The good news about medical aid companies is that their financial soundness has shown sustained improvement over the past few years. But the industry is no closer to making medical aid more affordable.
In a paper presented at the recent Board of Healthcare Funders (BHF) annual conference, Elixir Health Consulting director Reg Magennis collated the opinions of nine leading decision makers (including Discovery Health CEO Adrian Gore and Council for Medical Schemes technical adviser Alex van den Heever) in an effort to work out what the future holds for the industry.
His conclusion: there is a grave risk that high medical aid inflation will persist for the next five years. "If each player continues to operate for short-term gain, then the current structure of high costs and low membership growth will persist," warns Magennis.
He argues that the new medicine price regulations and the introduction of a single state scheme for civil servants planned for 2006 together provide the industry with an opportunity to change many of its structural inefficiencies. The danger is that some players will circumvent the regulations, which are designed to wipe R3bn/year off the medical schemes industry's drugs bill.
"These are profound regulatory changes which affect the profits of dispensing doctors, pharmacies and hospitals and they won't sit quietly and go bankrupt," says Magennis.
For schemes and administrators, the chief concern is that hospitals will recover the profits they stand to lose on medicine by raising ward and theatre fees, nullifying the effects of the regulations and entrenching the high cost structure of private health care.
Delegates at the BHF conference (the annual medical schemes industry gathering) agreed that formal engagement between the health department and industry leaders was urgently required to find ways to grow the market and make it more efficient. Key to this should be finding ways to monitor and fine-tune the regulations.
"The situation calls for leadership and co-operation," says Magennis. "If the adversarial relationship between the department and the sector continues, there is a high political and economic risk that the regulations will fail to make private health care more affordable, thus threatening the long-term sustainability of the industry as a whole."
Moving back to the present and immediate past, the accompanying table (page 150) shows Discovery Health Medical Scheme's dominance of the open-schemes market. Discovery's open scheme has increased the number of SA giants it counts as members from 33 last year to 94 this year.
The likely reason for Discovery's growth is that its annual contribution increases have been among the lowest in the industry; it has consistently been rated well on customer satisfaction ; and it offers a large and stable risk pool, says Discovery research and development head Alan Pollard. He adds that rating agencies have consistently awarded Discovery the highest credit rating of any scheme. It also has a large range of plans available .
NMG Consultants & Actuaries CEO Andrew Sykes sees the flight to Discovery as "a flight to quality away from the confusion that characterises much of the market".
Some analysts say Discovery is popular because it looks after brokers well, bumping up their commissions on Vitality, the group's wellness programme, to counter the new 3% regulated maximum commission on scheme membership.
Pollard denies this, saying Discovery has stuck to the regulated commission levels rigidly though it believes they are too low.
"We do make sure, however, that brokers find it easy to deal with us ," he says. "It's an open secret that our competitors are paying more than the regulated commission by paying overriders and by paying commission upfront. Brokers therefore do not perceive us as being higher commission payers than our competitors - in fact, the opposite may be true."
He says Vitality is a separate business entity and does not cross-subsidise the medical scheme. Its commission levels are set so that it attracts the high proportion of members necessary to allow the programme to work effectively.
Risk-averse employers have been keen to offload in-house schemes by merging them into open schemes. Pollard says Discovery has not been a prime beneficiary of this trend, however. No closed schemes joined Discovery's open scheme last year and only AngloGold is set to join this year.
