The private healthcare in South Africa is some of the best in the world, which also means that it is expensive. To avoid the waiting lists and public treatment at government-subsidised medical institutions, many South Africans who can afford it choose to pay for a medical scheme that provides health care coverage. Private health care and therefore private healthcare insurance cost a lot of money, but how do medical schemes actually work?
If you already have a medical scheme or if you are thinking of joining one, there are some important points you need to know about how medical schemes operate, allowing you to make informed decisions about your medical coverage.
Essentially, medical aid schemes or health insurance is a form of collectivism, like any other form of insurance. This simply means that a group of people (those enrolled in the healthcare plan) pool their risk collectively. In this case, the risk is medical expenses.
With any medical aid scheme, you pay regular premiums (usually monthly). These premiums get added to the pool of premiums paid by other members, forming a large sum of money that the insurance company uses to pay out claims made by medical aid members when they need it.
The individual members may not have enough money to pay for medical bills upfront, but when they pool their resources, those who are in need have access to large sums of money if they meet the terms of the scheme.
How does the medical scheme know how much I should pay?
Medical schemes need to estimate the overall risk of all their members’ health-care for the year to assess how much money they need to pay for members’ healthcare expenses. This is a process of mathematics, probability and statistics whereby the company looks at expected increases in costs of medical treatment over the year as well as past history and medical use patterns, including what members claimed for, how much they claimed, and the cost of healthcare treatment.
After this, they can set up the structure of members’ monthly premiums, ensuring that they are still able to make a profit after all medical expenses for the year have been deducted. From a business perspective, premiums are seen as income, and medical costs are seen as expenses. To ensure a year-by-year profit, the medical scheme needs to ensure that income exceeds expenses.
Each member may have a different scheme and different coverage specified in their medical scheme agreement. Some people opt for lower premiums and less coverage, while others choose higher premiums that come with more comprehensive coverage.
This makes sense when you think of it in terms of the pool of money – if you want access to a larger proportion of the pool, you need to make a higher contribution, and vice versa.
Around the end of the year in November, medical schemes usually release their calculated premium increases for the next year. Taking into account how the insurance company was able to manage the spend from the accumulated pool in that year will partially dictate how much more they will ask for in the following year.
Another point medical aid schemes take into consideration when outlining premiums for the next year is the size of the membership base; how many people have joined the scheme and how many people have left it. If the medical scheme has lost members over that year, they will need to make up for this decrease in the overall pool of money by increasing premiums or reducing payouts and benefits.
What do medical schemes pay for?
Depending on your membership type and the premiums you pay, different plans have different areas of coverage. The most expensive expense to you or your medical aid scheme is hospitalization, so some people choose to pay lower premiums and only be covered should they require hospitalization. The bulk of premiums paid go to the major risk area of hospitalisation.
When it comes to out-of-hospital costs, medical schemes can cover expenses such as GP and specialist visits, optometry, dentistry and other medical needs.
For these out-of-hospital expenses, most medical aid schemes in South Africa provide their members with an account (known as a Medical Savings Account or MSA) which you can draw from for out-of-hospital expenses, allowing you to control how you spend the money yourself.