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The medical schemes regulator has raised concerns about the Government Employees Medical Scheme’s (Gems) plan to accommodate union demands for lower contributions, saying its proposal is neither financially sound nor in members’ long-term interests. Gems is South Africa’s biggest medical scheme for civil servants and has faced sustained union pressure to reduce its average contribution increases for 2026, originally set at 9.8% for January. It first dropped the increase to 9.5% in April, and then agreed to lower it to 7.5% from July, subject to approval from the Council for Medical Schemes (CMS). CMS registrar Musa Gumede sent a detailed letter to Gems principal officer Stan Moloabi last week setting out his concerns and giving him 14 days to submit further documentation to support the revised contribution increase.Citing an actuarial report submitted by Gems to the CMS, Gumede said the reduced increase would lead to an annual loss of contribution income of R1.5bn, which the scheme had proposed recouping with benefit adjustments and managed care interventions of a similar magnitude. However, the effectiveness of such interventions was uncertain and could not be relied on to address the funding shortfall, he said in the letter, a copy of which has been seen by Business Day.The reduced increase appeared inconsistent with the scheme’s obligation to maintain financial soundness, and would lead to ongoing operating deficits and a further decline in Gems’s solvency ratio below the statutory minimum of 25%, said Gumede. The scheme’s projections indicated a decline in its solvency ratio to between 21% and 22%, with no immediate path to recovery, he said. A scheme’s solvency ratio is a key measure of its financial health, and is the ratio of its accumulated funds to its annualised contribution income. Gems’s solvency ratio stood at 24.7% at the end of 2025.The regulator has instructed Gems to provide a revised financial sustainability plan “demonstrating a credible pathway” to increasing its solvency ratio and restoring compliance with Regulation 29 of the Medical Schemes Act, which sets the required solvency threshold at 25%.Gumede also directed Gems to provide more details on the cost containment and managed care savings it relied on to support the revised contribution level, and a sensitivity analysis showing the impact on solvency, deficits, reserves and member contributions if the assumed cost savings were not fully realised, or took longer than currently assumed. He also asked for an explanation of how the scheme intended to manage its loss-making options, Onyx and Emerald.Gems principal officer Stan Moloabi said the scheme was preparing additional information for the regulator which would demonstrate it had already achieved savings from recent changes to member benefits and managed care, which included limiting private hospital cover for members of its Tanzanite option to conditions classed as prescribed minimum benefits.Gems is also looking into the scope for making savings by making changes to its list of approved medicines, and to its pre-authorisation for hospital admissions, he said. Moloabi emphasised Gems was in sound financial health, and able to pay members’ claims. Solvency ratios were not the only way to gauge a scheme’s financial sustainability, and Gems had been rated AA+ with a stable outlook by the ratings agency GCR, he said.Since civil servants had received wage increases of only 4% for 2026, even a 7.5% medical scheme contribution increase created financial strain, said Cosatu’s chief negotiator at the Public Service Co-ordinating Bargaining Council Itumeleng Molathlegi. Should the regulator reject Gems’s plan to reduce contribution increases to 7.5%, it would render membership unaffordable for some members, he said. Gems should consider alternatives to cutting benefits, such as scrapping its marketing budget and reducing the number of board meetings. Trustees held more than two dozen board meetings in 2025, according to its most recent annual report Moloabi said Gems’s marketing budget was small relative to the scale of its contribution income, and the scheme’s non-healthcare expenditure was significantly lower than the industry average. Marketing constituted only 0.123% of Gems’s net contributions, while non-healthcare expenditure stood at 5.56% over the past two financial years, he said.
