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Discovery loses ‘core’ health members

As economy bites, contracting medical scheme market catches up …
Image: Moneyweb

Discovery Health has reported a decline in the number of members and lives covered by its non-KeyCare (entry-level) plans for the first time since at least 2013 (likely ever).

While it still has more members as at December 31 than a year ago, these numbers have increased across every six-month period until now.

Between end-June and end-December, it lost (a net) 1727 members and 7 099 lives in this main market segment. These numbers may seem tiny, but in recent years it’s been adding around 5 000 members in the seasonally slower six months (July to December). In the first half of the calendar year, it’s been adding between 10 000 and 30 000 members since 2013.

In the last six months, growth across its South African health insurance base has come from the entry-level KeyCare plans and, importantly, the take-on of closed medical schemes. Overall health members grew from 166 6128 as at end June to 166 9128 at the end of December.

KeyCare addresses the lower-income market (generally those who earn up to ±R13 800 per month) and requires income verification. Discovery added (a net) 2906 members on these plans between July and December. This market seems to have a natural ceiling, however. Since 2013, this segment has fluctuated between ±230 000 and ±255 000 members.

DHMS Non-KeyCare Members Change over six months
Jun-13 947181 31440
Dec-13 959138 11957
Jun-14 985228 26090
Dec-14 995572 10344
Jun-15 1013864 18292
Dec-15 1018612 4748
Jun-16 1034833 16221
Dec-16 1041166 6333
Jun-17 1062964 21798
Dec-17 1069492 6528
Jun-18 1093745 24253
Dec-18 1098903 5158
Jun-19 1110401 11498
Dec-19 1108674 -1727

Over that same six-year period, the number of members taken on from closed schemes (what Discovery terms “in-house”) grew by 140%, from around 130 000 to 317 000. It manages 18 closed schemes on behalf of corporates, with a combined membership of nearly 700 000 lives.

Including these closed schemes, Discovery Health reported a 26% year-on-year increase in new business annual premium income (API) to R4.4 billion. Exclude the closed schemes, and new business API is down 4% from last year to R3.3 billion. Members are still joining the various schemes it manages; these will be offset by members moving to other medical aids, cancelling medical aid altogether, emigrating or dying.

Source: Discovery 2020 interim results presentation

There is churn within the overall base as well. Moneyweb revealed last year that 22% of members of its top three tiers of plans (Executive, Comprehensive and Priority) have disappeared over the past five years. The shifts between different tiers of plans are comprised of new members joining the scheme, existing members upgrading or downgrading within the scheme, and members leaving the scheme.

Read: Members are ditching top-end Discovery Health plans

In its commentary accompanying the interim results, Discovery notes that the South African medical scheme market is “contracting”. Six months ago, it pointed to net growth in beneficiaries at Discovery Health Medical Scheme (DHMS) of 41193 in 2018. The next seven largest schemes reported a net decline of 9048 beneficiaries in the same year.

Anaemic economic growth and the lack of substantive employment growth has capped growth in the private health insurance market. The impact of the recent wave of corporate retrenchments will likely be seen in the numbers to end-June.

Beyond this, however, it is faced with the challenge of trying to grow from a very large base. As at September 2018, DHMS had a 56.6% share of the market.

Source: Discovery 2020 interim results presentation

Discovery says that aside from sustaining growth in a contracting market, its strategic focus over the period was on “managing medical inflation while optimising cost and quality; reducing administration costs while maximising service; and ensuring the increasing financial strength and position of DHMS”.

In DHMS, more than half of claims expenditure in 2018 (53%) was spent on hospitals. This totals R30.1 billion for 663 861 admissions. R1.1 billion was paid for the 500 sickest families.

However, it contends that the “average contributions of DHMS are 16.7% lower than those of competitors per unit of healthcare benefit”.

Discovery Health reported an 8% increase in operating profit in the first six months (to R1.575 billion). This equates to over a third of its profit before investment in new initiatives.

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Discovery’s annual escalations are like a hit to the core.

Yup, it is an industry-wide phenomenon. Biggest culprits – your greedy medical providers

Actually the biggest winners are Discovery Holdings, who do the Admin for the Scheme.

That is why Discovery can afford such extravagant offices in Sandton.

You cannot have a listed Company running a Medical Scheme. Its wheels within wheels, Discovery wins and the members are screwed.

@ taffdee. Dont worry NHI coming your way soon…

Dont hold your breath that they will have any less extravagant offices though

Government cannot even plug a hole in the road, how on earth are they going to plug a hole in a heart when the NHI comes on stream?

It’s a circus out there and we’re paying a fortune to watch the show

It has been said by many in Banking and IT industry that Discovery bought the best LAST CENTURY Banking software. What a joke!?? Maybe they should have head-hunted Capitec staff and NOT Standard Bank staff?
Now we know why they have excessive annual escalations – to fund other parts of their business?

Uhm no.. if they bought the stuff that all major providers use.. no issues. They went ahead with what made sense for their IT dept & cost point of view and internally trying to make it work hence the instability and things catching them out. Ps Capitec uses what everyone else uses!

To give perspective.. this is like wanting to sell soda but also wanting to reinvent the bottle manufacture process in a manner that’s not industry standard putting at risk the primary business (selling & making soda).

@Kashif Khan, I don’t profess to be all-knowledgeable like you, but this is what is in the public domain…..
Capitec uses TCS BaNCS core banking software.
Standard Bank uses SAP Core Banking software. Standard Bank actually paid SAP to develop core Banking services.
Discovery Bank uses SAP Core Banking. Did they not head-hunt any Standard Bank staff? You seem to be in the know, please confirm or not?
Standard Bank spend more on their core banking and integration than any other SA bank. Legacy systems integration with the traditional older banks cost a fortune; Discovery Bank did not have that issue, BUT they still chose SAP?
So, I FAIL to understand why you say Capitec uses what everyone else uses; Its just not true!? No other SA bank uses BaNCS for core banking?

Pensioners in particular will eventually be unable to sustain 8 to 10% increases when there pensions are mostly static. Perhaps over 65,s? should get lower increases (despite them being the likely highest claimants).

Discovery should STOP paying for British Soccer on DSTV and REDUCE the Pensioners Monthly Premiums accordingly. Very soon NO Pensioner will be able to afford Discovery Health, and then what, a pile of RETRENCHMENTS. But Discovery don’t care, as they claim they can give you a quote in under 60 seconds, how exciting, this really helps the Pensioners!

Medical aids don’t pay for sports broadcasting. Their funds are ring fenced.

No medical aid is allowed to differentiate rates based on age/retirement status.

And why are late joiner fees perpetual? Total exploitation

Late joiner penalties have to be perpetual to avoid adverse selection problems, where people only join a scheme when they are likely to claim. The logic is that you need to catch up all the contributions you failed to make from when you were 21, single and healthy, until you are 35, having babies and entering the middle-aged period where chronic diseases kick in. You could either pay a lump-sum upfront, or amortise it over the rest of your life. Our regulatory framework guarantees you the right to join a scheme, essentially without material underwriting, and with a premium guaranteed not to increase disproportionately for you as you age or get sicker. Without some sort of inducement for people to belong when they are young and healthy, the system could not operate sustainably. It is not exploitation. If you choose only to join when you are elderly and sick, without having contributed to the system all your life, then you must expect there to be some consequence.

Medical aids, a bubble building up to the inevitable burst….

Bet you just can’t wait for the NHI

When you describe medical aids as a “bubble” ripe to burst, what are you actually trying to say? All medical schemes are not-for-profit funds owned by their members. They almost all outsource administration to profit-making businesses like Discovery or Afrocentric. Contributions are going up because medical inflation, worldwide, runs above general consumer inflation, but there is no asset bubble building up.

Pity medical aids do not treat their members as owners. Yes they are supposed to be not for profit but they don’t outsource but rather insource to parent profit-making businesses as Discovery. And where does these massive profits come from?, the not for profit medical aid scheme. As regards to the bubble, the majority salary earners can not afford the premiums and when they opt out traditional schemes the schemes will topple.

“Not for profit, owned by their members ” – rubbish.
The ” profit” is taken by the Administrators.

Not for profit is a really problematic term, as money is taken/allocated in the form of exaggerated bonuses and expenses; State owned not for profit enterprises uses this exact same model.

Pity medical aids do not treat their members as owners. Yes they are supposed to be not for profit but they don’t outsource but rather insource to parent profit-making businesses as Discovery. And where does these massive profits come from?, the not for profit medical aid scheme. As regards to the bubble, the majority salary earners can not afford the premiums and when they opt out traditional schemes the schemes will topple.

Medical aids by law are non profit, and this is completely true. However medical aid administrators are not governed by the same laws and are the same as every single other company. So you need to differentiate between Discovery Medical aid and the listed JSE Discovery Ltd. Discovery administers other medical aid eg Tsogo, Remedi, LA Health, Bankmed, etc and make money of running these medical aids. They use on average between 25 to 30 % of the total medical aid premium you pay towards administration, meaning every 25 to 30 cents per Rand you pay is used for non medical expenses, and this is based on fact, the percentage varies according to different medical aids administrators but they are all relatively close. The problem is not the completely the medical aid, it’s the administrators who generate profit for them selves, and when these companies don’t deliver, shareholders start to have their say.

Must admit I had a nice chuckle reading the comment section. You would swear Jeremy Corby wrote half of it, having a good old go at the profit motive. Interesting though that when the mines let go of thousands of employees opr when the social grant goes up by R10 a month or when minimum wage comes up the self same commentators will be up in arms about socialism and how that is simply the free market in action…

Before attacking me as a communist bot let me just state that I am very much in favour of the free market, but that some of the comments are at best inconsistent and probably quite hypocritical

I too have noticed how the comment section on MW could swing either way depending on the day, there is however a trend I have noticed, which might paint a picture as to what age group the average comment poster is, whenever a subject involving the elderly (or soon to be elderly) arise the socialist pitchforks are out.

However, bring up problems that the youth are facing (E.g Youth unemployment) or problems future generations will face(E.g climate change) the pitchforks again are out, except this time in condemnation.

I am on Remedi, administered by Discovery.

We got a payment holiday in November, that is we did not pay for medical aid in that month.

Although I would have rather skipped the increase in Jan, I will take it.

Reason for holiday.
1 – Better returns than the actuaries expected.
2 – The big impact – less claims than expected.

Bottom line, for medical aids not to go up above inflation, people must become healthier and claim less.

Granted, it is easier in a closed fund where we as a group is probably healthier than the general Discovery fund, if each individual realise his/her claim impact all, it will make an impacr

Medical aids don’t pay for Sports Broadcasting? Then who does?
Why does Discovery advertise their Logo on DSTV when broadcasting Soccer from the UK (IS THIS FOR FREE, YOU MUST BE JOKING!)

Discovery is a GROUP of companies which, with the exception of the medical aid, are profit making and can pay for sponsorships, etc.

So what you are saying is the Administrators make the profit, AT THE EXPENSE OF THE medical aid!!?? The administrator would not exist if it were not for the medical aid!??
I presume you work either directly or indirectly for Discovery Group!??
Don’t understand why you persist in trying to defend the indefensible!?
Rather say nothing?

Must be one of their cool-aid drinking snake oil salesman parading as “financial advisor”

Heres a task, take two buckets!

One with a hole in it and one without.

Place the bucket with the hole directly above the one without.

Poor water (PROFIT) into the top bucket which has the hole and there you have it…Discovery Health explained!! Easy hey?

Now…time for some popcorn, antidepressants (which Discovery don’t pay for) and Tito (who I’m sure gets something)

Lots of tricky debates here….but all I know for sure is, I get a real good feeling that I am one of those who recently bailed out on Discovery Medical Aid recently after seeing yet another 10% increase….I also get a real good feeling about having sold the shares almost a year ago.
Lets just watch the share price and med aid benefits over the next few years and see…but I think I got out ahead of a nasty curve on the horizon.

PONZI SCHEME NUMBER 1 = DISCOVERY LTD

Propped up by their “advisors” who would steal from their own family to hit targets.

NUMBER 1 RULE AT DISCOVERY = IF YOU ARENT MAKING THEM MONEY, THEY WILL TAKE YOURS!

End of comments.

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