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How Does a Medical Scheme Work?


In some countries, healthcare is a purely private enterprise. All but their wealthiest citizens are obliged to purchase insurance to help meet the cost of their treatment and hospitalisation. Others, like South Africa, operate a dual system in which the less affluent can receive care at state-funded facilities. Alternatively, those who can afford it usually join a medical scheme. The latter is similar to a conventional insurance company. Both their products rely on the same statistical principle known as shared risk. However, the two operations also differ in several highly significant respects. It can be important to be aware of those differences.


What Does Shared Risk Mean?

Both operations undertake to settle the claims made by their clients in exchange for a pre-agreed premium. To ensure they have adequate money to meet their commitments, they first need to build a sufficiently large client base. At this point, the shared risk concept becomes significant to medical schemes and insurance companies alike. Past statistics suggest most of those receiving cover will make no claims or only minor ones, leaving the bulk of the premium income to settle the larger claims of the minority. Catering for possible deviations from this pattern requires both businesses to maintain an adequate cash reserve while ensuring they also have access to credit if necessary.

The similarities end there. Insuring a car, a gold watch, or a life are fixed commitments for which the policyholder will receive a pre-agreed sum when making a claim. By contrast, a medical scheme covers a multitude of contingencies. It undertakes to meet the cost as fully as possible without prior knowledge of the nature or value of any potential claims from its members.


Understanding Members’ Rights and Restrictions

A short-term insurer is free to demand a higher premium or even refuse cover if the person applying for vehicle insurance has a record of previous accidents. Furthermore, a claim will be frequently followed by a premium increase. However, such restrictive or punitive actions are forbidden when insuring healthcare costs. In South Africa, the Council for Medical Schemes (CMS) is the industry’s regulatory body. It sets the prevailing standards, defines the rules and manages any disputes with its members.

Under the council’s rules, a scheme must charge all members the same monthly premium for a given product. While no one may be refused cover, a company can preclude any claims from new members arising from a pre-existing condition for up to twelve months. Also, any new applicant who has not recently received cover from another provider will generally have to wait three months before submitting any claim.

Prospective medical scheme members sometimes question the fairness of these waiting periods and whether they are needed. In practice, it is often only when people are ill that they begin to appreciate the need for some assistance with their healthcare costs. Given the principle of shared risk on which these operations are based, a rash of big claims during the first weeks of the membership year could jeopardise the claims of their established members. These measures are therefore preventive rather than punitive. Furthermore, the legal obligation to provide certain services makes it crucial to maintain an adequate cash reserve.

All medical schemes in South Africa are obliged to include certain prescribed minimum benefits (PMB) as defined by the CMS in each of their products. This ruling will be good news, for example, to anyone affected by a chronic illness. Among its other benefits, this mandatory requirement provides full support with the cost of diagnosis, treatment and care of 26 chronic conditions. The list includes asthma, diabetes, epilepsy, rheumatoid arthritis, schizophrenia and Parkinson’s disease. The nation’s 76 remaining service providers have undertaken this added responsibility since 1998.


Costs versus Cash

Since then, medical scheme managers have needed to explore innovative ways to maintain affordable premium prices while coping with escalating healthcare costs and, more recently, a pandemic. One of the currently popular options is the hospital plan which focuses much, although not all, of its cover on in-patient services. Don’t confuse these with the hospital cash plans offered by short-term insurers that only pay a modest daily cash sum for minor incidental expenses during confinement.

Whatever service you may require, it pays to seek a well-established and dependable provider. That’s why so many South Africans tend to choose KeyHealth when shopping for a medical scheme. Review our comprehensive range of products for singles, couples and families, or click here to find the right cover for you.