Health Squared eyes young adult market
New medical aid Health Squared Medical Scheme has set its sights on snapping up young adults entering the workplace, but competition from SA's three biggest schemes - Discovery Health Medical Scheme, Bonitas Medical Fund and Momentum Health - is stiff in an industry with stagnant growth.
Health Squared, which became active this month, is the result of a merger between Resolution Health and Spectramed and has 45,000 beneficiaries and R210m in reserves.
Its competitor Discovery has more than 2-million members and R16.4bn in reserves. Bonitas has R4bn reserved for its more than a million members.
According to its latest financial results, Discovery has 56% of the open medical aid scheme market, with Bonitas taking up 15% and Momentum 6%.
But SA's stagnant growth in insured lives poses a problem, since only 8.8-million of the country's population have been able to afford medical aid in the past five years.
Health Squared's board of trustees chair Steven Thobela said he believes that the scheme's strategy will ensure its growth.
"We have more muscle to negotiate for the benefit of members with service providers. So already that tells you, once we get that right, we are looking at potential growth."
Health Squared has 11 benefit options for members.
Thobela said: "I'm convinced that with the kind of options and the flexibility and adaptability in options, one can even build your own [benefit structure], which is the most unique offering."
The scheme is administered by Agility Insurance Administrators, which previously administered both Spectramed and Resolution, and its monthly premiums range from R984 to R5,921.
Health Squared spokesperson Bianca Viljoen said the scheme's differentiator was the options it offers, with members able to get a co-payment plan for out-of-pocket expenses, in addition to gap cover. She said that through its integrated administration system, Agility automatically picks up on claims and applies gap cover where required.
Thobela said Health Squared looked forward to growth from members joining the scheme because of its low-cost options, which would attract young people who are starting work.
However, other schemes are also targeting lower- to middle-income earners with reasonably priced options.
Paula Armstrong, a senior economist at Econex, a competition and applied economics company, said larger risk pools are a positive for any scheme and Health Squared, as a merged scheme, would provide a better service offering from an affordability perspective.
She said the medical aid industry was a tough sector to enter.
"Perhaps the biggest challenge faced by schemes at the moment is the uncertainty surrounding their future in SA under the proposed NHI [National Health Insurance]. Importantly, as the HMI's [Competition Commission's health market inquiry's] provisional report highlighted, the incomplete regulatory framework governing medical schemes makes it increasingly difficult for them to offer services at an affordable level.
"A major problem in this regard is anti-selection, whereby people only join medical schemes when they face the possibility of expensive health care, which means they benefit from medical scheme cover without having contributed to the scheme's pooled resources in times of good health," she said.
Sarine Barnard, an analyst at Investec, reiterated Armstrong's view, saying: "It's an incredibly tough market and . dominated by big players like Discovery. It's a market that hasn't been growing and scale has been a major benefit to the big players."
She cited Discovery as an example of a company that has managed to grow its market share in a flat market.
"You have to have deep pockets to try and compete with them. So one of the benefits on the medical scheme side that they've had is the fact that scale has been a benefit, so not only can you be more competitive on the admin side, but also have the benefit of negotiating with the hospitals and successfully so, so that should bring the costs down for their members because they can supply bulk.
"The fact that the market isn't growing doesn't mean that you as a business cannot make a good business of it, but then you would have to come in with a compelling preposition and an innovative product."