDS ON BHF LIST; LARGEST = 17 000 MEMBERS TOO SMALL

SOUTH AFRICA FRAMEWORK AND STRUCTURE CLOSE TO NAMIBIA BEST COMPARISON

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OTHER COST DRIVERS – THE STORY NUMBERS TELL

BASIC COMPARISON OF MAF SECTOR

Reflection of state of economic development ?Definitely scope for growth if economic maturity was the

same.

SA NamPopulation 51 143 000 2 143 000Beneficiaries 4 760 000 139 000% Coverage 9.3% 6.5%

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OTHER COST DRIVERS – THE STORY NUMBERS TELL

N$ ‘000 000 SA 2012 % of contr.

Contribution IncomeClaims & Re-insurance

59 737<50 449>

-84.5

Gross Healthcare resultNon-healthcare expenditure

9 286<9 349>

15.5<15.6>

- Managed care- Broker cost - Administration cost- Bad debts

<1 709><1 399><6 126><115>

<2.9><2.3>

<10.4>-

Net healthcare results Investment income

<63>1 695

-2.8

Surplus / deficit 1632 2.7

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OTHER COST DRIVERS – THE STORY NUMBERS TELL

N$ ‘000 000 SA 2012 % NAM 2013 %Contribution IncomeClaims & Re-insurance

59 737<50 449>

-84.5

1 928<1 709>

-88.6

Gross Healthcare resultNon-healthcare exp.

9 286<9 349>

15.5<15.6>

219<241>

11.4<12.5>

- Managed care- Broker cost - Administration cost- Bad debts

<1 709><1 399><6 126><115>

<2.9><2.3>

<10.4>-

<35>-

<206>-

<1.8>-

<10.7>-

Net healthcare results Investment income

<63>1 695

-2.8

<22>114

<1.1>5.9

Surplus / deficit 1632 2.7 92 4.8

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LOOKING AT ADMINISTRATION COST

•NEED TO UNDERSTAND FIXED VS PER CAPITA COST

• FIXED COSTS: Don’t change significantly if size changes

e.g. audit fees vs. NAMAF membership fees n$ 5.70 / pmpm

• PRIMARY PER CAPITA COSTS:Managed Care Administration fees

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DRILLING DOWN INTO THE NUMBERS ECONOMIES OF SCALE: THE LARGER THE VOLUME OF TRANSACTIONS, THE CHEAPER THE COST PER TRANSACTION?

N$ PMPM SA 2012 NAM 2013Contributions 2 272 2 459Claims 1 919 2 151Net 353 308Brokers 53 -Managed Care 66 44Administration 233 263Managed Care & Admin 298 307+5% added to SA 2012 313 307

DRILLING DOWN TO THE NEXT LEVEL

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WHAT DO ADMINISTRATORS GET?

Nam administrators highly effective

N$ PMPM SA 2012

SA Projected +5% 2013

NAM2013

Total Administration cost 233.10 250.58 278.04

Other cost 31.20 33.54 63.25

Administrators 201.90 217.04 214.79

Average fund size 84 517 88 743 16 667

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INTERESTING FIXED COST DIFFERENCE (1/3)SA/NAM

SA NAMAUDIT FEES – TOTAL 21 214 000 1 074 000AUDIT FEES – PER CAPITA 0.86 1.45

Suggest NAM MAF’s need more auditing?

SA NAMAUDIT FEES – AVE/ FUND 876 000 268 500

So who has better financial system?

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INTERESTING FIXED COST DIFFERENCES (2/3) SA/NAM

SA NAMTRUSTEE FEES TOTAL 36 587 000 1 638 000TRUSTEE FEES PMPM 1.39 2.21

Who is getting too much?

NUMBER OF TRUSTEES 222 41AVERAGE PER TRUSTEE P.A 165 00 40 000LOWEST TRUSTEE P.A 12 000 13 000HIGHEST TRUSTEE P.A 1 699 000 59 000

Who is doing the work and taking the risk for love and charity?

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INTERESTING FIXED COST DIFFERENCES (3/3) SA/NAM

SA NAMPO FEES TOTAL 40 913 000 3 200 000PO FEES PMPM 1.56 4.32

Suggest PO’s in NAM on good wicket?

PO FEES – AVERAGE P.A 1 574 000 800 000

Who is being under paid now?Is the PO job in SA so different?

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MEDICAL AID VS SHORT TERM INSURANCE (1/2)

•Demarcation debate •Where do the profits go?

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MEDICAL AID VS SHORT TERM INSURANCE (2/2)

N$ 000 STI 2013 MAFS 2013Premiums 1 936 713 1 927 842Claims (1 204 758) (1 709 000)Claims ratio 62.2% 88.6%Expenses & Admin (340 457) (240 453)Ratio 17.6% 12.5%

Where does profit go?

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OTHER COST DRIVERS - STORY THE NUMBERS TELL

SOME CONCLUSIONS:→ Broker costs, on top of existing premiums will add to affordability

challenges→ Fixed overhead costs in smaller industry will remain a challenge→ Trustees remuneration very low in relation to responsibilities→ Principal Officer costs low in relation to SA funds→ Growing Technology costs are a fact of life

TRUSTEES AND ADMINISTRATORS NEED TO CONTINUALLY EVALUATE ALL COSTS VS BENEFITS TO ACHIEVE LOWEST COST OPERATIONS

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OTHER COST DRIVERS - STORY THE NUMBERS TELL

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UNDERSTAND THE NUMBERS AND BEWARE OF FAIRY TALES OR URBAN MYTHS

Questions ??