Are South African Medical Schemes Efficient? A Longitudinal Analysis

This study assessed the efficiencies of South African private medical schemes for the period 2011 to 2017. There are two types of medical schemes in the private medical scheme sector. First, there are open medical schemes which are legally required to accept any individual who would want to join. Second, there are restricted medical schemes which are attached to a specific group such as an employer, industry or union and these schemes are open only to the members of the association. The study estimated efficiency scores using first, the Data Envelope Analysis (DEA) technique which is a non-parametric procedure that uses linear programming in order to formulate efficient frontiers which envelop all input-output combinations of firms within a sample. Second, the study employed the Stochastic Frontier Analysis (SFA) technique which is an econometric technique which postulates a functional relationship amongst outputs and inputs and thus employs statistical procedures in order to determine parameters for the function. The empirical findings of both the DEA and SFA approaches suggest that open medical schemes tend to be more efficient than restricted medical schemes in terms of technical, scale and pure technical efficiency over the sample period.