Anti-selection in voluntary health insurance markets: A focus on medical schemes in South Africa

This paper discusses the role of voluntary health insurance (VHI) in relation to public healthcare systems and universal health coverage (UHC). The paper explores why VHI markets are particularly susceptible to anti-selection. As the largest VHI market globally, the South African medical scheme market is then examined in detail. An overview of the history of the South African healthcare system provides insight into the development of the medical scheme market. Thereafter, an analysis on the impact of anti-selection on medical schemes is conducted using the experience from the largest open medical scheme in the market. The results demonstrate how existing risk mitigation measures are ineffective at protecting medical schemes from the effects of anti-selection, and the subsequent negative impacts of this phenomenon on the industry and the healthcare system as a whole. The paper discusses alternative mechanisms for addressing anti-selection risks and concludes that mandatory membership in some form has the potential to improve the sustainability of medical schemes in South Africa, which will in turn support the country’s transition towards UHC.