Whether the treatment you receive is private or state-funded, the cost of providing healthcare is high and constantly increasing. Furthermore, increases in these sectors consistently exceed the general inflation rate. Combined annual spending now stands at around R500 billion, with private and public services each accounting for roughly half. Approximately 8 million South Africans who receive private healthcare rely on a medical aid scheme to help meet their expenses.
Medical Aid Schemes are Not Insurance Companies
While these schemes may appear similar to insurance companies, they are, in fact, markedly different. Firstly, they are not motivated by the need to generate profits. They have no shareholders for whom a board of directors must strive to provide generous annual dividends. Instead, these schemes are required to operate as not-for-profit companies and are managed by a panel of trustees. Rather than distributing surplus income to shareholders, they must maintain a cash reserve (solvency ratio) equivalent to at least 25% of their premium income. While medical aid schemes may increase premiums, they require the approval of the Council for Medical Schemes (CMS), the industry’s regulatory body. Consequently, when premiums go up, it is because it is genuinely necessary, and increases are kept to a minimum.
Credit Ratings and Solvency Ratios
A scheme must also maintain an excellent international credit rating. Suppose one year the value of claims should exceed their income from premiums. In that case, the high rating ensures they will be eligible to borrow money at a favourable interest rate. Their non-profit status does not restrict medical aid companies from investing some of their surplus capital. Doing so can earn them interest, helping them maintain the required solvency ratio and limiting the need to borrow. The CMS also defines the acceptable forms of investment and sets percentage limits.
Approach to Risk
Another significant difference between these insurers is their attitude to risk. An insurance company will often refuse cover to applicants they believe might pose an unacceptably high risk. For example, it could preclude a driver who has made multiple large claims during the past few years. A medical aid scheme can restrict claims relating to a pre-existing illness for an agreed period. However, it may not deny eligible applicants membership or withhold cover for other conditions.
In some cases, insurers may decide to accept a high-risk applicant but will demand a higher premium. By contrast, private healthcare premiums are based on the benefits provided by a given product. The price is the same for everyone, and repeated claims carry no penalties. Each scheme’s products have specified terms and conditions, which include the maximum annual amounts claimable for each contingency covered.
Membership Numbers
Of the 78 medical aid schemes currently operating in South Africa, 58 restrict their membership to groups, such as the employees of a specified company or members of a named professional body. The remaining 20 are open schemes intended for the self-employed and those not eligible to join a group scheme. Despite comprising just over a quarter of the total, open schemes account for almost 59% of the principal members registered for private healthcare cover.
In recent years, there has been an overall decline in membership numbers. Financial pressures have led to many principal members attempting to economise on their medical aid premiums. They have been reducing their monthly expenses by only purchasing cover for those dependent family members they feel most likely to require attention. Nevertheless, it’s pretty clear that nobody should risk taking such chances in light of the unexpected pandemic and its devastating impact, even on previously fit and healthy subjects. For those severely affected by the Covid-19 virus, the high cost of prolonged private in-patient treatment could have been crippling without financial assistance.
More Affordable Options
Fortunately, the industry has made special provisions for members with limited income who may require hospitalisation. All South African medical aid schemes include at least one hospital plan in their product range. Furthermore, in common with more expensive products, these must also provide the prescribed minimum benefits (PMBs) defined by the CMS. These include payment toward the cost of diagnosis, treatment and care of 26 named chronic illnesses, such as diabetes, epilepsy and haemophilia. All other out-of-hospital expenses during the membership year are the member’s responsibility.
When choosing a scheme, one must naturally weigh its benefits against its cost. However, long service, a large membership, a good solvency ratio and a superior credit rating indicate a medical aid company one can trust. KeyHealth ticks all these boxes and offers affordable products with some unique free core benefits. You are welcome to download more details.
