Medical schemes, in terms of Regulation 29 of the Medical Schemes Act, 1998, as amended (MSA), are required to maintain a minimum of 25% of the annual member contributions in reserve. The purpose of Regulation 29 is to ensure that medical schemes maintain the necessary capital, create efficiency in the use of member funds, risk management and operational efficiencies. 

The reserve surplus required by the Regulation must be held in assets such as home loans, bonds, securities, guarantee backed loans, investments in shares, property (including equipment), various policies of insurance, listed and unlisted debentures. The reserve surplus is not held in cash.

The use of medical scheme reserves in these extra-ordinary times must be foremost on the minds of trustees, times where members are cash strapped and certain much needed medical supplies are at an all-time low.  Although the MSA specifies the types of investment which can be made using reserves and the manner in which schemes are to spend their funds, it is doubtful that those restrictions were drafted taking cognisance of the extra-ordinary times we are facing. 

The restrictions off-course cannot operate in isolation, trustees have a duty to take all reasonable steps to ensure the protection of the interest of beneficiaries in terms of the rules of the medical scheme and the provisions of the MSA at all times, including acting with due care, diligence, skill and good faith. The question is whether that duty extends to using reserves to fund medical supplies, the necessary infrastructure needed to fight the Covid-19 pandemic and possibly a contribution holiday.

Trustees, having regard to the pandemic, cannot take a business as usual approach. Boards should be giving thought to the value of their reserves and whether using such reserves would be of benefit to members. At a minimum, trustees need to understand the options available to them when considering using scheme reserves.

A sensible approach by any scheme, looking to use the reserves, would be for the Trustees to discuss the position with the regulator with a view of reaching a landing on how medical schemes can assist and the conditions under which the regulator may consider granting an exemption from compliance with the provisions of the MSA that seek to limit the use of reserves.

Written by Ntokozo Mbonani, Associate Designate, Norton Rose Fulbright