Health

 
- HEALTH CARE / MEDICAL AID CONSULTING
 - IAS19 / AC116 LIABILITY VALUATIONS

HEALTH CARE / MEDICAL AID CONSULTING

When it comes to health care financing in South Africa, actuaries are required to think outside of their traditional frameworks where, ordinarily, risk is accurately quantified or risk aversion measures are put in place. The Medical Schemes Act prevents risk-rating, encouraging the cross-subsidies necessary to underpin government’s desire for solidarity in the provision of health care. Hence the elderly or less healthy members cannot be charged a different rate and “open enrolment” means that schemes must accept everyone with limited protection against anti-selection.

ARCH has grown significantly in the area of health care consulting and actuarial services to medical schemes and employer groups. We are privately owned and do not broker any business or receive any commissions, thus maintaining our independence.

Health care consulting and actuarial services include:

  • Annual benefits and rates reviews;
  • Distribution, operational and financial strategic consulting;
  • Product development and competitor analysis;
  • Financial and clinical risk management;
  • Compilation of statutory reports;
  • Ongoing monitoring of solvency margins and reserving strategy;
  • Industry and legislative updates;
  • Assistance with service provider management and service level agreements and
    facilitation of administration tenders;
  • Actuarial assessment of a potential merge opportunity between schemes

IAS19 / AC116 Liability Valuations

Many employers subsidise the medical aid contributions of their employees and their dependants. Some continue to do this for employees when they retire, and in many cases, after employees or pensioners die, for their widow/ers and children. 

This post-employment medical aid subsidy is an example of a long-term defined benefit: when staff have earned clearly stipulated benefits that will be paid to them more than twelve months after doing the work that earns that benefit.

Even where there is no explicit written subsidy policy – where companies provide these benefits, the precedent implies that it becomes a contractual obligation.

Other examples of this type of liability:

  • Ex-gratia pensions
  • Long service leave awards
  • Retirement gifts and bonuses

The accounting standard IAS19 requires that companies disclose such liabilities in their financial statements. 

Actuaries value these liabilities because their calculations consider economic and demographic factors that affect the level and likelihood of payments due in future years.

ARCH's IAS19 reports include:

  • the valuation of liabilities at financial year-end, including sensitivity analyses
  • illustrative accounting entries for inclusion in Financial Statements
  • presentation of results to management if requested
  • advice on how to manage, reduce and/or remove the liability

A labour attorney should always be consulted before implementing employee benefit-related policy changes.