(PREVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) (Reference Number: 1466) ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011

Transcription

1 (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) (eference Number: 1466) ANNUAL FINANCIAL STATEMENTS FO THE YEA ENDED 31 DECEMBE 2011

2 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) ANNUAL FINANCIAL STATEMENTS FO THE YEA ENDED 31 DECEMBE 2011 CONTENTS PAGE Statement of responsibility by the Board of Trustees 2 Statement of corporate governance by the Board of Trustees 3 eport of the independent auditors to the members of Makoti Medical Scheme 4 eport of the Board of Trustees 5-12 Statement of financial position 13 Statement of comprehensive income 14 Statement of changes in funds and reserves 15 Statement of cash flows 16 Notes to the annual financial statements Page 1

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6 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) EPOT OF THE BOAD OF TUSTEES FO THE YEA ENDED 31 DECEMBE 2011 The Board of Trustees hereby presents its report for the year ended 31 December DESCIPTION OF THE MEDICAL SCHEME 1.1 Terms of registration The name of the scheme has changed to Makoti Medical Scheme, effective 1 January Makoti Medical Scheme is a not-for-profit open medical scheme registered in terms of the Medical Schemes Act 131 of 1998 (the Act), as amended. 1.2 Benefit options within Makoti Medical Scheme The scheme offers two benefit options to employers and members of the public. The benefit options offered are: - Makoti Comprehensive (Capitated managed fee) - Makoti Primary (Capitated managed fee) 1.3 isk transfer arrangements The scheme has entered into a capitation agreement with Enablemed (Pty) Ltd for the duration of the year. Enablemed (Pty) Ltd provides a network of providers to service the members of the scheme. Due to the unique nature of this capitation arrangement, no underlying fee-for-service data is available from Enablemed (Pty) Ltd. The estimated recovery from the service provider is based on the average contributions of a comparable medical scheme option that targets the same market segment. In selecting a comparable option, the scheme considered the benefits offered and membership demographics. The comparison illustrates that the scheme is able to provide at least the same, if not better benefits at lower contribution levels than the comparable benchmark. The results of the capitation arrangement is as follows: Provider Service provided Capitation fees paid Estimated recovery from provider Net income/ (expense) 2011 Enablemed (Pty) Ltd Capitation arrangement (36,761,000) 43,998,990 7,237, Enablemed (Pty) Ltd Capitation arrangement (34,342,749) 42,163,406 7,820,657 Page 5

7 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) EPOT OF THE BOAD OF TUSTEES FO THE YEA ENDED 31 DECEMBE MANAGEMENT 2.1 Board of Trustees in office during the year under review and up to the date of this report Name Position Details Q Hlatshwayo J Thiti Chairperson (Employer Trustee) Employee Trustee esigned 31 December 2011 H Makgopela Employee Trustee S Diale B le oux Employee Trustee Employer Trustee S Naidoo Employer Trustee J Lekgoro Employee Trustee Appointed 1 February Principal Officer Mr J Hallowell Universal House Haloux Healthcare Solutions (Pty) Ltd 15 Tambach oad PO Box 1554 Sunninghill Park ivonia Sandton egistered office address and postal address Universal House Private Bag X47 15 Tambach oad ivonia Sunninghill Park 2128 Sandton 2.4 Medical Scheme Administrator during the year Universal Healthcare Administrators (Pty) Ltd 15 Tambach oad PO Box 1411 Sunninghill Park ivonia Sandton 2128 Accreditation number: ADMIN:5 2.5 Actuary G Marx PO Box Wellnicity (Pty) Ltd Erasmuskloof Auditors PricewaterhouseCoopers Inc. Private Bag X36 2 Eglin oad Sunninghill Sunninghill 2157 Page 6

8 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) EPOT OF THE BOAD OF TUSTEES FO THE YEA ENDED 31 DECEMBE INVESTMENT STATEGY OF THE MEDICAL SCHEME The scheme s investment objectives are to maximise the return on its investments on a long term basis at minimal risk. The investment strategy takes into consideration both constraints imposed by legislation and those imposed by the Board of Trustees. Details of investments are set out in the annual financial statements. Investment decisions are made by the Board of Trustees to ensure that: - the scheme remains liquid; - investments are placed at minimum risk and at the best possible rate of return; - investments are made in compliance with the regulations of the Act; - a risk assessment is performed. The scheme invested in equities, term deposits and money market instruments during This policy is reviewed regularly, taking into consideration compliance with the Act, the risk and returns of the various investment instruments and the surplus of funds available. 4 MANAGEMENT OF INSUANCE ISK The primary insurance activity carried out by the scheme assumes the risk of loss from members and their dependants that are directly subject to the risk. This risk relates to the health of the scheme members. As such the scheme is exposed to the uncertainty surrounding the timing and severity of claims under the contract. The medical scheme s strategy seeks diversity to ensure a balanced portfolio and is based on a large portfolio of similar risks over a number of years and, as such, it is believed that this reduces the variability of the outcome. The strategy is set out in the annual business plan, which specifies the benefits to be provided by each option, the preferred target market and demographic split thereof. The scheme entered into a capitation agreement with Enablemed (Pty) Ltd to provide medical benefit services to beneficiaries of the scheme. As a result the two options are fully capitated and Enablemed (Pty) Ltd carries the insurance risk. However, the scheme remains liable to its members if the service provider fails to meet the obligations it assumes. Insurance events are, by their nature, random, and the actual number and size of events during any one year may vary from those estimated with established statistical techniques. There are no changes to assumptions used to measure insurance assets and liabilities that have a material effect on the financial statements and there are no terms and conditions of insurance contracts that have a material effect on the amount, timing and uncertainty of the scheme s cash flows. Page 7

9 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) EPOT OF THE BOAD OF TUSTEES FO THE YEA ENDED 31 DECEMBE EVIEW OF THE ACCOUNTING PEIOD S ACTIVITIES Operational statistics 2011 Makoti Makoti Primary Comprehensive Total Average number of members during the accounting period 1,634 1,381 3,015 Number of members at 31 December Average number of beneficiaries during the accounting period Number of beneficiaries at 31 December Average number of dependants during the accounting period Number of dependants at 31 December Dependant ratio at 31 December Net contributions per average beneficiary per month () elevant healthcare expenditure per average beneficiary per month () Non-healthcare expenditure per average beneficiary per month () elevant healthcare expenditure as a percentage of gross contributions (%) Non-healthcare expenses as a percentage of gross contributions (%) Average age of beneficiaries Pensioner ratio at 31 December (%) Average accumulated funds per member at year end () Breakdown of total amount paid to the administrator: - Administration fees () - Investment data collation () eturn on investments as a percentage of investments (%) 1,573 1,332 2,905 3,898 3,013 6,911 3,692 2,879 6,571 2,264 1,632 3,896 2,119 1,547 3, , ,168, , % Page 8

10 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) EPOT OF THE BOAD OF TUSTEES FO THE YEA ENDED 31 DECEMBE EVIEW OF THE ACCOUNTING PEIOD S ACTIVITIES (continued) Operational statistics (continued) 2010 Makoti Makoti Primary Comprehensive Total Average number of members during the accounting period 1,718 1,377 3,095 Number of members at 31 December 1,691 1,358 3,049 Average number of beneficiaries during the accounting period 4,403 3,107 7,509 Number of beneficiaries at 31 December 4,094 3,043 7,137 Average number of dependants during the accounting period 2,685 1,730 4,415 Number of dependants at 31 December 2,403 1,685 4,088 Dependant ratio at 31 December Net contributions per average beneficiary per month () elevant healthcare expenditure per average beneficiary per month () Non-healthcare expenditure per average beneficiary per month () elevant healthcare expenditure as a percentage of gross contributions (%) Non-healthcare expenses as a percentage of gross contributions (%) Average age of beneficiaries Pensioner ratio at 31 December (%) Average accumulated funds per member at year end () ,433 Breakdown of total amount paid to the administrator: - Administration fees () - - 2,107,573 - Investment data collation () ,479 eturn on investments as a percentage of investments (%) % Page 9

11 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) EPOT OF THE BOAD OF TUSTEES FO THE YEA ENDED 31 DECEMBE EVIEW OF THE ACCOUNTING PEIOD S ACTIVITIES (continued) 5.2 esults of operations The results of the scheme are set out in the annual financial statements, and the Trustees believe that no further clarification is required. 5.3 Solvency ratio Total members funds per balance sheet 48,975,936 47,336,393 Less: Available-for-sale reserve (326,000) (282,000) Accumulated funds per egulation 29 48,649,936 47,054,393 Gross contributions 40,678,180 37,637,358 Solvency ratio: (Accumulated funds/ Gross annual contribution income x 100) % % 5.4 eserve accounts Movements in the reserves are set out in the Statement of Changes in Funds and eserves. There have been no unusual movements that the Trustees believe should be brought to the attention of the members of the scheme. 5.5 Outstanding claims Movements in the outstanding claims provision are set out in Note 5 to the annual financial statements. There is no outstanding claims provision for 2011 because the two Makoti options are fully capitated and no provision is considered necessary for outstanding claims relating to risk transfer arrangements. 6 ACTUAIAL VALUATION The scheme's actuary was consulted during the year for the 2012 budget review and assisted in determining the contribution and benefit levels for the 2012 financial year. 7 EVENTS AFTE STATEMENT OF FINANCIAL POSITION DATE There have been no events that have occurred subsequent to the end of the accounting period that affect the annual financial report and that the Trustees consider should be brought to the attention of the members of the scheme. 8 INVESTMENTS IN AND LOANS TO PATICIPATING EMPLOYES OF MEMBES OF THE MEDICAL SCHEME AND TO OTHE ELATED PATIES The scheme holds no investments in participating employers of scheme members. 9 ELATED PATY TANSACTIONS elated party transactions are set out in Note 15 to the financial statements. Page 10

12 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) EPOT OF THE BOAD OF TUSTEES FO THE YEA ENDED 31 DECEMBE AUDIT COMMITTEE An audit committee was established in accordance with the provisions of the Act. The committee is mandated by the Board of Trustees by means of written terms of reference as to its membership, authority and duties. The committee consists of five members of which two are members of the Board of Trustees. The majority of the members, including the chairperson, are not officers of the medical scheme or its third party administrator. The committee met on two occasions during the course of the year. In accordance with the provisions of the Act, the primary responsibility of the committee is to assist the Board of Trustees in carrying out its duties relating to the scheme s accounting policies, internal control systems and financial reporting practices. The external auditors formally report to the committee on critical findings arising from audit activities. The committee, during the year under review, comprised: Name M eid B Dowden C Fontaine Harris Q Hlatshwayo B le oux Details Chairperson Independent Independent Independent (Alternate) Trustee Trustee 11 BOAD OF TUSTEES AND AUDIT COMMITTEE MEETING ATTENDANCE The following schedule sets out Board of Trustees and Audit Committee meeting attendance. Trustee remuneration is disclosed in Note 9 to the annual financial statements. Trustee/ Committee Member Board Meetings Audit Committee Other Sub Committee Meetings Meetings A B A B A B * H Makgopela * S Diale * J Thiti * S Naidoo * Q Hlatshwayo * B le oux M eid B Dowden C Fontaine Harris (Alternate) A - Total possible number of meetings could have attended. B - Actual number of meetings attended. * Trustee Page 11

13 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) EPOT OF THE BOAD OF TUSTEES FO THE YEA ENDED 31 DECEMBE NON-COMPLIANCE WITH THE MEDICAL SCHEMES ACT In accordance with the Council for Medical Schemes circular 11/2006, the scheme is required to report all noncompliance with the Act noted during the course of the audit irrespective of whether the auditor considers the non-compliance as material or immaterial. Payment of contributions Section 26(7) of the Act requires contributions to be paid to a scheme not later than three days after payment thereof becoming due. Whilst every effort is made to enforce this requirement the onus is on the member/ employer group to ensure compliance. During the financial year certain contributions were identified that were not paid to the scheme within three days of becoming due. The non-compliance increases the liquidity risk to the scheme and could result in amounts due to the scheme being irrecoverable. Credit control procedures are followed to collect outstanding amounts Sustainability of benefit options Section 33(2) of the Act stipulates that each benefit option shall be self-supporting in terms of membership and financial performance and be financially sound. At 31 December 2011 the Makoti Comprehensive and Makoti Primary options did not comply with Section 33(2). These two options have realised net healthcare deficits, however after taking into account sundry and investment income, the options have realised net surpluses. While the Scheme is committed to complying with the applicable legislation, the overall stability and financial soundness of the Scheme as a whole is strong. This is evident with the solvency ratio being 119,6%, well in excess of the minimum requirement of the Act. Page 12

14 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBE 2011 Notes ASSETS Non-current assets Available-for-sale investments 2 336, ,000 Current assets 50,270,642 49,001,224 Trade and other receivables 3 560, ,129 Cash and cash equivalents 4 49,710,508 48,794,095 Total assets 50,606,642 49,293,224 FUNDS AND LIABILITIES Members funds 48,975,936 47,336,393 Accumulated funds 48,649,936 47,054,393 Available-for-sale reserve 326, ,000 Current liabilities 1,630,706 1,956,831 Outstanding claims provision Trade and other payables 6 1,630,706 1,956,831 Total funds and liabilities 50,606,642 49,293,224 Page 13

15 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) STATEMENT OF COMPEHENSIVE INCOME FO THE YEA ENDED 31 DECEMBE 2011 Notes Gross contribution income 7 40,678,180 37,637,358 elevant healthcare expenditure (36,769,568) (34,098,077) Net claims incurred (44,007,558) (41,918,734) Claims incurred 8 (44,007,558) (42,253,107) Third party claims recoveries - 334,373 Net income on risk transfer arrangements 8 7,237,990 7,820,657 isk transfer arrangement fees (36,761,000) (34,342,749) ecoveries from risk transfer arrangements 43,998,990 42,163,406 Gross healthcare result 3,908,612 3,539,281 Broker service fees (1,135,560) (1,072,535) Administration expenses 9 (4,020,704) (3,115,238) Managed care: management services 10 - (77,389) Net impairment losses on healthcare receivables 3 (10) (64,280) Net healthcare result (1,247,662) (790,161) Other income 2,843,205 3,812,136 Investment income 11 2,835,504 3,326,454 Sundry income 12 7, ,682 Net surplus for the year 1,595,543 3,021,975 Other comprehensive income Unrealised gains on revaluation of available-for-sale investments 2 44,000 35,000 Total comprehensive income for the year 1,639,543 3,056,975 Page 14

16 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) STATEMENT OF CHANGES IN FUNDS AND ESEVES FO THE YEA ENDED 31 DECEMBE 2011 Accumulated funds Available-forsale reserve Total members funds Balance at 1 January ,032, ,000 44,279,418 Total comprehensive income for the year 3,021,975 35,000 3,056,975 Net surplus for the year 3,021,975-3,021,975 Other comprehensive income for the year - 35,000 35,000 Balance at 31 December ,054, ,000 47,336,393 Total comprehensive income for the year 1,595,543 44,000 1,639,543 Net surplus for the year 1,595,543-1,595,543 Other comprehensive income for the year - 44,000 44,000 Balance at 31 December ,649, ,000 48,975,936 Page 15

17 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) STATEMENT OF CASH FLOWS FO THE YEA ENDED 31 DECEMBE 2011 Cash flows from operating activities Notes Cash utilised in operations before working capital changes 14 (1,239,961) (304,479) Working capital changes: (Increase)/ Decrease in trade and other receivables (353,005) 204,834 Decrease in trade and other payables (326,125) (1,274,618) Decrease in outstanding claims provision - (175,000) Cash utilised in operating activities (1,919,091) (1,549,263) Cash flows from investing activities Interest received 11 2,828,514 3,319,464 Dividends received 11 6,990 6,990 Cash generated from investing activities 2,835,504 3,326,454 Net increase in cash and cash equivalents 916,413 1,777,191 Cash and cash equivalents at the beginning of the year 48,794,095 47,016,904 Cash and cash equivalents at the end of the year 4 49,710,508 48,794,095 Page 16

18 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) FO THE YEA ENDED 31 DECEMBE PINCIPAL ACCOUNTING POLICIES The following are the principal accounting policies used by the scheme, which are consistent with those of the previous year. Basis of preparation The financial statements are prepared in accordance with International Financial eporting Standards (IFS) and the SAICA Medical Schemes Accounting Guide for the year ended 31 December 2011 on the historical cost convention, except for financial instruments, which are carried at fair value. Critical accounting judgements and areas of key sources of estimation uncertainty The scheme makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. Certain critical accounting judgements in applying the scheme s accounting policies and key assumptions concerning the future and other key sources of estimation uncertainty at the statement of financial position date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities in the next financial year, are disclosed below. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. i) Provision for outstanding claims There are some sources of uncertainty that need to be considered in the estimate of the liability that the scheme will ultimately pay for such claims. There is no need to estimate the liability in 2010 and 2011 due to the capitation agreement that is in place and no provision is considered necessary for outstanding claims relating to risk transfer arrangements. ii) Impairment of receivables The scheme makes allowance for estimated impairment losses on insurance receivables. eceivables are considered to be impaired when the amounts owing from debtors have not been collected within two months after settlement becoming due. The scheme continually reviews the risk profile of its debtors. New standards, amendments and interpretations effective in 2011 and relevant to the scheme The following new standards, amendments and interpretations are effective for the current financial year and relevant to the scheme: Effective date Title Financial year commencing on or after Improvements to IFS 7 Financial Instruments: Disclosures 1 Jan 2011 Improvements to IAS 1 Presentation of Financial Statements 1 Jan 2011 IAS 24 elated Party Disclosures 1 Jan 2011 Page 17

19 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) FO THE YEA ENDED 31 DECEMBE PINCIPAL ACCOUNTING POLICIES (continued) Basis of preparation (continued) New standards, amendments and interpretations effective in 2011 but not relevant to the scheme The following new standards, amendments and interpretations are effective for the current financial year but not relevant to the scheme's operations: Effective date Title Financial year commencing on or after IFIC 19 Extinguishing Financial Liabilities with Equity Instruments 1 Jan 2011 Amendments to IFS 3 Business Combinations 1 Jan 2011 Amendments to IAS 27 Consolidated and Separate Financial eporting 1 Jan 2011 Improvements to IAS 34 Interim Financial eporting 1 Jan 2011 Improvements to IFIC 13 Customer Loyalty Programmes 1 Jan 2011 Amendments to IFIC 14 The Limit on a Defined Benefit Asset, Minimum Funding and IAS 19 equirements and their Interaction 1 Jan 2011 New standards, amendments and interpretations not yet effective but expected to be relevant to the scheme The following new standards, amendments and interpretations are mandatory for accounting periods as indicated and are expected to be applicable to the scheme: Effective date Title Financial year commencing on or after Amendments to IFS 7 Disclosures - Transfers of Financial Assets 1 Jul 2011 Amendments to IAS 1 Presentation of Items of Other Comprehensive Income 1 Jul 2012 IFS 12 Disclosure of Interests in Other Entities 1 Jan 2013 IFS 13 Fair Value Measurement 1 Jan 2013 IFS 9 Financial Instruments 1 Jan 2013 Page 18

20 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) FO THE YEA ENDED 31 DECEMBE PINCIPAL ACCOUNTING POLICIES (continued) Basis of preparation (continued) New standards, amendments and interpretations not yet effective and not expected to be relevant to the scheme The following new standards, amendments and interpretations are mandatory for accounting periods as indicated however it is not expected to be applicable to the scheme: Effective date Title Financial year commencing on or after IAS 27 Separate Financial Statements (2011) 1 Jan 2013 IFS 10 Consolidated Financial Statements 1 Jan 2013 IAS 19 Employee Benefits 1 Jul 2013 IFS 11 Joint Arrangements 1 Jul 2013 IAS 28 Investment in Associates 1 Jul Financial instruments ecognition Financial assets and liabilities are recognised on the scheme s statement of financial position when it becomes a party to the contractual provisions of the instrument. Such recognition presumes that the risks and rewards of ownership and the control over these financial assets and liabilities are vested in the scheme. Measurement Financial instruments are initially measured at fair value plus, in the case of financial assets and liabilities not at fair value through the statement of comprehensive income, transaction costs that are directly attributable to the acquisition or issue of the financial asset or liability. Subsequent to initial recognition, these instruments are measured as set out below. Investments All purchases and sales of investments are recognised on the trade date, which is the date that the scheme commits to purchase or sell the asset. Cost of purchases includes transaction costs. Available-for-sale investments are subsequently carried at fair value. The fair value of publicly traded equities is based on listed market bid prices at the statement of financial position date. Unrealised gains and losses arising from changes in the fair value of the available-for-sale investments are included in the available-for-sale reserve and included in the statement of comprehensive income as other comprehensive income. Once the available-for-sale investment is sold, the realised fair value gain or loss on the available-for-sale investments is included in the statement of comprehensive income as investment income. Page 19

21 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) FO THE YEA ENDED 31 DECEMBE PINCIPAL ACCOUNTING POLICIES (continued) 1.2 Financial instruments (continued) Trade and other receivables Trade and other receivables are measured on initial recognition at fair value and are subsequently measured at amortised cost using the effective interest method. An appropriate allowance for estimated irrecoverable amounts is recognised in the statement of comprehensive income when there is objective evidence that the asset is impaired. This allowance recognised is measured as the difference between the asset s carrying amount and the present value of the estimated future cash flows. Permanent impairments are written off to the statement of comprehensive income when identified. Cash and cash equivalents Cash and cash equivalents comprise cash on hand, deposits held on call with banks and other short-term liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value. Financial liabilities Financial liabilities are measured on initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest method. Offset Where a legally enforceable right of offset exists for recognised financial assets and financial liabilities, and there is an intention to settle the liability and realise the asset simultaneously or to settle on a net basis, all related financial effects are offset. Derecognition Financial assets are derecognised when the rights to receive cash flows from them have expired or where they have been transferred, and the scheme has also transferred substantially all risks and rewards of ownership. A financially liability is derecognised when the contractual obligation (deposit component) is discharged or expires. 1.3 Provisions Provisions are recognised when the scheme has a present legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Where the effect of discounting to present value is material, provisions are adjusted to reflect the time value of money. 1.4 Outstanding claims Claims outstanding comprise provisions for the scheme s estimate of the ultimate cost of settling all claims incurred but not yet reported at the statement of financial position date. Claims outstanding are determined as accurately as possible on the basis of a number of factors, which include previous experience in claims patterns, claims settlement patterns, changes in the nature and number of members according to gender and age, trends in claims frequency, changes in the claims processing cycle, and variations in the nature and average cost incurred per claim. There is no outstanding claims provision for 2010 and 2011 because the two Makoti options are fully capitated and no provision is considered necessary for outstanding claims relating to risk transfer arrangements. Page 20

22 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) FO THE YEA ENDED 31 DECEMBE PINCIPAL ACCOUNTING POLICIES (continued) 1.5 Insurance contracts Contracts under which the scheme accepts significant insurance risk from another party (the member) by agreeing to compensate the member or other beneficiary if a specified uncertain future event (the insured event) adversely affects the member or other beneficiary are classified as insurance contracts. The contracts issued compensate the scheme s members for healthcare expenses incurred. 1.6 Contribution income Contributions on member insurance contracts are accounted for monthly when their collection in terms of the insurance contract is reasonably certain. The earned portion of contributions received is recognised as revenue. Contributions are earned from the date of attachment of risk, over the indemnity period on a straight-line basis. 1.7 elevant healthcare expenditure elevant healthcare expenditure consists of net claims incurred and net income or expense from risk transfer arrangements. 1.8 Claims incurred Claims incurred comprise the total estimated cost of all claims arising from healthcare events that have occurred in the year and for which the scheme is responsible, whether or not reported by the end of the year. Net claims incurred represent claims incurred, net of recoveries from members for co-payments after taking into account recoveries from third parties. 1.9 isk transfer arrangements isk transfer fees are recognised as an expense over the indemnity period on a straight-line basis. If applicable, a portion of risk transfer fees is treated as pre-payments. Only contracts that give rise to a significant transfer of insurance risk are accounted for as insurance. Amounts recoverable under such contracts are recognised in the same year as the related claim. Claims recoveries relating to risk transfer arrangements are calculated on the basis of what it would have cost the scheme had the arrangement not been in place. If applicable, assets relating to risk transfer arrangements include balances due under risk transfer arrangements for outstanding claims provisions and claims reported not yet paid. Amounts recoverable under risk transfer arrangements are estimated in a manner consistent with the outstanding claims provisions, claims reported not yet paid, and settled claims associated with the risk transfer arrangement. If applicable, amounts recoverable under risk transfer arrangements are assessed for impairment at each statement of financial position date. Such assets are deemed impaired if there is objective evidence, as a result of an event that occurred after its initial recognition, that the scheme may not recover all amounts due and that the event has a reliably measurable impact on the amounts that the scheme will receive under the risk transfer arrangement Liabilities and related assets under liability adequacy test Since the outstanding claims provision and claims payable are realised mainly within the first three months after the end of the financial year, there are no significant liabilities extending beyond such a period. As a result, no discounting of future contractual cash flows is considered necessary. The carrying value of the liabilities is assumed to be reasonably stated. Page 21

23 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) FO THE YEA ENDED 31 DECEMBE PINCIPAL ACCOUNTING POLICIES (continued) 1.11 eimbursements from the oad Accident Fund (AF) The scheme grants assistance to its members in defraying expenditure incurred in connection with the rendering of any health service. Such expenditure may be in connection with a claim that is also made to the AF, administered in terms of the oad Accident Fund Act No. 56 of If the member is reimbursed by the AF, they are obliged contractually to cede that payment to the scheme to the extent that they have already been compensated. A reimbursement from the AF is a possible asset that arises from claims submitted to the AF and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the scheme. The contingent assets are assessed continually to ensure that developments are appropriately reflected in the financial statements. If it has become virtually certain that an inflow of economic benefits will arise, the asset and the related income are recognised in the financial statements of the period in which the change occurs. If an inflow of economic benefits has become probable, the scheme discloses the contingent asset. ecoveries from the AF are reflected as third party claims recoveries in the statement of comprehensive income Investment income Investment income comprises interest, dividends, and realised gains on available-for-sale investments. Interest income is recognised on a yield to maturity basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is determined that such income will accrue to the scheme. Dividend income from investments is recognised when the right to receive payment is established. ealised gains arising on the sale of available-for-sale investments are recognised in the statement of comprehensive income as investment income Impairment losses The carrying amounts of the scheme s assets are reviewed at each statement of financial position date to determine whether there is any indication of impairment. If any such indication exists, the asset s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in the statement of comprehensive income. Provision for impairment losses is calculated in terms of contributions, recoveries from members for co-payments and amounts due from providers outstanding for 60 days and longer. Calculation of recoverable amount The scheme s receivables are not discounted due to the short term nature of their recoverability. eversals of impairment An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined if no impairment loss had been recognised Allocation of income and expenses to benefit options All income and expense items are allocated directly to the benefit options except for administration expenses and investment income that is allocated on membership distribution between the two options. Page 22

24 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) FO THE YEA ENDED 31 DECEMBE AVAILABLE-FO-SALE INVESTMENTS Cost at beginning of the year 10,000 10,000 Unrealised gains on revaluation 282, ,000 Fair value at beginning of the year 292, ,000 Unrealised gains on revaluation 44,000 35,000 Fair value at end of the year 336, ,000 The investments included above represent: Listed equities on the Johannesburg Stock Exchange - Medi Clinic 336, ,000 A register of investments is available for inspection at the registered office of the scheme. Page 23

25 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) FO THE YEA ENDED 31 DECEMBE TADE AND OTHE ECEIVABLES Insurance receivables Contributions outstanding 277,088 - Non-insurance receivables Interest receivable on investments 277, ,571 Prepaid expenses 5,293 8, , , , ,129 The carrying amounts of trade and other receivables approximate their fair values due to the short-term maturities of these assets. In accordance with scheme rules, the scheme has the right to terminate membership in the event that contributions or any other amounts owing from members are not paid within a stipulated time period. As contributions are payable monthly in advance, any defaulting members at year-end were suspended and not considered to be part of the scheme. The scheme makes use of an allowance account for impairment losses. Trade and other receivables are considered to be impaired when two months has elapsed and the outstanding amounts have not been collected. The movement in the allowance for impairment for each class of financial asset, was as follows: Insurance receivables Trade and other receivables Non-insurance receivables Total Balance at 1 January , ,000 Impairment losses (226,000) - (226,000) Balance at 31 December Movement in allowance account Balance at 31 December There is no allowance for impairment losses as all amounts outstanding are considered recoverable. Page 24

26 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) FO THE YEA ENDED 31 DECEMBE TADE AND OTHE ECEIVABLES (continued) The impairment losses recognised in the statement of comprehensive income are as follows: Impairment losses recognised directly in the statement of comprehensive income 10 64,280 4 CASH AND CASH EQUIVALENTS Current accounts 552, ,541 Money market instruments 27,359,054 27,186,235 Term deposits 21,798,598 20,619,319 49,710,508 48,794,095 The weighted average effective interest rates are: Money market instruments 5.58% 6.75% Term deposits 5.93% 7.51% The carrying amounts of cash and cash equivalents approximate their fair values due to the short-term maturities of these assets. Term deposits with an original term longer than three months, are included in cash and cash equivalents as they are held to meet short term cash requirements and there is no significant risk of a change in their value as a result of withdrawal earlier than maturity date. 5 OUTSTANDING CLAIMS POVISION Balance at beginning of year - 175,000 Payments in respect of prior year (254) (264,701) Under provision in respect of prior year (254) (89,701) Adjustment for current year ,701 Balance at end of year - - In order to qualify for benefits any claim must, unless otherwise arranged, be submitted to the scheme not later than the last day of the fourth month following the month in which the healthcare service was rendered. There is no outstanding claims provision for 2010 and 2011 because the two Makoti options are fully capitated and no provision is considered necessary for outstanding claims relating to risk transfer arrangements. Page 25

27 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) FO THE YEA ENDED 31 DECEMBE TADE AND OTHE PAYABLES Insurance payables eported claims not yet paid 17,931 22,231 Net contributions received in advance 937,391 1,154,019 isk transfer arrangement expenses accrued 253, ,927 Unpresented cheques - 7,700 1,208,335 1,525,877 Non-insurance payables Fees due to the Administrator 193, ,969 Audit fees payable 183, ,600 Brokers fees payable 5,228 - Other payables and accrued expenses 39,852 37, , ,954 1,630,706 1,956,831 Analysis of reported claims not yet paid Balance at beginning of year 22, ,880 Movement for the year (4,300) (265,649) Balance at end of year 17,931 22,231 The carrying amounts of trade and other payables approximate their fair values due to the short-term maturities of these liabilities. The scheme accrues for audit fees as a constructive legal obligation arising from the requirement by the Medical Schemes Act to have a year-end audit performed GOSS CONTIBUTION INCOME Gross contributions 40,678,180 37,637,358 8 ELEVANT HEALTHCAE EXPENDITUE Current year claims 44,007,558 42,428,107 Claims not covered by risk transfer arrangements 8, ,701 Claims covered by risk transfer arrangements 43,998,990 42,163,406 Movement in outstanding claims provision - (175,000) Claims incurred 44,007,558 42,253,107 isk transfer arrangement fees paid 36,761,000 34,342,749 ecovery from risk transfer arrangements (43,998,990) (42,163,406) Net income on risk transfer arrangements (7,237,990) (7,820,657) Page 26

28 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) FO THE YEA ENDED 31 DECEMBE ELEVANT HEALTHCAE EXPENDITUE (continued) The risk transfer arrangements relate to services provided to scheme members by the following providers: Provider Service provided Estimated Capitation fees Net income/ recovery from paid (expense) provider 2011 Enablemed (Pty) Ltd Capitation arrangement (36,761,000) 43,998,990 7,237, Enablemed (Pty) Ltd Capitation arrangement (34,342,749) 42,163,406 7,820,657 Enablemed (Pty) Ltd The contract commenced on 21 April 2003 and is subject to termination by either party giving three months written notice. Enablemed (Pty) Ltd provides a network of providers to service members of the Makoti options as follows: Primary option: - Unlimited primary health care from the accredited practitioner chosen by the member - Ambulance services for medical emergencies - Hospitalisation as per prescribed minimum benefits in State Hospitals, subject to pre-authorisation - Basic pathology and radiology, subject to pre-authorisation - Unlimited medication as per formulary - Optometry and primary care dentistry, subject to authorisation and limits - Specialist services as per prescribed minimum benefits in State Hospitals, subject to pre-authorisation - Statutory prescribed minimum benefits Comprehensive option: - Unlimited primary health care from the accredited practitioner chosen by the member - Ambulance services for medical emergencies - Hospitalisation, subject to pre-authorisation - Basic pathology and radiology, subject to pre-authorisation - Unlimited medication as per formulary - Optometry and dentistry, subject to authorisation and limits - Specialist services, subject to pre-authorisation - Statutory prescribed minimum benefits Page 27

29 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) FO THE YEA ENDED 31 DECEMBE ELEVANT HEALTHCAE EXPENDITUE (continued) Enablemed (Pty) Ltd (continued) The main operational and risk management strategy followed by Enablemed (Pty) Ltd is to contract with the member's chosen general practitioner (GP) and all services and benefits are conducted through that GP or referred accordingly. Patients and benefits are controlled through strict managed care discipline, essentially using the GP of choice of the beneficiary as the gate-keeper. Due to the unique nature of this capitation arrangement, no underlying fee-for-service data is available from Enablemed (Pty) Ltd. The estimated recovery from provider is based on the average contributions of a comparable option of a medical scheme that targets the same market segment. In selecting a comparable option, the scheme considered the benefits offered and membership demographics. The comparison illustrates that the scheme is able to provide at least the same, if not better benefits at lower contribution levels than the comparable benchmark. 9 ADMINISTATION EXPENSES Administration fees 2,168,444 2,107,573 Association fees 24,087 25,846 Audit fees 268, ,534 - Current year accrual 245, ,600 - Prior year under accrual 22,800 14,934 Bank charges 8,092 8,575 Investment data collation fees 46,770 11,479 Fidelity guarantee and professional indemnity insurance 10,322 12,696 Legal fees 171,382 - Internal controls review 28,513 26,883 Marketing expenses 507, ,519 Principal officer s fees 250, ,459 egistrar s levies 65,050 66,463 Total trustees remuneration and consideration expenses (refer to table on page 29) 380, ,517 Website hosting 27,531 28,614 Actuarial fees 22,800 68,400 Other expenses 41,051 17,680 4,020,704 3,115,238 Page 28

30 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) FO THE YEA ENDED 31 DECEMBE ADMINISTATION EXPENSES (continued) Trustees remuneration Q Hlatshwayo 85,470 40,320 B le oux 85,470 40,320 H Makgopela 67,155 17,280 S Diale 73,260 17,280 S Naidoo 30,525 5,760 G Mashupye - 5,760 J Thiti 36,630 28,800 D Tshito - 5,760 For meeting attendance 378, ,280 Q Hlatshwayo - 1,054 H Makgopela S Diale J Thiti 1, D Tshito For accommodation, travel and meals 1,800 4, , ,517 The increase in Trustees remuneration is due to the increase in the number of meetings held during MANAGED CAE: MANAGEMENT SEVICES Pharmacy benefit management - 1,152 Trauma cover - 76,237 Fees are generally based on a fixed rate per member per month. - 77,389 Page 29

31 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) FO THE YEA ENDED 31 DECEMBE INVESTMENT INCOME Income from available-for-sale investments Dividend income 6,990 6,990 Income from cash and cash equivalents Interest on current accounts 47,235 72,465 Interest on money market instruments 1,522,818 1,776,066 Interest on term deposits 1,258,461 1,470,933 2,828,514 3,319,464 2,835,504 3,326, SUNDY INCOME Stale cheques written back 7,701 8,055 Credit balances written back - 477,627 7, ,682 Page 30

32 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) FO THE YEA ENDED 31 DECEMBE SUPLUS FOM OPEATIONS PE BENEFIT OPTION 2011 Net contribution income elevant healthcare expenditure Net claims incurred Claims incurred Third party claims recoveries Net income on risk transfer arrangements isk transfer arrangement fees ecoveries from risk transfer arrangements Makoti Comprehensive Makoti Primary Discontinued Options Total 27,312,318 13,365,862-40,678,180 (25,376,565) (11,392,749) (254) (36,769,568) (28,571,554) (15,435,750) (254) (44,007,558) (28,571,554) (15,435,750) (254) (44,007,558) ,194,989 4,043,001-7,237,990 (25,368,251) (11,392,749) - (36,761,000) 28,563,240 15,435,750-43,998,990 Gross healthcare result Broker service fees Administration expenditure Net impairment losses on healthcare receivables Net healthcare result Other income Investment income Sundry income 1,935,753 1,973,113 (254) 3,908,612 (693,544) (442,016) - (1,135,560) (1,829,286) (2,191,418) - (4,020,704) - - (10) (10) (587,077) (660,321) (264) (1,247,662) 1,302,059 1,541,146-2,843,205 1,298,528 1,536,976-2,835,504 3,531 4,170-7,701 Net surplus for the year 714, ,825 (264) 1,595,543 Page 31

33 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) FO THE YEA ENDED 31 DECEMBE SUPLUS FOM OPEATIONS PE BENEFIT OPTION (continued) 2010 Net contribution income elevant healthcare expenditure Net claims incurred Claims incurred Third party claims recoveries Net income on risk transfer arrangements isk transfer arrangement fees ecoveries from risk transfer arrangements Makoti Comprehensive Makoti Primary Discontinued Options Total 24,018,866 13,615,392 3,100 37,637,358 (22,404,416) (11,938,333) 244,672 (34,098,077) (26,207,840) (15,955,566) 244,672 (41,918,734) (26,207,840) (15,955,566) (89,701) (42,253,107) , ,373 3,803,424 4,017,233-7,820,657 (22,404,416) (11,938,333) - (34,342,749) 26,207,840 15,955,566-42,163,406 Gross healthcare result Broker service fees Administration expenditure Managed care: management services Net impairment losses on healthcare receivables Net healthcare result Other income Investment income Sundry income 1,614,450 1,677, ,772 3,539,281 (627,286) (445,249) - (1,072,535) (1,383,897) (1,731,341) - (3,115,238) - - (77,389) (77,389) - - (64,280) (64,280) (396,733) (499,531) 106,103 (790,161) 1,479,100 1,847, ,682 3,812,136 1,479,100 1,847,354-3,326, , ,682 Net surplus for the year 1,082,367 1,347, ,785 3,021,975 Page 32

34 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) FO THE YEA ENDED 31 DECEMBE CASH UTILISED IN OPEATIONS BEFOE WOKING CAPITAL CHANGES Surplus for the year 1,595,543 3,021,975 Adjustment for: Investment income (Note 11) (2,835,504) (3,326,454) (1,239,961) (304,479) 15 ELATED PATY TANSACTIONS Transactions with key management personnel Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the scheme. Key management personnel include the Board of Trustees and the Principal Officer Trustees remuneration (Note 9) 380, ,517 Principal Officer s fees (Note 9) 250, ,459 Trustees remuneration payable (Note 6) - 5,760 Contributions and claims Statement of comprehensive income Gross contributions 96, ,330 The terms and conditions of the related party transactions were as follows: Transaction Gross contributions Nature of transaction and terms and conditions thereof This constitutes the contributions paid by the related parties, in their individual capacity as members of the scheme. All contributions were at the same terms as applicable to all members of the scheme. Transactions with parties that have significant influence over the scheme Universal Healthcare Administrators (Pty) Ltd provides administration services to the scheme and has significant influence over the scheme as it participates in the scheme s financial and operating policy decisions, but does not control the scheme. Universal Care (Pty) Ltd provides managed healthcare services to the scheme and has significant influence over the scheme as it participates in the scheme s financial and operating policy decisions, but does not control the scheme. Universal Healthcare Administrators (Pty) Ltd and Universal Care (Pty) Ltd are fellow subsidiary companies. Page 33

35 MAKOTI MEDICAL SCHEME (PEVIOUSLY GOOD HOPE MEDICAL AID SOCIETY) FO THE YEA ENDED 31 DECEMBE ELATED PATY TANSACTIONS (continued) Transactions with parties that have significant influence over the scheme (continued) The scheme entered into a capitation agreement with Enablemed (Pty) Ltd to provide medical benefit services to beneficiaries of the scheme. Enablemed (Pty) Ltd has significant influence over the scheme as it participates in the scheme s financial and operating policy decisions, but does not control the scheme. The scheme entered into a sales agreement with Enablemed Services (Pty) Ltd to provide a database of prospective elegible groups to the scheme. Enablemed Services (Pty) Ltd and Enablemed (Pty) Ltd are fellow subsidiary companies. Enablemed (Pty) Ltd has significant influence over the scheme as it participates in the scheme s financial and operating policy decisions, but does not control the scheme. During the year the scheme entered into transactions with the following related parties: Universal Healthcare Administrators (Pty) Ltd Administration fees (Note 9) 2,168,444 2,107,573 Investment data collation fees (Note 9) 46,770 11,479 2,215,214 2,119,052 Balance due to at end of year (Note 6) 193, ,969 Universal Care (Pty) Ltd Trauma cover (Note 10) - 76,237-76,237 Enablemed (Pty) Ltd Capitation fees (Note 8) 36,761,000 34,342,749 Balance due to at end of year (Note 6) 253, ,927 Enablemed Services (Pty) Ltd Sale of database 210,526 - Terms and conditions of the administration agreement The administration agreement is in terms of the rules of the scheme and in accordance with instructions given by the Trustees of the scheme. The agreement is automatically renewed each year unless notification of termination is received. The scheme has the right to terminate the agreement on 90 days notice. Administration fees are payable monthly in arrears by the seventh day of each month. Terms and conditions of the managed care agreement The managed care agreement is in accordance with instructions given by the Trustees of the scheme. The agreement is automatically renewed each year unless notification of termination is received. The scheme has the right to terminate the agreement on 180 days notice. Managed care fees are payable monthly in arrears by the seventh day of each month. Page 34