A guide to understanding medical scheme reserves

Behind every stable medical scheme are well-managed reserves. The Council for Medical Schemes (CMS) is taking a closer look at medical scheme reserves, which are one of the most important indicators of a scheme’s financial health. These reserves are more than just numbers in a report; they determine a scheme’s ability to protect its members, pay claims on time, and remain sustainable.

By understanding how reserves work, you gain a clearer view of how they protect your benefits while keeping your medical scheme and the broader industry financially stable.

What are medical scheme reserves?

Medical scheme reserves are the funds set aside by schemes to maintain their ability to pay members’ claims, even during times of financial strain. They act as a financial safety net that protects you when healthcare costs rise or when the scheme faces unforeseen challenges.

These reserves are accumulated from annual surpluses, which are the funds that remain after a scheme has paid all claims and administration costs. They can also originate from investment income. Since medical schemes operate on a not-for-profit basis, their surpluses are added to reserve accounts that benefit members while reinforcing financial stability and sustainability over time.

Why are reserves important?

The importance of medical scheme reserves can be seen in several areas, including:

• Member Protection: They ensure your claims can be paid and safeguard your access to healthcare even if the scheme faces financial pressure.
• Risk Management: Reserves help schemes manage unexpected events, such as a sudden increase in hospital admissions, a decline in membership, or economic downturns.
• Sustainability: Healthy reserves allow schemes to continue operating smoothly without relying on steep contribution increases during difficult financial periods.

Scheme solvency and regulatory compliance

Reserves are also important for regulatory compliance. Regulation 29 of the Medical Schemes Act (131 of 1998) requires schemes to maintain a minimum solvency ratio of 25%, meaning they must hold reserves equal to at least 25% of their gross annual contributions. The average industry solvency at the end of 2024 was 40.87% or approximately R109 billion.

Solvency measures your scheme’s financial health, reflecting its ability to pay future claims and manage unexpected healthcare costs. For members, this means greater confidence that your scheme can respond to emergencies, such as pandemics, while maintaining your benefits without sudden increases in contributions or reductions in cover.

For instance, during the COVID-19 period, strong reserves helped cushion members from sharp contribution hikes at a time of high claims and financial uncertainty. This demonstrated how well-managed reserves directly support both affordability and access to care.

Who are the custodians of the reserves?

The Board of Trustees (BoT), of which at least 50% must be elected from amongst members, is responsible for the stewardship of a scheme’s reserves. The BoT’s role is to ensure good governance, effective management, and the proper functioning of the scheme in order to safeguard the interests of members.

What risks do low reserves pose to members?

If a scheme’s reserves fall below the required solvency ratio, it signals potential financial stress. This can affect the scheme’s ability to pay claims, creating uncertainty for members or, in rare cases, leading to scheme closure. Past examples have shown that schemes with declining reserves struggle to sustain benefits and operations.

It is helpful to keep an eye on your scheme’s solvency levels, which are published annually in the CMS Industry Reports. Healthy solvency levels indicate a financially stable scheme that can meet its obligations and continue supporting your healthcare needs over time.

Stay Informed About Your Medical Scheme

The CMS continues to monitor and regulate all medical schemes to ensure they remain compliant, financially sound, and focused on protecting the needs of every beneficiary.

Stay tuned for updates on the publication of the CMS Industry Report and Annexures, which provide valuable insights into the state of the industry, including healthcare utilisation, solvency levels, reserve trends, and what these mean for you as a member.