Discovery: Profitable in a pandemic

The number of members in the Discovery Health Medical Scheme (DHMS), managed by Discovery Health, continues to decline from a peak reached in 2018/2019.

Members on KeyCare plans, which are restricted to certain income bands, have fallen from a high of over 250 000 to 230 960 as at December 2020. Lives covered on these plans have also seen a roughly 10% decline over the period.

On non-KeyCare plans, member numbers have declined by 1%. Not surprisingly, total membership across these plans peaked in June last year (1.11 million). However, lives covered on these plans are about 5% lower than the peak in 2019.

The growth for Discovery Health has been from closed or restricted schemes which it manages.

Here, member numbers have grown by 14% in four years. It currently administers 19 closed schemes, with the sizeable Liberty Medical Scheme (Libcare) acquired in October. This scheme covers 13 000 lives, with annual premium income of R379 million.

Discovery Health currently has over 3.64 million members under administration, with market share of 57% across open schemes.

It reported a 6% increase in operating profit for the six months to end-December, with a 7% improvement in lapses (cancellations). New business declined by 5% to R3.2 billion in the six months, but the real story is in the 17% decline in new business, when excluding the impact of any new closed schemes.

Discovery says medical scheme growth has been “impacted by the contraction in employment”. Broken down by business type, most of the decline has come from new employees on existing employer groups. This channel for new business is down 21% year on year, when measured by annual premium income. The number of new employer groups to DHMS is down by 7%.

With this contraction, Discovery Health has grown its non-medical scheme retail products, including Primary Care, Gap Cover and Healthy Company. These now account for 186 000 lives, with 36% revenue growth year on year.

Member contributions

The group says: “DHMS did not increase its member contributions for the period January to June 2021, following lower-than-expected claims in 2020, recognising the economic pressure on employer groups and members.

“DHMS will apply a contribution increase from 1 July 2021, resulting in a weighted average increase of no more than 2.9% for the full year, positioning the average DHMS contributions at 17.4% lower than the weighted average for the top eight competitor medical schemes”.

Translated, this means a weighted average increase of around 5.8% in July (annualised, the figure is halved).

The scheme remains in a very strong position, with an unaudited operating surplus of R7.45 billion.

Discovery telegraphed this would happen at the start of the pandemic, as it had modelled a sharp reduction in non-Covid-19-related “health system utilisation”. Total pre-authorised hospital admissions is down 27% year on year, for example. But it cautions that there will likely be a catch up of these deferred procedures this year (as it did at the start of the pandemic).

Covid-19 figures

So far, Discovery reports 5 711 Covid-19 deaths across its Discovery Health, Discovery Life and Vitality Life businesses. It has paid R4.3 billion in claims.

A total of 1.1 million tests have been conducted across its members and clients, with 188 000 positive cases. About 20%, or 36 000 members, have been admitted to hospital.

Covid-19 provisions remain at R3.4 billion.

Group results

Overall, the group reported a 19% increase in normalised operating profit to R4.5 billion.

The four mature South African businesses (excluding the bank) reported a 5% increase to R4.2 billion, with the two UK businesses showing growth of 56% to R940 million.

Vitality Group, the unit which operates through partners in 27 markets (many on the Vitality1 chassis), achieved a profit of R238 million for the six months, a near-doubling.

Margins in this unit are high, with fee income of R625 million.

The premium income at its insurance partners totalled R8.7 billion, which gives some insight into the scale of this business, which is – simplistically – licensing the group’s intellectual property.

New business

New business across the group grew by 8% to R10.9 billion in the six months, but its three largest businesses in South Africa (Health, Life and Invest) all saw declines.

Only Discovery Insure grew new business.

The UK operation saw a decline in new business at Vitality Life, but Vitality Health increased by 4%. Overall, new business in South Africa was down by 4%, and in the UK by 5%.

There was strong growth in Vitality Group, Ping An Health Insurance (China) and its other new businesses, which include Discovery Bank, Vitality Invest (in the UK), umbrella funds and business insurance.