The South African health care industry is characterised by strict regulation in the form of the Medical Schemes Act of 2000, high medical inflation, a deteriorating public health care system; and costly private health care schemes which are only available to the higher end of the market. Before 1992, medical inflation rose in double digits (over 20%) and medical aids traditionally responded by raising premiums considerably (Pile, 2004:19). Private health care was expensive, while the public health care system deteriorated. The financial sustainability of schemes depended on the number of young, healthy members remaining on the scheme as these members cross-subsidised the sick. For these members though, medical aids did not offer any incentive and/or reward to remain members of the scheme. The ‘use-it-or-lose-it’ principle of traditional schemes did not provide any value to members and led to young, healthy members leaving medical schemes. This tendency could potentially drive a health care industry to a meltdown (Pile, 2004:19). The South African health care environment is complex and dynamic, and within this environment, Discovery Health established itself as a successful and innovative company. The Discovery Health medical scheme is currently the largest open medical scheme in South Africa with 1.6 million members (Discovery A, 2004: on-line). Discovery is a specialist insurance company with four strong and distinct businesses (with a fifth business starting in partnership with UK insurance company Prudential in 2005). The businesses are Discovery Health, Discovery Life, Discovery Vitality and Destiny Health (US). Discovery Health is the first business of the group and was launched in 1992. Discovery listed on the JSE in 1999. The company’s strategy is to grow the business organically by building a strong foundation of innovation and engaging people in the management of their health in order to achieve better social and financial outcomes (Discovery A, 2004: on-line). While a medical aid would be an essential ‘commodity’ which consumers would not normally aspire to buy, Discovery positioned itself as a value-adding company that provides products and services that consumers want to buy. The Vitality HealthStyle programme for e.g., is similar to a loyalty programme, but with the aim of motivating members to improve their health. Members can earn points and move up different status levels by performing certain preventative activities for e.g. working out at the gym and having cholesterol and glaucoma screening tests done. Depending on their status, members can qualify for discounts on certain health and lifestyle benefits (Discovery A, 2004: on-line). The advantage of this is that while Vitality adds value to the Discovery product, it also improves the general health of members and in turn, decreases claiming from the medical scheme and assists in the overall management of the financial risk to the scheme. The company’s life assurance business was launched in 2000 and profits from this section of the business constituted 40% of operating profits in August 2004. The company succeeded in integrating the Discovery Health, Vitality, and Life product offerings through the Payback Benefit (Discovery A, 2004: on-line). This benefit allows Discovery Health members who are also Discovery Life policy holders to receive back a substantial percentage of their life assurance premiums, based on how they manage their health. / H.B. Klopper