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NHI to bite health insurers' profits

Aug 17 2011 15:43 Reuters

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MMI Holdings Limited [JSE:MMI]

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Market cap 48.78bn

Last Updated: 26-11-2014 at 04:24. Prices are delayed by 15 minutes. Source: McGregor BFA

DISCOVERY LIMITED [JSE:DSY]

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Market cap 64.64bn

Last Updated: 26-11-2014 at 04:23. Prices are delayed by 15 minutes. Source: McGregor BFA

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Johannesburg - South Africa's plan to overhaul healthcare and give the poor greater access to medical services could eat into profits of domestic insurers if one of the biggest reforms by the government since 1994 is implemented.

Under the national health insurance plan (NHI) being discussed by the government and other parties in the healthcare sector, every South African will be forced to pay into the scheme, regardless of whether they already have private insurance.

"People are saying that they are going to be paying an additional tax; we don't see it as an additional tax, all we see is the re-directing of their medical aid contributions into the fund (NHI)," said Anban Pillay, the health department's head of financial planning and health economics.

While the nation's more than 100 private health insurance providers are still expected to have a place, they would be forced to offer better value than what the government insurance would be providing.

"I definitely think that when the NHI is fully operational the number of people paying into their own private medical schemes will decrease significantly," Pillay told Reuters.

But economists see many staying in private schemes, even if they are forced to pay for NHI, unless the government can quickly fix failing public hospitals that are short of staff, equipment, medicine and beds.

But Pillay said: "The only reason why people would want to spend their money on private insurance is if they want additional services not offered under NHI."

South Africa's R90bn private health insurance sector serves just over 8 million of the country's nearly 50 million people.

NHI will likely drive up costs for employers who would be forced to pay for the government plan and could face a backlash from staff if they drop coverage under private plans.

The industry is dominated by Discovery Holdings [JSE:DSY], MMI Holdings [JSE:MMI], Government Employees Medical Scheme and several unlisted firms such as Bonitas Fund.

Discovery, the country's biggest health insurer, said it does not expect any specific impact of the plan on medical scheme contributions in the foreseeable future.

"(But) as the NHI system emerges over time, it is possible than medical scheme products and coverage will adapt to changing environment," said Jonathan Broomberg, head of the Discovery's health unit.

The plan, which is expected to be phased in over 14 years, is unlikely to hit medical schemes in its first few years as the focus would be on hospital infrastructure.

"Certainly in the short to medium term it's unlikely to have any impact on the revenues. In the longer term, there will likely be an impact on the revenues to the degree that they lose membership," one healthcare analyst said.

Analysts also say many people would eventually face the decision on whether to pay for the public and private plans.

"It really depends on how much you'll pay on into the NHI fund," said Mathew Menezes, a healthcare analyst at Avior Research.

"If the state says I have to pay R1 000 on NHI and I also have to pay R2 500 on my own private scheme, then I have to start thinking about how I can cut costs." 

mmi holdings  |  discovery holdings  |  nhi
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