The Namibia Financial Institutions Supervisory Authority (NAMFISA) has raised concerns about the financial stability of the country’s medical aid industry.
This comes as the medical aid funds industry reported a decrease of 19.6% in its net assets (accumulated funds or reserves) to N$1.5 billion as at 31 December 2022.
NAMFISA Chief Executive Officer Kenneth Matomola highlighted the industry’s growing financial stress and the need for a closer examination of its dynamics.
“So the medical aid industry is showing some bit of stress and requires us to look at it very closely. The issue that we have seen and observed is that the contributions that members make are growing at a slower pace as compared to the claims,” Matomola stated.
According to data from NAMFISA’s Annual Report for the financial year ended in March 2023, the medical aid industry reported a net deficit, primarily attributed to an adverse claim experience due to the ongoing health impacts of COVID-19 on some beneficiaries.
Matomola pointed out that over the past five years, contributions were growing at a rate of 7.4%, while claims were growing at a higher rate of 8.9%.
Consequently, this discrepancy has had a notable effect on the solvency of medical aid entities, causing their reserves to decline.
“This is one of the industries that we are watching closely because it has two sides to it. If the industry increases contributions, more people will not be able to afford to be members of the medical aid industry. On the other hand, the provision of medical services is becoming more expensive,” the CEO said.
He emphasised that while NAMFISA primarily focuses on the solvency and sustainability of the medical aid industry, the provision of healthcare services falls under the jurisdiction of the Ministry of Health and Social Services.
To address these challenges, NAMFISA has initiated discussions with the Ministry of Finance and Public Enterprises to engage the Ministry of Health in finding a solution.
“Hence, it’s important that the dialogue happens so that we can see which of these levers can be moved. We have renewed that conversation again, “Matomola elaborated.
Despite the industry’s challenges, NAMFISA’s report notes that medical aid funds remained well-capitalised, with reserves exceeding the minimum prudential requirement of 25.0%.
However, the report also indicated the net assets decreased and total investments decreased by 12.4% to N$1.8 billion as of 31 December 2022, primarily due to the liquidation of investments during the year.
The accumulated funds (reserves) of medical aid funds must be maintained at the required minimum prudential reserves level (reserves level) of 25.0% of gross contributions, serving as a benchmark to determine the industry’s ability to absorb losses.
Regulatory requirements stipulate that medical aid funds invest a minimum of 45.0% of their total assets in Namibia. While the industry was in compliance with this regulation, it is evident that managing investments to maintain financial stability remains a challenge.
Meanwhile, the average solvency ratio for open medical aid funds declined to 28.4% as of 31 December 2022, down from 38.4% at the end of 2021.
The solvency ratio for closed funds decreased dramatically from 472% to 39.8% during the same period.
