Watch the market inject new spurt in health cover for the poor – Business Day, 11 August 2015

GROWTH in demand for all sorts of household and even luxury goods and services testifies to the rise of SA’s black middle class.

By John Kane-Berman 

GROWTH in demand for all sorts of household and even luxury goods and services testifies to the rise of SA’s black middle class.

To take just one example, the black (African, Indian/Asian and Coloured) component of people in the top living standards category (LSM 10) classified by the South African Advertising Research Foundation was only 14% in 2004, a proportion that has now risen to 49%.

There has, however, been one conspicuous exception to this growth trend: medical aid coverage has increased from 9.1% of the black population in 2004 to only 12.4% last year. White coverage has grown from 69% to 77%.

The reasons for the slow growth in black medical aid coverage are obviously varied. Consumer choice is one. But another, no doubt, is cost.

The recent revitalisation by the Council for Medical Schemes of earlier proposals to allow the private medical aid industry to offer low-cost coverage must therefore be welcomed. Among other things, low-cost coverage would exclude prescribed minimum benefits, whose costs medical schemes are currently obliged to cover in full (although amendments to the relevant regulation, which has been challenged in the courts, are now in the pipeline).

Whatever their intentions, the effect of the prescribed minimum benefit requirements has been to exclude the poor from purchasing private medical aid by pricing it beyond their reach. Deregulation to cater for low-cost coverage should now enable private medical aid schemes to compete with one another for the subscriptions of poorer families.

According to some estimates, from 2-million to 4-million more people could obtain coverage under the private medical aid system if the market were permitted to offer low-cost options. The life assurance industry has already demonstrated that the private sector can meet social needs — and market demand — provided it is free to do so.

Not all that long ago, the idea that the life assurance industry should offer cover to people with HIV/AIDS seemed fanciful. But a number of different companies now offer such assurance.

The private sector is also meeting a growing share of the demand for middle-class education. The numbers of pupils in independent schools have doubled in the past 10 years.

The great majority of these pupils are black. While a couple of these schools charge about R200,000 a year, a growing number of such institutions charge less than a tenth of that.

The low-cost schools include both nonprofit independent schools and those run by listed companies. According to some estimates, there are now 3,500 independent schools in SA (against about 24,000 state schools).

The most dramatic example of how the private sector has filled both a social need and market demand is in telephony.

The number of fixed-line telephones in SA has dropped from nearly 5-million in 2000 to 3.9-million in 2013, but the proportion of households with cellphones has risen from just 18% in 2001 to 96% last year.

In the past 15 years, the provision of cheap telephony across the country has done more to improve the living standards of the poor than probably anything else. The only thing that the state has done on such a large scale is the provision of social grants: in 1996, they reached 6% of the population, a proportion that is now 30%, thanks primarily to the roll-out of the child support grant.

What the poor also need, however, are jobs — millions of them. This means allowing the market to operate in the labour field as well, which necessitates deregulation and liberalisation.

Opposition parties should seize the opportunity to turn unemployment into the dominating issue in next year’s municipal elections.

• Kane-Berman is a consultant at the Institute of Race Relations, which recently released a report on the black middle class