2.1 Size and scale

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At the end of 2020 there were 76 registered medical schemes in South Africa, two fewer than in 2019 as a result of mergers. From the end of 2000 to the end of 2020, the number of medical schemes reduced from 144 to 76, which represents a 47% decrease in the number of registered medical schemes over 21 years, mainly as a result of amalgamations among the smaller, less sustainable schemes.

The number of open medical schemes has decreased by 29 (62%) compared with a decrease of 39 (40%) restricted medical schemes over the 21-year period. This consolidation appears to be driven in part by the:

difficulty in maintaining the sustainability of small schemes in the current environment and particularly for restricted medical schemes

significant amount of management time needed to manage an employer-based restricted scheme

The following events took place over 2020:

Grintek Electronics Medical Aid Scheme amalgamated with Bestmed Medical Scheme with effect from 1 July 2020

Keyhealth was placed under provisional curatorship with effect from 16 September 2020 Food Workers Medical Benefit Fund (previously known as Foodmed Medical Scheme) and SAMWUMed curatorship was lifted with effect from 5 February 2020 and 7 May 2020 respectively.

Despite the observed decrease in the number of medical schemes, the industry has grown by 1.5 million principal members (58%) and 2.3 million beneficiaries (35%) since 2000. The 76 medical schemes operating in South Africa at the end of 2020 served a total of 4 million principal members and 8.9 million beneficiaries.

The number of principal members covered on medical schemes decreased by 1% in 2020, while the total number of beneficiaries under cover decreased by 0.6%, driven mainly by a growth in beneficiaries covered on restricted medical schemes. A total of 54.3% of principal members participated in open medical schemes at the end of 2020 with the balance of 45.7% participating in restricted medical schemes. This is in line with the membership split seen at the end of 2019.

The graph below shows the percentage change in medical scheme membership over the last 20 years.

There is a significant difference between the trends in the annual growth rate of open and restricted medical schemes, with the divergence in the trend beginning in 2006 with the registration of the first members on the Government Employees Medical Scheme (GEMS). Following the significant increase in restricted scheme membership due to GEMS in 2006 and 2007. From 2013, there has been a convergence of the annual growth rate of open and restricted schemes.

In 2020, principal membership of open medical schemes fell by 2% while membership of restricted schemes grew by 0.5%, with a net decrease of 33 816 principal members across the industry during the year.

The minimum membership requirement set by the Council for Medical Schemes (CMS) for registering a new medical scheme is 6 000 principal members. At the end of 2020 there were 3 open medical schemes and 27 restricted schemes with fewer than 6 000 principal members.

The open schemes with membership below this threshold are Cape Medical Plan (4 226 principal members), Medimed Medical Scheme (5 685 principal members) and Suremed Health (1 047 principal members). A large membership base allows for lower claims volatility and helps schemes, or their administrators, negotiate more competitive reimbursement rates and fees with the various healthcare service providers. This ensures that medical scheme members have lower shortfalls or co-payments when using these designated service providers.

A small membership base generally results in a more variable claims experience, which increases the risk of contributions not being set at an appropriate level to cover all claims and expenses. This variability is compounded by the negative impact of high-cost claims, especially in the current environment where schemes are required to pay in full for the cost of prescribed minimum benefits, regardless of the rates charged.

Despite these risks as well as the amalgamations of many small schemes, a fair number of restricted schemes are still performing well. Of the 27 restricted schemes referred to earlier that have fewer than 6 000 members, 6 achieved a surplus before investment income in 2020, down from 7 in 2019, which indicates the risk profile and claims volatility to which smaller schemes are exposed.

The graph below ranks the top 10 open schemes and top 10 restricted schemes according to the number of principal members at 31 December 2020. This represents 88.8% of all principal members participating on a registered medical scheme, or 96.6% and 77.9% of open and restricted medical scheme membership respectively.

Membership by medical scheme

The top 10 open and restricted medical schemes by principal membership and ranking have remained unchanged in 2020.

Only four of the open schemes and five of the restricted schemes considered here experienced positive growth in 2020, with the rest experiencing a reduction in membership. For open medical schemes, Fedhealth experienced the largest decrease in principal membership of 4.5%, whilst Bestmed experienced the highest increase in principal membership of 1.5%. For closed medical schemes, Umvuzo experienced the largest decrease in principal membership of 2.7%, whilst LA Health experienced the largest increase in principal membership of 5.2%. The number of beneficiaries with medical scheme cover decreased by 0.3% in 2020. Discovery Health Medical Scheme was the major driver, with a decrease of 43 112 beneficiaries over the year.

The number of principal and beneficiary lives covered decreased by 0.5% and 0.4%, respectively. This results in the average family size in the industry increasing from 2.20 to 2.21 from 2019 to 2020. This goes against the consistent decline observed each year since 2000. Members also tend to add beneficiaries to cover only when they need medical attention. Given that 2020 was an unprecedented year due to Covid-19, this may be the reason for the increase in the average family size. This anti-selective risk is greatest for those schemes with the fewest underwriting controls, as they are most vulnerable to these high claimants.