A gem of a healthcare scheme

A wakening giant is threatening to turn South Africa’s private health industry upside down.

The Government Employees Medical Scheme (Gems) has seen sensational growth, which has taken it from little more than a pipe dream to South Africa’s third-largest medical scheme in just three years.

The first half of this year saw the membership of Gems leap by 250%. It has about 462 000 beneficiaries, and applications are coming in at a rate of up to 1 000 a day. Last month the scheme received more than R240-million in member contributions — more than it had received for 2006.

According to the Council for Med-ical Schemes, more than seven million people were covered by medical schemes in December 2006, of whom just under three million were principal members. The big bull in the ring is Discovery Health Medical Scheme, which has about 1,8- million beneficiaries. Bonitas Medical Aid Fund is a runner-up, with about 570 000 beneficiaries. In 2006 Gems had only 91 800 beneficiaries.

Rapid though Gems’s growth has been, it still has the potential to double in size since its principal member target group is about one million national and provincial employees. This could translate into 2,7-million beneficiaries, making Gems the biggest player.

Some of Gems’s growth is due to cannabalism from other medical schemes. But more than half the government scheme’s growth so far has been from people who were not on a medical aid before, thus pulling more than 200 000 people away from out-of-pocket payments for healthcare.

Many of these are low-income workers who were previously unable to pay any contributions to medical aid membership even if eligible for a subsidy. The lowest-paid workers on Gems are fully subsidised by the state and use a network of healthcare providers who are paid directly by the scheme. These workers do not demand out-of-pocket payments. But Gems is not limited to lower-income earners. The various options target all government employees and include directors general. Parliamentarians, police and soldiers are currently on their own medical schemes.

The rapid emergence of such a large medical insurer is forcing changes in the world of private health insurance. Much of the spiralling health costs in South Africa have been attributed to an imbalance of power between the medical aids and the healthcare service providers, especially hospital groups.

Bonitas principal officer Bafana Nkosi predicts Gems will force down healthcare costs as it uses its bargaining power with administrators and healthcare providers. The government scheme will accelerate consolidation among medical aids. ‘Those dependent on government employees will fold or merge,” Nkosi says.

He says Bonitas — which originated as a medical aid for black state employees under apartheid — had recognised the threat it faced once negotiations about the creation of Gems began. Bonitas had assumed a worst-case scenario of losing all its government employee members and had gone on a diversification drive so that now only about one-third of members are potential defectees to Gems.

Discovery principal officer Jacky Mathekga estimates that 50 000 of his scheme’s members could switch to Gems. ‘However, based on our competitive benefit offerings, we do not expect this to happen in the near future,” he says. Mathekga welcomes the arrival of Gems because it increases the number of low-income people able to access private medical care, thus relieving the burden on the state health services.

Further consolidation among medical aids is to be welcomed, according to Di McIntyre of the Health Economics Unit at the University of Cape Town. ‘The kind of uncontained cost spiral that we see in the medical schemes is mainly because there is an imbalance of power between medical schemes as purchases and healthcare providers,” she says. ‘There is enormous scope for improving efficiency within the health insurance industry. [Gems] is focused on value for money. They are going to throw down the gauntlet and other schemes are going to have to compete.”

Although the scheme is restricted only to government employees, Gems CEO Eugene Watson says he has had repeated approaches from employers and businesses to replicate the Gems model for non-governmental employees.”