Johannesburg - Discovery Holdings' US unit Destiny Health is to exit the US retail insurance market, but will continue to market its Vitality product on a stand-alone basis to employer groups and health plans.
Discovery on Tuesday detailed its plans for its US business after the announcement of a strategic review at its 2007 results presentation.
Discovery said that while a clear strategy was decided upon, the complexity of its execution meant that it could only be communicated at this point.
Explaining the decision, Discovery said while Destiny Health was making progress in its attempt to build a retail health insurance business, in 2004 and 2005 the Illinois health insurance market in which it operated became particularly difficult.
Destiny Health found itself in a position of structural disadvantage, wherein the price it paid for the healthcare of its members was significantly higher than the price paid by its large competitors. This relative disadvantage continued to deteriorate over time.
In an attempt to address this Destiny Health restructured its relationship with the Guardian Life Insurance Company of America, formed a strategic partnership with AEGON, reworked its healthcare network arrangements - and attempted to move into a number of markets wherein network discounts were competitive.
Despite the considerable progress made, the operating losses incurred for the financial year to June 2007 exceeded the Discovery Board's parameters that were set for this strategy, it said.
In order to execute on this strategy, Destiny Health will be transferring its insured block of business to a well-respected health insurance carrier, it said.
The new carrier will assume operating the Destiny Health business from 1 April 2008 and, as policies reach their renewal date, they will be transferred to an appropriate replacement health plan.
Destiny Health will continue to carry the risk of these members until the transfer has taken place.
"The approach is a favourable one for all stakeholders, protecting members and freeing Destiny up to pursue other strategies. While the Destiny Health staff in the US will be significantly reduced as a result of the change in focus, Discovery has estimated a provisional cost of 25 - 30 million to run off this business over the next 18 months," said Discovery.
Discovery said it is clear that while its execution in the US was not satisfactory and it suffered structural strategic disadvantage, its products, most notably Vitality, were particularly well received, were considered unique, and addressed many of the fundamental trends taking place in the US healthcare system, it added.
In particular, the shift to focusing on wellness and the uniqueness of the Vitality approach have meant that Discovery will continue to offer the Vitality programme in the US, but will do so on a stand-alone basis, by wrapping it around other health plans and employer groups.
In just six months, ten employers consisting of just under 50,000 total subscribers have purchased Vitality on a stand-alone basis.
Importantly, the approach plays to Discovery's strengths by utilising the chassis already built in the US, as well as the unique research and development and data capabilities Discovery has established in South Africa, the UK and the US.
It is also important that, unlike retail insurance, the approach is not capital intensive - and capital invested will be done so on a success basis as the business evolves, it said.