Discovery's administration fees fair says firm

The review, released at the scheme's annual general meeting (AGM) last week, may help placate members who feel they are paying too much money to DHMS's administrator, Discovery Health, a profitable subsidiary of JSE-listed health and life insurance firm Discovery.

Discovery Health's main revenue source is DHMS, which paid it R3.4bn in administration fees for the year to June 30 last year, according to Discovery's 2012 annual report.

Discovery Health received R256m more from 13 smaller schemes it manages. During the period under review, Discovery Health made an operating profit of R1.5bn, or 44% of the group's overall operating profit of R3.44bn.

In a rare show of consumer activism, members of DHMS last year challenged the scheme's trustees to justify the size of the administration fees it paid to Discovery Health, requested a targeted reduction in administration fees and demanded an assessment of whether the administration business should be put out to tender.

Concerns addressed

At the time, the scheme's principal officer, Milton Streak, said that a review had been commissioned from Deloitte Consulting, which would address these questions.

The report, presented to members at the AGM, concludes that for every rand DHMS spent on administration fees, members got between R1.77 and R2.02 in total value.

And while the non-healthcare fees paid by DHMS members were R11.43 higher per average beneficiary per month than the open medical scheme industry average, members paid R158.24 less for their risk contributions, which Deloitte said meant they were about R146.81 better off per average beneficiary per month than members of other medical aid schemes.

The review also found all of the higher-performing schemes paid relatively higher fees.

"This reflects the fact that the higher fees are invested in better skills and management systems, which result in the scheme performing better and members actually paying less in contributions each month," said Streak.

The review concluded that the DHMS model of outsourcing both its administration and managed care to a single entity was the most efficient approach. Streak said that the trustees had thus concluded it was neither appropriate nor necessary for the scheme to put this business out to tender.

Like most medical scheme AGMs, that of DHMS was thinly attended: only 267 of its 2.6m members were present.

Source: Business Day via I-Net Bridge