The Advertising Standards Authority last week forced Fedhealth, the medical scheme that has been brought back to life by its new administrator, Medscheme, to withdraw advertisements which attempted to exploit Discovery's problems with the Council for Medical Schemes.
The advertisements failed to indicate that Fedhealth's reserves are equally unhealthy and that the scheme ranks lower than Discovery in terms of its ability to pay claims.
In reply to questions from Personal Finance, Gary Taylor of Medscheme, the country's biggest medical scheme administrator, says the trustees of Fedhealth launched a short-term advertising campaign to capitalise on current market uncertainty.
"Clearly, Discovery and Fedhealth are competitors, and it is logical that they should (at least by implication) seek to outdo each other in the eyes of the market."
Taylor says while both schemes need to increase their reserve levels, Fedhealth is operating within the terms of the Medical Schemes Act. He claims that Discovery repeatedly violates the law. "I am probably biased, but I would think that the Discovery story might also reveal a number of 'misleading' actions."
Taylor says in line with the legal requirements, Fedhealth members took a 19 percent average increase in premiums in January 2002, of which five percent is going towards reserves. No loans from members or joining fees are being contemplated.
"Although not yet audited, the reserves are already up from nothing to somewhere between six to eight percent. This figure would be higher were it not for the Registrar's new requirement to include savings as part of the ratio.
"In addition, the trustees of Fedhealth have been working closely with the Registrar's office to get its input into strategic funding decisions. They update the Registrar monthly, and invite one of his staff to attend their finance committee meetings."
In reply to questions based on complaints about Fedhealth from Personal Finance readers, Taylor says the problems with the administration of Fedhealth are mostly historical.
"The scheme had 240 000 members at its height during the 1990s , and about 90 000 when we took it over. There was a hostile administrative handover of appalling records."
Taylor confirms that the trustees of Fedhealth are suing Fedsure and have already won one case worth R70 000.
"The old Fedsure Health Administrators has collapsed, and has no clients, staff or systems to help resolve old queries. Still, 30 percent of all current queries are for historical (pre-Medscheme) problems, many of which can never be solved. Reconciliations of contributions were completed after 2000, so savings balances cannot easily be calculated and paid. We still encounter some queries going back to 1994."
Taylor says Medscheme must, however, confess to the following:
- In an attempt to minimise retrenchments at Fedsure during the time of the take-over, "we let Fedsure keep their staff too long before taking many of them over for training and new systems orientation. As a result, we were under-staffed and under-skilled for two months in 2001 which did affect service, although it did reduce unemployment"; and
- At the beginning of this year, Medscheme introduced an "improved" computer system. This sent out late and incorrect statements. The claims were paid accurately, but members were inconvenienced.