To describe the service provided by medical aid schemes in South Africa as insurance is not entirely inaccurate, but it does fall short of providing a complete definition. Certainly, there is a strong resemblance between the operational models employed by these two industries. For a start, they both collect premiums, in exchange for which, they accept the risk that they could be called upon to settle the financial claims of their customers from their premium income. However, just as these common factors underline a degree of similarity between these operations, there are also some contrasting factors that identify them as two distinctly different entities.
The underlying principle upon which each depends is a statistical construct known as joint risk. Simply put, what this means is that, in any given period, most of those who purchase cover, whether it is in the form of medical aid or car insurance will, by definition, make no claims or only minor ones. While this remains true, there should always be a sufficient reserve of cash from the premium income to cover the much larger claims that will be submitted by a small percentage of those for whom the entity offers to provide cover.
In practice, the success of both operations is predicated upon these statistical probabilities which, for most of the time, tend to hold true. That said, it is the differences in the way that these two types of cover are applied practically that best serves to provide a clear definition of what is really meant when referring to a medical aid scheme. The best way to do so might be to compare a typical transaction from each industry.
Let’s say an insurance company is approached to provide cover for a car. The insurer will look at the age, condition, engine size, and replacement value of the vehicle to estimate the total liability. The next step will be to check the age and experience of the driver along with any record of traffic violations and previous claims in order to estimate the extent of the company’s risk. Based on these findings, either a premium and excess figure will be calculated, or cover refused.
The enrolment process of a medical aid scheme is, by definition, markedly different. For a start, nothing about the member or his or her medical history will have any bearing on the premium price, which is fixed for each of the products it offers. Furthermore, even if the details of that history appear to heighten the risk to which a scheme could be exposed, it is not permitted to refuse to provide cover for a prospective member or a dependent.
To further refine the definition of medical aid, it should be stated that all schemes in South Africa are mandated, by a government-appointed body known as the Council for Medical Schemes (CMS), to provide cover for all applicants and that, regardless of any other benefits offered, it must include certain prescribed minimum benefits (PMB). These include the full cost of diagnosis, treatment, and care of 25 chronic illnesses. such as diabetes, cancer, and multiple sclerosis.
Perhaps the simplest definition of medical aid is that it is a mechanism that facilitates access to private healthcare for those who could, otherwise, not afford it.