Discovery loses “core” health members

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 7099 lives in this main market segment. These numbers may seem tiny, but in recent years it’s been adding around 5000 members in the seasonally slower six months (July to December). In the first half of the calendar year, it’s been adding between 10000 and 30000 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 1666128 as at end June to 1669128 at the end of December.

KeyCare addresses the lower-income market (generally those who earn up to ±R13800 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 ±230000 and ±255000 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 130000 to 317000. It manages 18 closed schemes on behalf of corporates, with a combined membership of nearly 700000 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.