Medical Scheme Mergers – following the trend

The local healthcare industry continues to follow a global trend of mergers and amalgamations. Tyrone Farinha, CEO at JLT Employee Benefits South Africa (JLTEBSA) believes the proposed amalgamation of Bonitas Medical Fund (Bonitas) and Liberty Medical Scheme (LMS) – ‘was not unexpected, it is in line with this trend and makes absolute business sense.’

The members of both schemes have given their mandate for the largest transaction of its kind in the healthcare market, if the Competition Commission and the Council for Medical Schemes approve the amalgamation it will come into effect from August 2016.

Farinha says, ‘As independent intermediaries, we believe that when medical schemes in the SA healthcare industry combine, there are normally numerous benefits for both members and the schemes. Bonitas is the second largest open medical scheme in South Africa, is a strong brand and has one of the highest credit ratings in the industry, which is synonymous with a high claims-paying ability, ensuring members access to quality healthcare. The amalgamation will ensure that LMS members become part of a large, stable and sustainable medical scheme.

‘In turn, LMS may enhance the Bonitas brand as well as expose it to a different market segment and client profile which should allow for growth. From an investment assets perspective, there is an opportunity for more effective management of asset allocation and diversification, potentially resulting in a reduction of fees, and better returns over the long term.’

‘An amalgamation may also mean a broader national footprint and further economies and efficiencies of scale. This is especially in respect of fixed costs. The pooling of benefits, with greater numbers of members per benefit option, may result in the risk pools being larger and more stable to absorb large and/or abnormal claims that may occur. This also translates into more sustainable benefit options.

’Bonitas has always enjoyed a solvency level above the legislated minimum – a legacy which few other schemes can match. Many major players in the medical scheme industry have displayed lower solvency ratios and they have risen above these.

Farinha says ‘We at JLT look forward to Bonitas continuing as one of the ‘powerhouse’ medical schemes within the South African framework.