Interest boost for your medical savings

If you belong to a medical scheme and your option has a savings account, it is likely you will earn more interest this year on a positive balance in the account.

If you have a medical savings account, you should also expect to receive statements from your scheme this year outlining what interest you have earned on your account balance.

The Council for Medical Schemes, which regulates medical schemes, has instructed schemes to hold your medical savings account contributions in a short-term call account or bank deposit account separate from scheme funds and to pay the interest earned on the account to you.

Your medical scheme will be able to deduct any bank charges and investment fees from the interest before allocating it to your savings account and disclosing to you the net interest.

The council issued its instruction to schemes on how to deal with savings accounts in September 2011, but many schemes obtained an exemption from complying with the instruction until January this year.

Up until this year, most schemes have been paying low rates of interest on medical savings account balances and using the balance of any interest the scheme earns to fund their costs.

Schemes justified this practice by saying the interest that was not paid to members was used to fund the costs of running medical savings accounts, as well as the cost of lending you, at the beginning of the year, the full amount you will contribute to your savings account during the year.

When the Council for Medical Schemes first issued its instruction to schemes on how to deal with savings account monies, some schemes said they would close their savings accounts and others said they would reconsider the merits of offering these accounts.

The council told Personal Finance it is not aware of any schemes that have closed their savings accounts as a result of its instruction about how the accounts should be run.

However, Heidi Kruger, communications manager at the Board of Healthcare Funders (BHF), an organisation that represents schemes and their administrators, says the BHF is aware that some smaller restricted schemes have closed their savings account options.

The BHF does not have data on how many options were affected, she says.

The Council for Medical Schemes also reports that no schemes that have been giving members an advance at the beginning of the year on the contributions they make to a savings account throughout the year have stopped providing these advances.

The council’s September 2011 instructions to schemes on how to run savings accounts was based on a 2007 High Court judgment that prevented the liquidators of Omnihealth Medical Scheme from using some R33 million in members’ savings accounts to repay the scheme’s creditors.

The then Registrar of Medical Schemes sought a declaratory order confirming its interpretation of the law that the money in the savings accounts of Omnihealth’s members had to be returned to them.

The court held that medical savings accounts constitute trust money as defined by the Financial Institutions (Protection of Funds) Act, and therefore it supported the registrar’s view that the funds in the savings accounts had to be repaid to Omnihealth’s members and not the scheme’s creditors.

WHAT MEDICAL SCHEMES ARE DOING

Many schemes already have structures in place for paying interest on medical savings accounts.

* Discovery. South Africa’s largest medical scheme, Discovery Health Medical Scheme, says it has ring-fenced the money in its members’ medical savings accounts, and the accounts will earn market-related interest this year.

However, Alain Peddle, Discovery Health’s head of research and development, says the scheme is still clarifying some operational and legal issues with the Council for Medical Schemes, particularly on recovering interest. It expects the issues will be clarified by the end of this month and will then inform its members how the interest will be calculated.

He says any change in interest payments will be backdated as appropriate as soon as the principles have been agreed with the council.

Peddle says Discovery Health Medical Scheme will continue to give members access from the beginning of the year to the full amount they will contribute to their accounts during the year, and it is unlikely to charge members interest individually for this service.

* Gems. The country’s second-largest scheme, the Government Employees Medical Scheme (Gems), says it will calculate interest on the balances in the savings accounts of Ruby option members a on pro-rata basis based on the closing month-end balance.

Liziwe Nkonyana, the executive in charge of communications and member affairs at Gems, says Gems will be sending out a savings account statement to members each year. The first statement will be sent during April.

The statement will show all transactions and entries made on members’ savings accounts, including the interest earned on actual savings account balances as at each month-end.

Nkonyana says banking fees will be offset against the interest you earn. Members with negative savings account balances will not earn interest, and the scheme will subsidise the cost of these members’ banking fees.

Members will continue to enjoy advances on the contributions for the year, Nkonyana says.

* Bankmed, a large restricted scheme for bank employees says its members’ medical savings are in a separate bank account, and since January last year, the full interest earned, less bank charges, has been allocated to members’ accounts.

Leighton McDonald, chief executive officer of Bankmed, says members are benefiting more than they were previously and advances on contributions for the year are continuing.

* Fedhealth, a large open medical scheme, says members will receive the full interest earned on their accumulated savings which will be more than what they previously earned.

However, Peter Jordan, principal officer of Fedhealth, says the interest will be reduced by transaction costs and management fees.

Jordan says the scheme will absorb the costs of providing members access to their savings account contributions upfront for the year.

* Momentum Health says all its options with savings accounts already comply with the Council for Medical Scheme’s instructions.

Interest is being calculated daily, bank charges deducted and the interest applied once a month to positive balances, Johan Lombard, an actuarial marketing specialist, says.

The scheme is continuing to provide access to savings contributions for the year in advance, Lombard says.

HOW DO MEDICAL SAVINGS ACCOUNTS WORK?

Medical savings accounts are typically used to pay for day-to-day benefits, while the medical scheme covers hospital and other major medical expenses as well as certain minimum benefits that it must by law provide.

The amount you contribute is what you will have available to spend on day-to-day healthcare: typically visits to your general practitioner, optometrist and dentist, as well as medicines for minor illnesses.

If your day-to-day costs exceed this amount, you have to pay for them out of your own pocket.

The money you contribute to a medical savings account can be used only to pay for healthcare claims in line with the rules of the scheme.

Any balance in your account can be paid to you only if you leave the option or the scheme and join another that does not have a savings account. If you move to another scheme with a savings account, the balance in your account will be transferred to your new scheme.