NMP, one of the biggest open medical schemes in South Africa, hopes to amalgamate with Pulz, Momentum's year-old scheme.
The Registrar of Medical Schemes still has to approve the amalgamation and members may be asked to vote on it. However, a joint committee set up to steer the amalgamation hopes to obtain the necessary approvals by September and proceed with the merger before the end of the year.
If the amalgamation goes ahead, a new scheme with about 70 000 members will be formed from NMP's 63 000 and Pulz's 6 000 members. Richard Parsons, the chairman of NMP, says the new scheme will have the financial solidity of large membership and the powerful distribution and marketing capabilities of Momentum. Pulz was launched in July last year by Momentum Health Initiative.
Parsons says the new scheme will remain focussed on value for money and impeccable administration, and members should enjoy enhanced benefits as a result of the increased negotiating power of the new scheme.
He says NMP has been looking for ways to increase its membership and NMP's board of trustees believes the amalgamation, which will give the scheme access to one of the finest distribution channels in South Africa, will create significant opportunities for growth. A "distribution channel" is a network of brokers who sell membership of the scheme.
Until early last year, Momentum's brokers signed up members for Discovery Health Medical Scheme, the largest open medical scheme in the country. Momentum and Discovery are both part of the FirstRand group.
But when Discovery set up a life assurance company, it recruited its brokers to sell both its life policies and membership of Discovery Health Medical Scheme.
Individual and group health risk profiles from medical schemes records are regarded as crucial in the design and management of life assurance products.
After Momentum's brokers stopped selling Discovery Health Medical Scheme membership, Momentum recognised that it needed its own health product.
Anthon Swart, the chief executive of Momentum Health Initiative, says Momentum decided to assist in the formation of a new scheme which could offer value for money and an innovative design.
Had Momentum just chosen to sell membership of an existing scheme at that stage, Swart says, the company would have had no say in the design of the benefit structure offered by the scheme.
However, if the amalgamation of NMP and Pulz goes ahead, the two schemes will negotiate the future benefit design.
Parsons says that should the amalgamation go ahead, the new scheme will probably continue to offer the existing options available on the two schemes until the end of the year. New options would be designed for 2005.
The amalgamated scheme would also adopt a new name.
Pulz and NMP are both administered by Sovereign Health on the same software and their benefit options are similar.
It is likely that only Pulz members will be asked to vote on the merger, Parsons says. Requirements for the merger will, however, be determined by the Registrar of Medical Schemes.
NMP has a solvency ratio of just over 20 percent and Pulz has a solvency ratio of 13.8 percent. The amalgamated scheme will have a solvency ratio of just under 20 percent.
Although schemes are required by law to have a solvency ratio of 25 percent by the end of the year, new schemes are not immediately bound by this requirement, but are given time to build their reserves.