Medical aid schemes set to shrink
Removal of rebate will put private healthcare out of reach for many
● Futurist Peter Diamandis has predicted that by 2025 the planet will have 8 billion hyper-connected humans. The Internet of Things will have exploded to over 100 billion connected devices and the global healthcare industry and its established business models will be crushed by startups and data giants, such as Google and Apple, through robotics, artificial intelligence and large-scale genome sequencing.
That is also the year in which South Africa’s National Health Insurance (NHI) fund is targeted to be implemented.
If the government is able to deliver the essential healthcare for all described in the white paper on NHI by then, the portion of the population who are members of medical schemes, last year estimated by Health Minister Aaron Motsoaledi at 16%, will shrink.
Warwick Bam, insurance analyst at Avior Capital Markets, says “it will be a threat” to medical schemes as we know them.
Discovery, which covers 2.78 million people with the country’s largest health medical scheme with a 56% market share, and which manages more than 3.4 million lives as administrator, could take a knock.
NHI would not be something of which South Africans could opt out, whether they use public services or not. Those who continue to pay premiums to medical schemes will pay for healthcare twice.
Tax credits amounting to R20-billion currently offered on private healthcare — which contribute to its affordability — will fund NHI. A research note by Econex says the removal of the rebate would make 21.28% of current medical scheme beneficiaries unable to afford private healthcare.
This scenario would make it challenging for medical schemes to continue offering cost-effective benefits if their members decline. The industry, which has shifted in the past 15 years to a relatively small pool of competitors, already battles to manage costs for various reasons, said Bam.
Discovery Health, which launched in 1992, has been the net winner in the industry due to its strong control procedures, systems and negotiating power. Despite its dominance, however, Discovery Health is the second-largest contributor to group profit, with income generated by insurance unit Discovery Life outstripping that of its administrator. The group has now focused its plans for growth on the launch of its bank.
Though the white paper clearly intends that medical schemes continue to offer complementary cover to fill gaps in the NHI offering, precise details on the future of medical schemes under NHI are unclear.
Discovery and Momentum speak favourably of the emergence of NHI and collaborating with the government to offer universal health coverage, and the Council for Medical Schemes says there have been no attempts by medical schemes to push back against implementation of NHI.
But analysts say no pushback is necessary since confidence in NHI’s ability to successfully launch is low.
“I am pessimistic that they are going to get it right,” said Abri du Plessis, portfolio manager
There will always be a niche for the more affluent market and I think medical schemes that survive will be in that niche
at Gryphon Asset Management.
“Even if they do there will always be a niche for the more affluent market and I think that medical schemes that are going to survive will play in that niche.”
Byron Lotter, portfolio manager at Vestact Asset Management, said people would not trust the state to administer and pay for their medical bills when they “don’t even trust their private insurers”. Instead, there are other ways for the government and private sector to work together.
“Why would the government want to administer NHI on its own when there are some incredible assets in the private sector?
“If it outsourced the administration to the private sector it would immediately get 20 years’ worth of intellectual property,” Bam said.
Funding for NHI remains contentious, with a small portion of the population set to carry the financial burden.
Jill Larkan, head of healthcare consulting at GTC Advisory Services, said the country’s 8 million medical scheme members were probably going to be the ones to resist NHI.
“We do not have the best track record from an anti-corruption point of view. I doubt that corruption will just suddenly stop and all the money collected into this one fund will reach its intended recipients,” she said. “We do not have the infrastructure or ability to manage this function with just one fund yet.”
She added, however, that the financial services sector in South Africa had proven to be resourceful and resilient when tested. When prescribed minimum benefits were enforced on the industry, players found a way to manage the adjustments in cover. Surely they would be able to evolve again.
“[All financial services groups] are diversifying geographically. Even if these risks didn’t exist, growing globally is a good idea,” Lotter said.