Of around 170 providers during the heydays of medical schemes in South Africa, less than 80 remain and must abide by strict rules to deliver their services. Their function compares with that of an insurance company, and in many other countries, their product is more commonly referred to as medical insurance.
However, there are several differences. Most notably, the nation’s medical aid providers are legally bound to operate on a not-for-profit basis in compliance with the Medical Schemes Act. Despite this, they must continue raising sufficient income from their monthly premium contributions to meet their members’ claims as promised. By contrast, insurance companies answer to a different regulatory body and are subject to fewer constraints.
Providing quality medical aid requires sound financial management to ensure the necessary balance between income and expenditure. In practice, the difficulties in maintaining this equilibrium have been responsible for the closures or forced mergers of most South African medical aid providers over the decades.
Medical schemes in South Africa and the principle of shared risk
Despite many other marked differences, medical aids rely on the same fundamental statistical principle as short-term insurers. In essence, the shared risk concept proposes that the majority of members or policyholders will make no claims or only minor ones during the 12-month cover period. The combined premium income should then be adequate to meet the more costly claims of the minority and provide a sufficient cash reserve to deal with any unforeseen contingencies.
However, to benefit from this principle, medical schemes in South Africa must meet the following criteria:
- A sufficient number of members: If statistics are not based on sufficiently large numbers, they tend to lose their validity, and shared risk is no exception. A scheme must use every available means to grow and maintain adequate membership if it is to continue meeting its claims on time and in full. With around 90 000 members and growing, KeyHealth’s record in this respect is hard to equal.
- The correct membership mix: A medical scheme may not refuse membership or increase premiums for individuals an insurer might see as high risk and penalise accordingly. Elderly members are significantly more prone to illness, and many other applicants have pre-existing conditions.
Together, these two groups are invariably responsible for most of the claims received by the average medical aid provider. Consequently, each scheme must ensure recruiting of a sufficient number of young, healthy members to maintain the principle of shared risk and honour its contractual obligations. KeyHealth’s basic and extended hospital plans and free core benefits have proved to be a magnet for young and healthy individuals. While helping them avoid the potentially crippling expense of surgery followed by a protracted hospital stay, our affordable hospital plans also enable us to attain and sustain this crucial balance.
Other strategies essential to medical schemes in South Africa
Given that, under the Medical Schemes Act, medical aid managers are not permitted to refuse anyone membership, this ruling could jeopardise their activities without alternative measures to minimise their risk. Unfortunately, not everyone is strictly honest.
While the membership period is 12 months, one may terminate that contract at any time. Some people might see this as an opportunity to sign up for just long enough to finance an expensive surgical procedure and quit when their claims are paid. Meeting loyal members’ claims could become impossible if too many members adopt this policy. Consequently, medical schemes in South Africa are permitted to apply waiting periods, where applicable. There are two types:
- New members: Anyone joining a scheme for the first time or not covered during the 90 days before their application will be subject to a three-month waiting period during which they must continue to meet their healthcare costs.
- Members with pre-existing conditions: Except for providing the prescribed minimum benefits mandatory for every product of all medical aid schemes in South Africa, anyone with an existing illness or who is pregnant may not make any related claims during their first 12 months as a member. Only unrelated claims will be met.
Some medical schemes in South Africa strive to go the extra mile
Although KeyHealth has no option but to apply the same constraints as other schemes, we insist on offering our members real value. In addition to providing six products to suit all needs and budgets, each includes three invaluable core benefits at no charge. We encourage you to get in touch to learn more about financing your private healthcare needs.