Have you ever wondered if you’re being overcharged by your medical aid scheme?
I mean you pay and you pay, and it always seems as if you have to pay in, am I right?
I thought it would be pretty cool to know how they calculate your cost and what you get in return. So let’s dive right in, shall we?
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 (I have one client who’s stay in intensive care cost R16, 000 for the air mattress alone!)
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. Together this forms a gigantic cash pot from which the medical aid fund pays out claims.
How do they know how much money is needed to cover healthcare expenses?
It’s like your company budget – what did we spend last year and what’s the shortfall for this year?
- To meet budget we must either sell more
- Reduce our cost, or
- Increase our prices
Here is how a medical aid scheme works the budget:
- 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.
- Then they set up a finance structure (your monthly premium) to ensure that sufficient money is available to pay for the healthcare benefits which they plan on selling to you. 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. That’s also why you can’t upgrade during the year.
Each year around the end of November they release their premium increases for the coming year. How the medical scheme was able to control expenses during the past year will determine how much more they are going to charge 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 members, they either need to reduce benefits across the board or seriously hike up premiums.
Are they allowed to make a profit?
- Every cent in the scheme must be accounted for by the board of trustees.
- They are essentially a non profit organisation (NPO) with no shareholders.
- Any profit must be carried over to the next year.
- The company handling the administration of the scheme is allowed to charge a fee for services rendered though.
What does my contribution to the scheme pay?
The bulk of the premium is used to cover hospitilization because this is the major risk area. More and more medical aids are going the route of splitting your contribution into a portion that pays for ‘in’ and ‘out’ of hospital medical costs.
In hospital expenses would be any treatment you received while admitted into hospital.
An out-of-hospital expense would be things like:
- Over the counter (OTC) medication from a pharmacy, and
- a visit every now and again to your optometrist.
Most medical aids go the route of providing you with an MSA (Medical Savings Account) to fund your day-to-day or out-of-hospital expenses. A portion of your monthly premium is allocated to this and from which you then pay your expenses. You get to control this money yourself.
Are any benefits limited?
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 I 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 member wants healthy teeth. The medical aid scheme however can’t simply pay every claim that gets submitted for dentistry. They would simply go bankrupt. 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 plan choice?
Of course. Prescribed Minimum benefits (PMB’s) 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.
They cover a wide range of emergency treatments and chronic illnesses. You can view this PMB’s by visiting the Council for Medical Schemes website. Regardless of your medical aid plan, you’re entitled to these benefits.
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Until next time.
The InsuranceFundi Team