How does a medical scheme work?

Private healthcare costs money and if you belong to a medical scheme in South Africa you understand what I am talking about! You pay your premiums diligently each and every month, but have you given any thought to how a medical aid scheme actually works?

In this blog post I am going to cover a few important basics you ought to really know whether you belong to a scheme or are thinking of joining one. Medical aid plans or health insurance like any other form of insurance is a form of collectivism. “A form of what?” I hear you say. It’s sounds like Greek, but let me explain. It simply means people collectively pool their risk. In the case of medical aid schemes, we pool our risk against the very real likelihood of incurring medical expenses that we would otherwise find difficult to pay out of our own pocket (Any idea how much a stay in a private hospital will set you back nowadays?) It’s strength in numbers  – that is the key in this formula. The premiums (money you contribute) for your healthcare plan each and every month gets pooled with all the other member contributions of the medical aid and they form a gigantic cash pot from which the medical aid fund pays claims (medical expenses) submitted by it’s members.

How could I explain this principle? It’s like all of us contributing one bucket of water to an emergency reservoir in our town every month. We know it’s a dusty dry part of the country we stay in and risk of fire is high while the local water supply is limited. Should a fire break out in your home you have the peace of mind knowing that you have access to the town’s emergency hydro stash to extinguish the raging inferno. Without access to the water supply, your house would burn down to the ground simply because you, in your individual capacity, didn’t have sufficient water supply to deal with the problem in the first place. You get the idea. It’s about collectively pooling the risk. Except it’s not water I am referring to in this blog post, but money, and not a fire which is the major risk, rather it is not being able to afford the bills when you become ill and have required medical attention.

How does the medical aid scheme know how much money is required to fund all the members’ healthcare expenses?

It’s a high level budgeting system. Medical Aid schemes estimate the overall annual risk of its member’s healthcare expenses. They do this by looking at past history and expected increases in the cost of medical treatment moving forward. They then set up a finance structure (your monthly premium) to ensure that sufficient money is available in the cash pot to pay for the healthcare benefits specified in the agreements it has with its members. In simple terms they analyze how much their members claim, what they claim for, and the cost of the healthcare treatment. They then know what to charge members in terms of premiums for coverage. The higher level of coverage you require the more you pay. That makes sense because if you want access to a bigger part of the accumulated medical scheme cash pot, your contribution towards it needs to be bigger. If you are wanting access to a smaller part of the pot, your contribution needs to be smaller.

Each year in this country around the end of November the medical aid companies release their premium increases for the following year. This increase will be based on claims its members submitted during the year and the expected increase in servicing claims for the following year. How the medical scheme was able to handle spend from the accumulated cash pot within that year will determine how much more they are going to ask you for in additional premiums the following year. Oh and don’t forget another important factor which influences annual increases. How many members left and joined the scheme. If medical aid schemes are losing memberships, they either need to reduce benefits across the board or seriously hike up premiums.

How do I submit my medical expenses (claims) once Im a member?

Once on a medical aid scheme you have a certain level of health insurance coverage based on the type of plan you selected. If you incur any medical expenses covered by your plan the claim (medical bill) is submitted to the scheme by the healthcare provider and the scheme settles the bill. (pay the provider directly on your behalf). A quick example: You have a pain in your stomach and visit a GP, he diagnosis a burst appendix and admits you into hospital and operates that afternoon. Your stay in hospital lasts a few days then you are sent home. The healthcare provider (hospital) bills your medical aid scheme and they pay the hospital and directly. No involvement from your side required.

Nowadays, certain doctors and specialists prefer to get their money upfront rather than have the hassle of trying to get the money out of the medical aid schemes. That means that you will need to pay them upfront then submit your claim to the medical aid scheme. The medical aid scheme will in turn settle with you directly. An Example: You visit a GP with another pain in your stomach (it’s not your appendix this time, that has already been removed). The GP says it’s just some gastro and you will be fine in a few days and sends you home to get some rest. On your way out you pay R250 in cash for the consultation. Provided that your medical aid plan covers GP consultations you simply submit the invoice via fax or email to your medical scheme and the they will re-imburse you.

What is my contribution to the scheme used to pay?

All medical expenses covered by your plan, but the bulk of the premium you pay is used to cover hospitilization costs because this is the major risk area and the most expensive medical coverage. More and more medical aids are going the route of splitting your contribution into a portion that pays for in & out-of -hospital medical costs.

An in hospital expense would be any treatment or procedure you received while being admitted into hospital and would cover elective procedures as well as emergency treatment. An out-of-hospital cost would be expenses like GP consultations, dentistry and a visit to your optometerist. Any medical cost incurred outside of the hospital. Most medical aids in this country go the route of providing you with an MSA (Medical Savings Account) account to fund your day-to-day or out-of-hospital expenses. A portion of your monthly premium is allocated to a cash account from which you pay your out of hospital expenses like GP visits. It allows you to control this money yourself. The MSA account is a whole other blog post though, which I will get into at a later stage.

So we all pay a contribution towards the scheme but are any benefits limited?

The answer is yes. Some benefits are always limited because there isn’t an endless supply of money available within the scheme. The benefits and limits will be based on the medical aid plan type that you have chosen.  Like a mentioned earlier, your coverage will be dependent on your contribution towards the scheme. The more comprehensive the medical aid plan the better the benefits, and the more you are going to pay. The less comprehensive the plan type, the less you will pay and fewer benefits will be available to you. There are certain benefits that everyone claims for heavily on medical aid schemes and these benefits are almost always capped. Let’s take dentistry for an example. Firstly it’s an expensive medical procedure and every members wants a shiny white pair of healthy teeth. The medical aid scheme however can’t simply pay every claim that gets submitted for dentistry. They would simply go bankrupt. If that was the case and they did pick up the whole tab, I might have opted for a new set of porcelain dentures at R60 000 ages ago. But they don’t, so the scheme allocates a certain amount of money to dentistry based on the plan type you have chosen and limits the total spend on dentistry across the scheme annually.

Isn’t there certain coverage that everyone is entitled to regardless of how much they contribute towards the medical aid scheme?

Yes, that is correct. Prescribed Minimum benefits were introduced in line with the National Health policy because it was felt that the extent of cover offered by South African Medical Schemes fell short of actual benefits offered by other health services around the world. So a list of Prescribed Minimum Benefits (PMBs) was introduced which cover a list of emergency treatments and a chronic illness list. You can view this PMB’s by visiting the Medical Schemes Council website. Each of the PMBs has a set minimum treatment standard which have been published in regulations of the Medical Schemes Act. So regardless of the medical aid plan that you are on, everyone is entitled to these benefits. For a detailed list of the PMB’s click this link which will redirect you to the Council for Medical Schemes website: http://www.medicalschemes.com/medical_schemes_pmb/index.htm

Can a medical aid refuse anyone membership?

The answer is no. Provided that you can pay the premium, you can join the scheme.  In some instances the medical aid scheme might exclude a certain condition or treatment for a period of time because of a pre-existing medical condition. A late joiner penalty can also apply for anyone joining a scheme after the age of 35 depending on the number of years that they have not belonged to a medical aid. Underwriting now falls into 3 categories, namely A, B & C and is based on years of previous medical aid membership and pre-existing health conditions.

What happens if I leave my medical aid scheme or transfer to another scheme?

That is a good question. If you are leaving a group scheme onto a private plan, it’s no problem. Let’s say that you are employed with a company and decide to leave, but take over the medical aid plan in your personal capacity. It’s easy enough. The medical aid scheme will simply bill you personally and not the company.

If you are moving from one medical aid scheme to another, then it’s a little more complicated. You need to cancel your current membership (30 days notice) and re-apply with the new scheme. Just make sure that there isn’t a time period where you are not covered during the switch.You can’t be a member of more than one medical aid scheme. If you transfer from one scheme to another your MSA (Medical Savings Account) used to facilitate day-to-day expenses has to be transferred to the new scheme. If you are leaving a medical aid scheme and not joining another, then your MSA will be paid out to you. It is, after all, your money.

Now that you have some insight into the working of a medical aid scheme look out for my next blog post on “How to go about selecting the right medical aid scheme and plan.

Bye for now

Brendan

Related posts:

1. Gap-Cover For Medical Aid Plans with Hospital Limits
2. How to choose a medical aid plan?
3. Time to top-up your medical aid !
4. Are You Willing To Risk Your Hospital Bills Not Being Paid In Full?
5. The Reason Why Compound Interest Doesn’t Work

Tagged as: medical aid schemes