How Does a Medical Aid Scheme Actually Work?
Although they are not offered by the country’s short-term insurers, a dedicated medical aid scheme works on much the same basis as a typical insurance policy. Both rely on the principle known as shared risk. That is to say that the fund managers depend upon adherence to certain statistical probabilities, in order to ensure that their operation remains viable.
In simple terms, the likelihood is that the majority of a scheme’s members will either make no claims at all or only minor ones during the course of any given twelve-month contract period. The actual value of claims tends to vary with the average age of the scheme’s members, so managers also attempt to keep this average as low as possible, yet may not exclude elderly members. It is expected that the accumulated surplus should be sufficient to meet the much higher claims made by the minority, while leaving sufficient in reserve for contingencies. This reserve is expressed as a percentage of the total income from premiums and is termed the solvency ratio. This should, ideally, be 25% or more. Factors that may erode the reserve are the operational costs, so good governance is therefore an essential.
To ensure that a medical scheme works under any circumstances requires making provisions, not just for statistical probabilities, but also for the unexpected. For instance, an accident involving multiple employees of the same company or the players and officials of a soccer team could see already stretched reserves become exhausted. In such circumstances, it is the company with a solid international credit rating that can rely on adequate funding with minimum delay on those occasions, when it may have to deal with such a crisis.
Sometimes, however, knowing how a medical aid works can be less important than knowing that it actually does. Knowing that it pays valid claims on time and without quibbling, and that the benefits delivered are exactly what you were promised with no hidden exceptions, is absolutely vital when entrusting your health and that of your family to any medical aid scheme.
