Escalating healthcare inflation and costs, a declining and ageing membership, the impact of a global pandemic and a growing disease burden is impacting the medical scheme industry.
One of the notable trends is towards medical scheme consolidation, especially in light of the proposed introduction of National Health Insurance (NHI), where smaller schemes will be unable to compete. The Council for Medical Schemes (CMS) recommends that schemes that cannot compete on a sustainable price point should consider amalgamation partners.
The Competition Commission recently approved the amalgamation of Bonitas and Nedgroup Medical Aid Scheme (NMAS) after both sets of members voted in favour of the transaction. The Bonitas and NMAS product offerings will remain unchanged for the rest of 2021 with NMAS members being migrated to Bonitas from January 2022.
“The trend towards amalgamations is not only for the sustainability of the medical scheme but for the benefit of members who ‘own’ the fund,” says Lee Callakoppen, principal officer of Bonitas Medical Fund. “It is not only the call from CMS for schemes to join forces but also strict regulations around minimum solvency ratios and reserves ,which are more difficult for smaller schemes to maintain.”
The Medical Schemes Act requires that a medical scheme “shall at all times maintain its business in a financially sound condition”. This means having sufficient assets for conducting its business, providing for liabilities and having the prescribed solvency requirements of 25%.
The objective of the solvency requirement is to maintain financial stability, promote fair competition, ensure efficient use of capital and, more importantly, to provide early warning signs of potential failure.
The CMS is the statutory body that provides regulatory supervision of more than 80 medical schemes registered in the country and oversees amalgamations. One proviso for amalgamation is that schemes should complement each other and provide a broader and more comprehensive offering to members.
“One clear indicator of risk is the size of the pool of lives being covered,” says Callakoppen. “Schemes with smaller risk pools are struggling to survive and are experiencing more volatile claims. Amalgamation into a bigger scheme means cross-subsidisation of costs. It is a trend I believe will continue, if not accelerate. In fact, in the past decade we have seen 28 amalgamations approved by the CMS and the Competition Commission.
“The reality is that current economic conditions are putting pressure on consumers, already burdened by the high-cost of living. Healthcare costs are rising exponentially, and whether NHI is implemented in the near future or not, all companies providing healthcare or associated services will need to be proactive in addressing this issue,’ Callakoppen says.
“Amalgamation with larger schemes will mean stronger financial stability, a broader national footprint and better economies of scale to allow schemes to negotiate more advantageous rates and improve provider networks. This translates into more value for members.’
From an investment of assets perspective, there is an opportunity for more effective management of asset allocation and diversification, potentially resulting in lower fees, higher service levels and better returns over the long term.
“There is no doubt that the future of healthcare is changing,” says Callakoppen, “and it is up to healthcare providers and associated services to be nimble enough to pre-empt these changes and adapt accordingly.”
NUMBER OF SCHEMES HALVES IN A YEAR
The number of medical schemes decreased from 144 in 2000 to 76 in 2020, according to the 2020/21 Annual Report of the Council for Medical Schemes. Voluntary amalgamations mainly drive the trend in the consolidation of medical schemes, the report said. The overall number of schemes in 2020 was 76, consisting of 18 open schemes and 58 restricted schemes.
This article was first published in the November 2021 issue of IOL MONEY, our monthly free digital magazine. It has been updated to reflect the amalgamation of the Bonitas and Nedgroup schemes. The November edition, which focuses on medical cover, can be accessed here.