As South Africa’s medical scheme industry continues to consolidate, with
smaller schemes either being liquidated or absorbed into bigger players,
consumers could benefit from more competition and downward pressure on the cost
of medical cover.
“We’ve seen the number of registered schemes drop from 120 in 2008 to 95 in
2012,” says principal officer of Resolution Health Medical Scheme, Mark
“This trend is likely to continue over the next few years.”
He says consolidation of small schemes into bigger ones is beneficial to the
industry as larger schemes have more negotiating power with service providers
such as hospitals and doctors.
“Medical inflation has been running at about 3% higher than general inflation
(CPI) with factors such as technology and a shortage of skills driving up costs.
However, smaller schemes don’t have much bargaining power in this set-up,” adds
Arnold. “Larger open schemes can use economies of scale to drive down costs
across the board.”
Due to the limited number of healthcare practitioners, combined with a lack
of competition in the private hospital market, very few solutions exist for
schemes to manage down these costs. Prescribed Minimum Benefits (PMBs) are a
particular concern as schemes are legally obliged to cover these costs at
whatever tariff the healthcare provider charges.
“Larger schemes are in a much better position to set up Designated Service
Provider (DSP) networks, through which they negotiate better pricing with a group
of hospitals by offering them a higher volume of patients,” he adds.
Arnold says the large uptake of benefit plans offering members services at a
particular DSP indicate that consumers are ready for innovative products that
bring down premiums.
”Many members choose to be limited to a network of hospitals in a particular
area, for example, if their monthly contributions are lower.”
Smaller schemes still has a part to play
However, he says, only when the medical scheme market isn’t dominated by two
or three large players, will consumers really benefit from competition amongst
“The trend of consolidation is likely to continue until the market is left
with only 10 – 14 large open medical schemes with 100 000 to 1m members each,”
he adds. “This should lead to downward pressure on administration, and
ultimately healthcare costs.”
He explains that, in the current environment, schemes of less than about 27
000 members find it difficult to compete. Smaller schemes can get caught in a
“death spiral”, where they find it challenging to attract younger, healthier
members. As the membership ages, so claims escalate and the scheme is forced to
increase premiums, leading more young people to leave.
“Smaller schemes simply don’t have the budget to attract new members, which
not only requires huge spending on marketing, but also investment in
behind-the-scene processes such as developing managed care protocols, R&D
and making claims processing more efficient,” says Arnold.
In addition, brokers are concerned about the long-term sustainability of
smaller schemes and tend not to promote them to their clients.
Arnold says smaller schemes of below 27 000 members still have a place in the
South African medical scheme landscape, but are likely to serve niche
geographical areas – such as Cape Town or Durban.
The consolidation process has also affected thousands of members of closed
schemes, which have seen a significant reduction in reserves as their membership
numbers fall and age profile worsens.
However, he says, liquidations of small schemes should be a last resort.
“In a liquidation, the scheme’s reserves are paid out to members, who may not
spend the money on healthcare and the funds are then effectively lost,” Arnold
explains. “A merger, on the other hand, ensures that the reserves are taken
across to the new scheme, contributing towards the stability of the overall