Incentive Plan In South Africa, Insurer Gives Points For Healthy Living
Incentive Plan In South Africa, Insurer Gives Points For Healthy LivingFrequent-Flier-Style Program
Rewards Diligent Members;
Model for U.S. Overhaul?
A Diabetic Wins Elite Status
By RON LIEBER
February 21, 2006; Page A1
JOHANNESBURG, South Africa -- Taking care of your body should have its own rewards. But a South African health-insurance company is adding some new lures: discounts on travel, movie tickets and electronics.
Just as frequent fliers accumulate miles, South Africans covered by Discovery Health can collect points for doing such healthy things as quitting smoking, exercising or getting an annual Pap smear.
In South Africa, one of the few countries whose health-insurance system resembles America's, Discovery is the biggest player in the industry. The company specializes in a type of insurance that is just beginning to take off in the U.S. -- a "high deductible" plan in which people have to foot the bill for much of their basic care themselves.
By combining those plans with incentives for healthy living, Discovery founder and Chief Executive Adrian Gore says he has found a model for the U.S., where President Bush is touting a consumerist approach to restraining health costs.
Critics call Discovery's points system a marketing gimmick designed to attract healthy people to the company while leaving the sick for someone else to cover. They say average people, if forced to spend their own money on health care, are apt to make penny-wise, pound-foolish choices such as forgoing treatment in the early stages of an illness.
Whatever Discovery's advantages, they are available only to a small sliver of South Africans. About seven million people in this nation of 47 million have private insurance, entitling them to use a system of private doctors and hospitals that is considered on a par with Western nations in quality. The rest -- including most of the estimated five million people infected with the AIDS virus -- are stuck with the public system of hospitals and clinics, which are mostly underfunded and overwhelmed.
Niel Uys, a 46-year-old technical support manager for International Business Machines Corp. in a Johannesburg suburb, says he and his family have "done virtually everything you could do" to earn points in what Discovery calls its Vitality program.
In 2005, that included logging on regularly to Discovery's Web site, getting a flu shot, not smoking, maintaining his goal weight and getting graded for fitness. He received extra points for being fit. "We are all more healthy and hopefully our life expectancy will be a little bit better," he says.
Thanks to his "gold" status in Vitality, Mr. Uys has received deep discounts on hotel and resort stays. Last year, his wife spent four weeks in a hotel near Durban for nearly $26 a night, a quarter of the usual price. This year, however, he says he is disappointed that the discounts don't seem to be as large.
Discovery has a 26% share of the private-insurance market in South Africa, at least twice that of its nearest competitor. The majority of insured South Africans have high-deductible plans and have put aside some of their income in a savings account with tax advantages to spend on medical care. That is the combination President Bush is promoting in the U.S.
Most of Discovery's rivals in South Africa have tried to copy its points program, and the idea is making some headway in the U.S., too. In 2003, PacifiCare Health Systems (now part of UnitedHealth Group Inc.) introduced a HealthCredits program that gives people points for taking part in such programs as smoking cessation and weight loss.
In the next two months, Humana Inc., Louisville, Ky., will be adding a rewards program created by Virgin Group's Virgin Life Care unit to certain new insurance plans. The new plans, which the companies will introduce in San Antonio and Tampa, are called HealthMiles Plus. Discovery itself has started a U.S. subsidiary offering South African-style plans in several states.
Discovery says preliminary studies of its South African members suggest its incentives are having an impact. The most striking result: People age 50 to 54 who were actively chasing wellness points saw their health spending decrease even as they aged. However, the data cover only a few years and haven't been published in a medical journal.
Discovery's points program was born amid competitive threats from companies including UnitedHealth, of Minneapolis, which entered the South African insurance market in mid-1990s. UnitedHealth was selling U.S.-style managed-care plans to South African employers. In such plans, employees typically get most of their medical bills covered so long as they receive care from certain preferred doctors and hospitals.
Mr. Gore, an actuary by training, had started Discovery Health in 1992 with a different approach. His insurance plans required individuals to pay their own bills up to a fairly high amount by South African standards. Today that deductible is around $1,800 annually for a family of three in a comprehensive plan. Mr. Gore coupled the stick with a carrot: Employees could put aside money in a tax-advantaged medical-savings account. If they didn't spend it all in one year the money would carry over to the next.
Battling UnitedHealth, Mr. Gore searched for a marketing hook. He says he dreamed one up sitting in the bathtub one night in 1997. A chain of local health clubs had approached him asking whether Discovery wanted to market its insurance to club members. Thinking it over, Mr. Gore hit upon a better idea: giving a free health-club membership to those who signed up for Discovery's insurance. From there the idea expanded. Those who lived a healthy lifestyle and got their checkups would get points for discounts on airplane flights and the like.
Today, about 1.9 million people are covered by Discovery, and 70% of those eligible to join the Vitality points program do so. Membership in Vitality costs about $13 a month for a single person, although employers sometimes subsidize those fees. The rewards include cheap flights within South Africa on British Airways and a discount of as much as 70% on movie tickets.
Gym memberships are free after a one-time sign-up fee for people who go at least 24 times a year. Vitality gives 150 points for each workout. A full set of cholesterol, glucose, HIV and blood-pressure tests can yield thousands of points. Those with 100,000 points achieve the highest status and the steepest discounts. Everyone starts over again each year.
Skeptics in South Africa, including officials at the nation's health-insurance regulator, say Discovery's rewards program isn't the win-win situation the company claims. They believe the real goal of the program is to attract a vigorous, health-conscious clientele and discourage older and sicker people from signing up for Discovery's insurance plans.
"You discount things that younger and healthier people tend to like," says Alex van den Heever, a senior technical adviser at the regulator, which is called the Council for Medical Schemes.
A Familiar Problem
The problem of cream-skimming by insurers is a familiar one to health economists, and recently South Africa has taken steps to prevent it. Starting in about a year, companies whose insured populations are disproportionately filled with the young and healthy will have to pay a penalty. Discovery says its customer base is close to average now, and it doesn't believe its success is the result of cherry-picking healthy people.
Discovery Holdings, the parent of Discovery Health, saw net profit jump 40% in the year ended June 30, 2005, to $97.4 million. The company is majority-owned by FirstRand Ltd., a South African financial-services company, but trades separately on South Africa's main stock exchange. Its stock price has more than doubled since the beginning of 2004.
Rival UnitedHealth, meanwhile, is long gone from South Africa. It pulled out of the market after its managed-care plans failed to attract much business.
Discovery's rewards program has helped it attract new customers. Shoprite Checkers Ltd., South Africa's largest retailing company, used to have a plan in which insurance simply paid for a set percentage of health expenses. "Young people were joining the company and saying 'Why can't you have Discovery?' " says Johan van Zyl, a personnel manager at the company. He says Discovery has kept Shoprite's average annual premium increases in the single digits, compared with double-digit rises at many U.S. employers.
In the U.S., insurance plans combining a high deductible with a medical-savings account often are referred to as "consumer-directed" or "consumer-driven" plans. About 4.6 million Americans are covered by a plan combining these two elements, according to estimates by HSAfinder.com and the trade publication Inside Consumer-Directed Care. Only a handful, however, have a rewards program for healthy behavior.
Advocates of the plans believe consumers are apt to overuse health care when they don't have to pay much out of pocket for it -- and that they spend money from their own pockets more wisely. Critics question those assumptions, saying people are prone to hurting their long-term health by skimping on preventive care. "High cholesterol takes 20 years to make its mark, and hypertension takes 25 years," says Tony Behrman, a doctor who heads an association of general practitioners in South Africa.
Amid that debate, Discovery says its unpublished data offer some evidence that people forced to consider their medical spending more carefully can make good decisions and avoid hurting their health.
The impact on spending is clear: The plans have led to 20% to 40% reductions in what the company terms "discretionary" spending on dieticians, dermatologists and physical therapists.
The company says people under 60 with chronic conditions achieved elite status in the points program at a slightly higher rate than those who are healthy, even though the healthy have an edge because it may be easier to rack up points for physical fitness.
Iqbal Cassim, a 45-year-old insurance broker in a Durban suburb who is diabetic and has struggled with high cholesterol, is an elite member. He says his secretary prints out a list of point-earning activities at the beginning of each year and reminds him to check them off. He usually requalifies for top-level status during the first third of the year.
Those with elite-point status generally cost Discovery less than those who fail to sign up for the points program. That isn't surprising because the elite members usually are either healthy people or those who desire to get healthy.
Changing Costs
Another measure of the Vitality program's value is how members' health-care costs change over time. The insurer measures this using the "loss ratio," which is the cost of paying a member's annual health claims divided by the annual premium. If the insurer receives $5,000 in premiums and pays out $2,500 to cover claims, the loss ratio is 50%.
Discovery examined 1,467 insured people age 50 to 54. From 2000 through 2003, those with elite status in Vitality saw their loss ratio fall to 70% from 73%, while the loss ratio for nonelite members rose to 80% from 72%. In the 30-34 age bracket, members in both the elite and nonelite categories saw loss ratios rise but the ratio rose faster for nonelite members.
Discovery says the study excluded those with family coverage and focused on individual members so that it could be sure the person racking up the points was the same one filing the health claims.
The bottom line seems to suggest some health benefit for eager point-getters, but Discovery's own actuary, Mark Litow of Milliman Inc., acknowledges "we'd have to follow it much longer" to prove anything. Also, separating cause and effect is difficult: It is possible that the elite Vitality members would have pursued a healthy lifestyle even if they didn't get rewards for it.
Alex van den Heever, the senior adviser at the government regulator, says: "I do not trust any commercial entity that has a big financial incentive to produce research." Discovery's Mr. Gore says the government is welcome to examine the raw data. So far the company hasn't submitted the data to a peer-reviewed medical journal. It says it might at some point.
Meanwhile, Discovery has brought its Vitality rewards program to the U.S., where it has a subsidiary called Destiny Health. Destiny's South Africa-style plans, which combine a high deductible, a medical-savings account and reward points, are available in Illinois, Maryland, Massachusetts, Texas, Virginia, Washington, D.C., and Wisconsin.
In the U.S., Destiny Health members are automatically enrolled in the points program without charge. As in South Africa, participation can lead to discounts on gym memberships, movies and the like. If many workers achieve elite status, employers can get a premium discount when they renew their insurance. J. Scott Spiker, Destiny Health's chief executive, says it can be a tough sell when he tries to tell potential customers about the South African experience. Nonetheless, he says, "we're quite confident that the same patterns will emerge here in the U.S.A."
Write to Ron Lieber at ron.lieber@wsj.com
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