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What You Need to Know About Medical Schemes and How They Work

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Most South Africans are aware of the soaring cost of private healthcare and the need for medical schemes, yet few have an understanding of how they work. While the state-funded healthcare system quickly proved unable to handle the high demand, which soon led to long waiting lists, encouraging growth in the private sector.

The nation’s first medical benefits scheme was established by a friendly society to assist public servants in 1905. It was known as the Civil Servants’ Medical Benefit Association (CSMBA). However, the need for financial assistance with medical expenses was far more widespread, eventually prompting insurers to introduce hospital cash plans, open to anyone. These plans still operate today. However, anyone seeking support with private healthcare expenses must understand the difference between these and the products of the medical aid schemes that followed in the ‘60s. Let’s see how they compare:

 

Hospital Cash Plans Versus Medical Schemes

As a product of the insurance industry, a hospital cash plan operates on the same lines as vehicle or life insurance. The policyholder pays a fixed monthly premium in exchange for a fixed cash benefit. In this case, the latter is an agreed sum paid for each day spent as an inpatient. Once discharged, those cash payments will cease, and the policyholder must bear any day-to-day healthcare expenses. This option takes no account of the varying costs of treatment or accommodation and will cover only a fraction of the total bill.

By contrast, the benefits offered by medical aid products are based on the actual cost of each contingency covered. Scheme members can usually claim most, if not all, of the expenses incurred. In addition, medical aids provide more comprehensive cover. For those on a limited budget, they offer an option that might be confused with the insurance product.

The medical aid product lacks one word – a hospital plan is not about cash but meeting a hospitalised member’s expenses as fully as possible. Hospital plans have also evolved since they were first introduced. Today, the better ones offer extended benefits, including varying degrees of assistance with day-to-day medical bills. Typically, schemes provide a range of products to meet all needs and budgets. So, how does this work?

 

How Medical Schemes Operate

Despite the significant difference in the benefits they provide, medical aid funds and insurance companies operate on the same principle. Both rely on risk pooling. Statistically, most members and policyholders will make no claims or only minor ones in any given year. Because of this, there should be more than enough income from premiums to cover the larger claims of the minority.

However, to achieve this and retain a cash reserve for emergencies requires a sufficiently large number of contributors. Furthermore, while insurers are free to load a high-risk individual’s premium or even deny cover, medical aid funds are legally obliged to accept all applicants and charge everyone the same for each product.

Also, as non-profit companies, they need to exercise good governance and remain creditworthy while conforming to the requirements of their regulatory body, the Council for Medical Schemes (CMS). The latter was established by a government act that also obliged schemes to include certain prescribed minimum benefits (PMBs) in all their products. These include the diagnosis, treatment and ongoing care of 26 chronic illnesses. These additional obligations have necessitated innovative measures to keep premiums affordable. Let’s look at some of the methods medical aids employ to do so and balance their books:

 

  1. Waiting Periods: There are two types:

 

a: First-time members of any scheme must wait three months before they are entitled to submit a claim unless they were members of another medical aid within three months prior to their application.

b: Members with a pre-existing condition will be prohibited from submitting claims arising from that condition during their first year of membership.

 

  1. Product and Service Design:

 

a: Entry-level products like the hospital plan offer low-income, generally healthy members peace of mind by providing for the potentially bankrupting cost of medical emergencies and injuries that might require hospitalisation and surgery.

b: Healthcare professionals are not bound by the Department of Health’s recommended tariffs and are free to levy three or four times these rates. Appointing a network of designated service providers secures lower guaranteed tariffs, benefitting medical schemes and members alike.

 

If, like most South Africans, you want the maximum value for your money, why not view the range of 2023 benefits from KeyHealth?

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