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What Is A Medical Scheme, and How Does It Work?

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For those who are just starting out on their chosen career, or have found themselves without parental support for the first time in their lives, it might be reasonable to wonder what a medical scheme is, how it works, and whether or not they may need one. On the other hand, those who are a little older, are well-established in their careers, and may even be married with a couple of children, even though they may not understand everything about its operation, are certain to be well aware that membership is not just some nice-to-have option, but a dire necessity given the sky-high cost of private healthcare, and the parallel decline of the state-funded health service.

So, what exactly is a medical scheme? In South Africa, it is a facility offered by around 90 non-profit companies that essentially acts as a form of insurance policy that pays out when the policyholder requires health-related consultation, treatment, or hospitalisation from a private healthcare provider. Generally, the sum paid by the insurer will cover most, if not all of the costs arising from a claim. In practice, however, their section 21 status means this distinguishes the permitted practices of these schemes from those of a commercial insurance company, although the principle upon which the success of both types of operation is dependent is that of shared risk.

What is essential to both a medical scheme and an insurance company is that the majority of its contributors, whether members or policyholders, will either lodge no claims at all or claim only minor amounts over the course of any given 12-month period. In turn, the accumulated income from premiums must be sufficient to ensure meeting the more substantial claims of the minority. However, while the commercial insurers must also produce profits for their shareholders, they remain aware of their total potential liability at all times, while their not-for-profit equivalents and their boards of trustees must rely more on good governance and controlling operational costs.

Another significant difference between what is required of a medical scheme and a commercial insurer is that the former is obliged, by law, to provide cover for certain prescribed minimum benefits as determined by the CMS (Council for Medical Schemes), their regulatory body since 1998. While commercial insurers are also entitled to offer a curtailed form of medical insurance, they are bound by no such regulation, and the sums paid to claimants are based solely on the premiums charged, and, in practice, will actually contribute very little to the overall cost of the policyholder’s treatment.

The cost of private healthcare continues to rise each year. Improved medications are invariably more expensive than their predecessor, while technological advances, such as medical imaging, exert pressure on hospitals and clinics to update their facilities. In the wake of these increased costs, what is crucial for a medical scheme is to find ways in which to avoid premium increases or, at least, to keep them to a minimum.

Some will attempt to do so by restricting their benefits, while others may seek more innovative solutions, such as forming a network of service providers prepared to offer preferred tariffs in exchange for a captive market. KeyHealth combines a network of expert providers, exceptional benefits, and competitive premiums.

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