Through little choice of our own, some of us are naturally healthier or less healthy than others, and none of us is exempt from accident or sudden serious illness. Any one of us may require extremely expensive medical intervention which we may not be able to afford on our own. A Medical Aid Fund, or Medical Scheme, seeks to avoid the burden of medical costs falling more on some people than others, and to spread the risk over a large number of people. Although the state offers a public healthcare system, this often entails long waiting periods and long queues of patients.
The concept of a Medical Scheme is similar to short-term insurance. Each member pays each month a little more than the overall average cost of medical expenses, and no member needs to fork out large amounts for unexpected medical situations. Medical Schemes are established solely to pay the medical expenses of their members, out of a fund to which the members all make monthly contributions in the form of a fixed premium. The risk of large unexpected expenses is then spread over the entire scheme membership.
A Medical Scheme is a legal body operating under the terms of the Medical Schemes Act 131 of 1998.
It comprises a group of Members, a Fund to which the members contribute, and a Board of Trustees which sets the premium amounts and governs through a set of Rules by which claims and payments are made.
Medical Schemes are overseen by the Council for Medical Schemes, which regulates and enforces compliance to all laws and regulations applying to Medical Schemes.
A Medical Scheme is required to be financially sound, able to meet the medical expenses of its members, and it must hold sufficient funds in reserve to cater for unusually high or unexpected claims experiences.
A Medical Scheme does not have owners or shareholders, and is not intended to make a profit from which any dividends are paid. The scheme must be run solely for the benefit of the members and their dependants.
Dependants are those members of family which are dependent on the member, such as spouse or life partner, children (natural, adopted, step or foster), and sometimes also the parents or siblings of the member.
Revenue comes purely from the members’ premiums.
Costs are confined to:
- Claims for medical expenses by its members or their registered dependants, and
- Administrative expenses of management, staff, and infrastructure.
Any excess funds generated from premiums must remain within the scheme.
Medical Scheme requirements
The Medical Scheme Act requires that every Medical Scheme must adhere to the following:
- Every member pays a standard premium, irrespective of age or state of health.
- There is a list of some 270 conditions and procedures that the Medical Scheme must pay for, regardless of any benefit option the member has selected. These are known as PMB’s, or Prescribed Minimum Benefits.
- There is a list of a number of chronic (or long-term) diseases which every Medical Scheme must cover.
- There is a list of prices, the National Health Reference Price List (NHRPL), which governs the benefits to be paid by all Medical Schemes.
- No member can be prevented from joining the scheme by reason of a pre-existing health condition, such as diabetes or HIV/AIDS. The scheme may, however, impose a certain “waiting period” on claims for that condition.
- At least half the members of the Board of Trustees must be elected by the scheme members.
- If a member has a complaint against a Medical Scheme of which he is a member, the Act defines a specific procedure for complaints which the member may follow to have the complaint resolved.
Closed or Open Schemes
A Medical Scheme can be either:
- Closed, which means its membership is confined to a specific group such as a particular private company, or a state entity such as Police or Military, or
- Open, which means any member of the public can apply to become a member of the scheme.
In the case of a closed Medical Scheme, the benefits schedule will have been determined by the organisation running the scheme, and the monthly contributions will probably be included in monthly salaries or wages, so there is little choice as to different benefit structures.
Choice of medical Plans
Open Medical Schemes usually offer a range of benefit structures (or Plans) from which to choose. Benefits are generally divided into In-Hospital and Day-to-Day. A Plan known as Comprehensive Cover offers cover for both in-hospital expenses and day-to-day expenses. A Hospital Plan does not cover day-to-day medical expenses, but only procedures carried out in a hospital, for which pre-authorisation is required except in situations which are life-threatening.
Choice of Plan will depend on the specific needs of the member, and the monthly premium the member can afford. Each Plan has its own specific monthly premium which will vary according to the benefits it encompasses, and the number of dependants of the member. The choice of Plan would involve such issues as hospital accommodation, surgical procedures, dental procedures, Specialists, General Practitioners, medicines, chronic medicines, and other medical expenses. The Plan will also specify to what extent or percentage each of these is covered, and any limits, or first amounts (deductibles) payable by the member. In cases where the medical service provider charges more than the regulated price for a procedure, that too must be paid by the member. The difference between what is due the medical service provider, and the amount paid by the medical scheme, is known as a co-payment which the member must pay out of pocket.
In order to reduce costs, a Medical Scheme may enter into an agreement with a selected group of medical service providers on the fees charged by them. Members may then use these “Designated Service Providers” in order to reduce their co-payment expenses.
Medical Savings Account
A medical savings account (MSA) is an amount of money allocated each year from premiums and set aside for day-to-day medical expenses. When the MSA is exhausted, the member enters the Self-payment Gap and must meet further expenses out of pocket until an Annual Threshold amount is reached. Additional expenses are then met by the Medical Scheme from an Above Threshold Benefit, if this is offered by the Plan.
In cases where the scheme pays only part of the medical supplier’s bill, so that the extra amount would have to be paid out of the member’s own pocket, the member may consider purchasing a policy from an insurance company (not a medical scheme) known as GAP Cover. This will pay the difference between what the healthcare supplier charges and what the medical scheme pays. It will also cover unexpected out-of-hospital expenses like scans or x-rays, or the extra 100% of Medical Scheme rates sometimes charged by anesthetists.
It is generally perceived that medical inflation in South Africa far outstrips inflation as expressed by the CPI, and in some departments, such as hospital fees, may be as much as twice the CPI. It is well understood that doctors and specialists are in short supply in South Africa. The laws of supply and demand require that the country ensures it can produce, attract and retain sufficient numbers of professionals to keep pace with a growing demand. In the case of in-hospital procedures which involve imported equipment and devices, some of the inflation rate may be attributed to the fall in Rand value in recent years, but even so it seems that some charging structure adjustment could help to reduce the rate of inflation.