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Understanding the Differences Between Medical Aid Scheme Cover and Health Insurance


There are just two options for anyone needing financial support with private healthcare costs in South Africa; medical aid scheme cover and health insurance. However, these alternatives provide very different benefits. Therefore, it is essential to understand their differences before making a choice.

The insurance label is widely applied in the USA and many other countries to describe any scheme designed to subsidise the cost of medical care. Nearer to home, it was the South African insurance industry that first recognised this need and the potential to create a lucrative new type of insurance policy, despite having little or no first-hand knowledge or experience of either medicine or healthcare. Nevertheless, it was the only available option at the time, so the insurers initially had a captive market.

While these medical insurance policies had some benefits, it soon became apparent that they also had some drawbacks. The latter prompted the birth of the medical aid industry, which has since grown to dominate that market.


How medical aid schemes and insurers differ

Even before comparing their products, it’s clear that these two entities are significantly different. For a start, they employ fundamentally different business models. Insurance companies are usually listed on the stock exchange, and their management is answerable to a board of directors and shareholders, with whom they must share their profits. In addition, they are overseen by two regulatory bodies; the Prudential Authority (PA) and the Financial Services Board (FSB).

By contrast, companies that offer medical aid scheme cover must trade on a not-for-profit basis and are governed by a board of trustees and regulated by the Council for Medical Schemes (CMS).

They do, however, have one thing in common. Both entities rely on the statistical principle known as shared risk. The principle maintains that most insured individuals will make no or only minor claims during any given year, leaving sufficient cash reserves to cover the more substantial claims of the minority and some in reserve for the unexpected. Medical schemes must exercise good governance, retain at least 25% of their income after expenses, and maintain an excellent international credit rating.

In addition to different business models, their products also differ widely. We will compare these in the next section.


How medical aid scheme cover and health insurance products differ

Perhaps the most striking difference between these industries’ products is their price. Health insurance products are invariably far cheaper than anything comparable offered by a medical scheme. The lower premium could be a strong incentive, given the current financial climate. However, it could also leave an unwary policyholder with a mountain of debt should they require an extended stay in a hospital, surgery and ongoing post-operative care. Once again, the differing business models are responsible for the contrasting price tags.

All insurance policies operate on the same basis whether you are insuring a car, a houseful of furniture, your life or your private healthcare expenses. You agree on the sum to be paid out in case of a claim; the insurer then calculates the risk involved and sets a price for the monthly premiums. When your 14-day spell in a private hospital raises a bill for R250K, and the sum assured is limited to R3 000 daily, you could face massive debt. In practice, the primary purpose of healthcare insurance is to cover incidental expenses like lost income or travel costs for visiting relatives.

By contrast, medical aid scheme cover is designed to meet most if not all of the actual cost of investigation, treatment, accommodation and care as appropriate. Naturally, medical aid products are more expensive than healthcare insurance, but their benefits are beyond comparison. Nevertheless, at KeyHealth, we strive to design products that meet most needs and budgets with preferential tariffs from our network of designated service providers. Occasionally, a tariff may exceed the claim limit set for the related contingency, and the member becomes liable for a small co-payment. Some members take out a small healthcare insurance policy to provide “gap cover” for such occasions.


Other reasons to obtain your medical aid scheme cover from KeyHealth

With over 55 years in this business, we have earned a reputation for fairness and reliability. Our product range meets most needs and budgets, and each one includes three valuable core benefits completely free of charge. Request a quote today to ensure you and your family have the best cover money can buy.