How Do the Various Medical Aids in South Africa Work?
To begin with, medical aids in South Africa fall into two main categories. Firstly, there are the closed or group schemes in which membership is restricted. These are funds that have been established to cater for particular groups, such as specific large companies, workers within an industry such as mining, or perhaps for a group of professionals, such as teachers, accountants or government officials. Because closed schemes have a guaranteed captive membership, they are normally in a position to offer discounted premiums. They do have their downside, however, in that a few big enough claims by a relatively small number of members could result in premium hikes for all.
The alternative option is known as an open scheme and is so-called because no restriction is placed upon those who may wish to become members. The 26 open schemes amount to just over a quarter of the 96 medical aids currently operating in South Africa, and are designed to meet the needs of those who are either self-employed or who work for a company, often a smaller business, that has not entered into a commitment with a group scheme.
As to how the whole system of balancing the incoming premiums against the claims paid actually works, like the insurance industry, it is based upon the principle known as shared risk. In simple terms, this means that statistics suggest it is probable that most members will make no claims or, at least, only relatively small ones during the course of an average year, while only a very small percentage of members will make substantial claims during the same period. As long as this remains true, there will always be sufficient cash in hand to meet both the scheme’s claims and its operating costs. To ensure this, medical aids in South Africa are required to maintain a cash reserve, which ideally amounts to at least 25% of their income – an amount that is known as the solvency ratio. The reality is that while one or two schemes manage to exceed the recommended ratio, many more fail to maintain it.
To guard against the unexpected, such as a natural disaster or an accident involving a large number of members within a scheme, the fund managers may need to seek temporary finance and, because of this, it is also important for a scheme to maintain a sound international credit rating. Considering the similar principles upon which these schemes operate, it is not too surprising that the country’s long- and short-term insurers were the first to address these needs with simple products that paid out fixed sums determined by the value of cover purchased.
The need for an insurer with greater insight into the operation and cost of private medicine led quite quickly to the establishment of the dedicated medical aids that serve South Africans today. During its heyday in the ‘60s, the industry boasted well over 200 schemes, but failures and natural attrition due to mergers and acquisition have seen this number more than halved. With a reputation that spans almost 60 years, KeyHealth has long been a scheme the public trusts. Our policy of delivering value for money, no-nonsense products and our flair for innovation has made us the preferred choice of many.
