Lynn Carlisle, Business Day
CONSOLIDATION among SA's open medical aid schemes is urgently needed to bring down costs, boost member benefits and improve efficiencies, says Jannie Kotze, CEO of Johannesburg-based Resolution Health.
"Although the number of open schemes has fallen to 42 from 47 in the past two years, there is substantial room for mergers among small schemes to benefit significantly from economies of scale.
"If one excludes the largest - Discovery Health (742 000 principal members) and Bonitas (194 000) out of a total membership of just over 2-million in 2005 (excluding about 5-million beneficiaries), there are 40 schemes chasing the other 1-million members, and this is not sustainable," says Kotze, whose scheme has 42 000 principal members and more than 100 000 beneficiaries.
"Researchers and actuaries say that 50 000 principal members is viable for a stable medical scheme base. With the average open scheme membership just 25 000, many schemes are too small to be actuarially stable and need to merge."
He says trustees of small medical schemes have a fiduciary duty continually to ensure that their schemes are viable and have a future. The most likely benefits of mergers include:
Increased bargaining power with hospital and medical service provider networks;
Better access to actuarial, legal and financial expertise;
Enhanced sales and marketing facilities; and,
More streamlining and lower cost administration;
"There needs to be a mindset change in the leadership of some small schemes, as it is inevitable that mergers will have to take place. Schemes that leave it too long to find suitable merger partners will discover that their good risk has jumped off and left them financially vulnerable and unattractive merger partners."
Kotze says another factor that lends itself towards consolidation is the proliferation of complicated options offered by schemes.
"Not only does the medical schemes sector need fewer players, it also needs less options and a return to more traditional healthcare plans. These plans must offer hospitalisation cover and a set number of visits to doctors and specialists that can easily be understood by scheme members. There are simply too many complicated healthcare options on the market," he says.
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