During the last ten years, South Africa has achieved remarkable progress in the area of financial inclusion for lower-income households in specifically the banking and, to a lesser degree, insurance markets. Limited progress has been made in expanding medical schemes (government’s chosen vehicle for private health financing) to more South Africans. While it may be fair to say that the higher income market for medical schemes is saturated, middle to lower income groups remain excluded.

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A well-functioning health financing market supports the development of a market for private health services by attracting service providers because a financing mechanism exists which can ensure that they are remunerated for their services. Current financing systems are, however, increasingly unaffordable and exclusionary. Without appropriate health financing mechanisms, private healthcare is not an option for the majority of low-income South Africans.

On behalf of the FinMark Trust (http://www.finmark.org.za/), members of the Cenfri team were responsible for managing a study on the demand side of the market for medical schemes in South Africa. The analysis, completed by Eighty20 (http://www.eighty20.co.za/), is presented in the context of a larger discussion taking place in South Africa on how to extend access to health services to more South Africans. This study supplements a second FinMark Trust study on private health financing, with the latter study focusing on the drivers of medical scheme costs as basis for strategies for creating lower cost and, therefore, more affordable medical schemes. This second study by Elixir Healthcare Business Consulting and Fifth Quadrant is due to be released early in the second half of 2009.

The analysis provides an overview of how the current medical scheme population differs from non-covered South Africans and, by implication, what this means for extending access to health services through private financing. It also provides estimates for the portion of the population able to purchase medical scheme cover under different affordability scenarios and identifies distinct groups to be targeted by policy and private initiatives aimed at extending medical scheme coverage.

The analysis highlights pockets of opportunity for extending private health financing to potentially double the market for medical schemes. However, it also indicates that two thirds of South Africans are unable to afford medical scheme options, even under scenarios of significantly cheaper medical scheme options and potential employer/government subsidies. Careful thought will have to be given to extending access to health services also to these individuals.

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