Medical schemes are not-for-profit entities to which you contribute monthly and in return you are provided with cover for private healthcare services in line with the scheme rules and its benefits.
To enjoy cover for hospitals, doctors, medication and other healthcare services, you must submit your medical bill to your scheme within four months of the date on which you were treated. The scheme will either reimburse you or pay the healthcare provider directly.
HOW THEY WORK
Medical schemes are regulated by the Medical Schemes Act. They offer different options (see “Definitions”, below), at different contribution rates and with different levels of benefits. Benefits and contribution rates are set annually.
A medical scheme is run by a board of trustees, and the Medical Schemes Act requires that half of the trustees must be elected by the members of the scheme.
Most schemes contract with an administrator, and it is the administrator that collects your contributions and pays your claims. A few schemes employ staff to do this administration work – they are known as self-administered schemes and their administration costs are typically lower that those on schemes that contract this work to an administrator.
All South African medical scheme administrators are for-profit companies. It is the role of your scheme’s trustees to ensure that the administrator the scheme uses provides a good service for what it charges the scheme. Schemes also pay other service providers, such as managed healthcare companies. However, the bulk of the money collected from members’ contributions is used to pay claims.
* Minimum benefits
All schemes must provide you with certain minimum benefits, known as the prescribed minimum benefits (PMBs). These cover:
- Emergency medical conditions;
- A list of about 270 conditions that are life-threatening or seriously affect your quality of life;
- 27 chronic conditions that can be life-threatening without medication.
Regulations under the Medical Schemes Act include minimum treatment standards for each condition, which may not be less than the treatment you would get at a public health facility.
Schemes can specify that you use a particular provider, known as a designated service provider, for PMB conditions. Schemes can make you responsible for co-payments or deductibles on PMB claims if you fail to use the designated service provider, unless it was an emergency or the provider was not available or within reasonable proximity.
* You can’t be denied membership
Medical schemes may not exclude anyone from being a member (including the dependants of a member) as a result of their state of health or the medical conditions from which they suffer. Open schemes have to accept anyone who applies for membership. Restricted or closed medical schemes restrict membership to the people in a group to which the scheme is available – for example, the employees of a particular employer or belonging to a particular industry or union – but cannot exclude anyone in that group.
* You can’t pay more if you are old or sick
Medical scheme contributions must be based on what is known as community rating. This means that if you join a particular medical scheme option, your contributions cannot be based on the risk that you personally pose to the scheme because you are, for example, older, or have an existing illness. Apart from any late-joiner penalties that may apply, you will pay the same contributions as any other member of that option regardless of your age, state of health, gender or the frequency with which you submit claims.
SUITABILITY
Anyone who is earning an income and does not want to make use of the public health sector – which serves more than 80 percent of the population and is largely under-resourced – can join a scheme. Medical schemes are well regulated to ensure that your essential healthcare needs are taken care of, mostly in private healthcare facilities and by private-sector doctors.
Even if you are young and healthy and think you don’t need to be a member, you never know when you may be in an accident or contract a serious illness, such as cancer, that could require treatment costing thousands of rands in the private sector.
Medical schemes rely on younger people to join schemes and subsidise the costs of older, sicker members.
Some low-cost scheme options offer cover for treatment in state hospitals but give you access to private doctors for your day-to-day healthcare needs.
ADVANTAGES
The advantages of belonging to a medical scheme are:
* Scheme benefits may have limits, but some benefits are extensive or unlimited and then your scheme will cover your medical costs regardless of how high they go. For example, if your scheme covers you for all medical emergencies in a private hospital and you are in a motor vehicle accident or have a heart attack, your costs should be covered in full.
Schemes typically pre-authorise your hospital admission, and this means that your hospital costs are fully covered. You can, however, face out-of-pocket payments for specialist care.
The cost of needing ventilation, for example, or the cost of having a premature baby, could run to hundreds of thousands of rands.
An insurance product paying out a set amount in the event of an accident, for example, cannot provide the peace of mind that medical scheme benefits provide.
* If you contract a serious illness, you cannot be made to pay more in contributions or to leave the scheme. If you join a scheme with a pre-existing condition, you may be subject to a waiting period (see “Definitions”, below). The longest waiting period you can expect before you enjoy your option’s full benefits is 12 months.
* You can join a scheme on an affordable option with low benefits when you are young and healthy, and each year, at the beginning of the year, you can decide, based on your current health needs, whether or not to upgrade your cover.
* Your employer may subsidise your contributions.
* If you join a medical scheme as part of an employer group, you are unlikely to face any waiting periods or late-joiner penalties.
* You can pay contributions for your dependants including a spouse or partner, dependent children and other members of your family whom you care for and support – check the rules of the scheme about adult children and other dependants.
* You enjoy tax credits for contributions to a medical scheme.
DISADVANTAGES
The disadvantages of belonging to a scheme are:
* It may be that you pay contributions for many years and do not receive much by way of benefits. However, should you need to claim after an accident or in the case of a serious illness, your scheme may pay claims that exceed your contributions many times over. You must accept that this is the nature of insurance.
* Medical scheme contributions are expensive and increase at rates higher than inflation each year, because medical costs have historically increased at above-inflation rates.
* Often, disadvantages cited by scheme members relate to the limits on the benefits a particular option offers. There is a trade-off between what you pay in contributions and the cover you enjoy, and you cannot expect to have the highest level of cover when you are paying the lowest contributions. The less you pay, the less freedom of choice of healthcare provider and treatment you get.
Here are some common ways in which costs are contained and the consequences for you:
- You have to obtain pre-authorisation for hospitalisation and for certain procedures.
- You may have to register on a chronic medicine programme to enjoy cover for chronic conditions.
- Schemes contain their costs by providing benefits that cover doctors at set rates. If your doctor charges more than this rate, you will face an out-of-pocket payment. Remember, though, that if the condition is a PMB, the scheme must pay in full.
- Schemes contain their costs by drawing up treatment protocols and medicine formularies. Your doctor may recommend a treatment that is not in line with the scheme’s protocol or a medicine that is not on its formulary. In some cases, the scheme will not cover an alternative treatment or medicine, but in some cases you may receive payment up to the amount the scheme would have paid had you followed its treatment protocol or used its formulary medicine.
- Lower-cost schemes have doctor and hospital networks that you have to use to enjoy cover unless it is a medical emergency.
- Many scheme options use medical savings accounts (see “Definitions”, below) to provide benefits for day-to-day healthcare services, such as visits to a general practitioner and the medication prescribed, optometry and dentistry. These accounts are often inadequate and run out during the year, leaving you to foot the bill yourself for your day-to-day healthcare needs. To counter this, you should analyse your needs and check whether the savings account will meet them. If not, you need to set aside an additional amount each month for these costs.
- Schemes contain their costs by setting limits on benefits or imposing co-payments, which means you may still face some medical bills that you will have to pay yourself.
- Medical schemes do not cover all healthcare costs – they will not, for example, pay for cosmetic procedures or untested treatments.
- You are likely to have to deal with your scheme and your claims through a call centre, which can be frustrating.
COSTS
Medical scheme membership costs vary widely. Lower-cost schemes often tier the rates according to your income. Very restrictive options start from as little as just over R400 a month for a single member on the lowest income band, while the most expensive options, which give you comprehensive cover, cost close to R7 000 per member a month.
TAX IMPLICATIONS
If you are a taxpayer, you will receive a tax credit, or rebate (an amount deducted from your tax bill), for contributions paid to a registered medical scheme for yourself and your dependants. The rebate is set annually and is currently R270 a month for yourself plus R270 a month for the first dependant. For each additional dependant, you receive a tax credit of R181 a month.
If your medical scheme contributions exceed four times the tax credit, you may qualify for an additional tax credit. The amount by which your contributions exceed four times the credit must be added to any expenses not paid by your medical scheme, and where this exceeds 7.5 percent of your taxable income (excluding any retirement fund and severance benefits), you will enjoy a tax credit equal to 25 percent of this amount.
You get a greater tax benefit if you are 65 years or older, or if you, your spouse or your child has a disability. In this case, if your medical scheme contributions exceed three times the medical contribution tax credit referred to above, you qualify for an additional tax credit equal to one-third of the amount by which the contributions exceed the tax credit.
CONTRACTUAL OBLIGATIONS
You need to pay your contributions on time each month or your scheme will terminate or suspend your membership.
Make sure that when you apply to a medical scheme, you disclose all your conditions as required on the application form. If you do not do so and you claim for a condition you have not disclosed, your scheme may regard this as non-disclosure and can terminate your membership with immediate effect.
WHAT’S AVAILABLE FROM SCHEMES
There are 83 medical schemes in South Africa, including 23 open schemes and 60 restricted schemes. Together, they offer a total of more than 270 medical scheme options.
Most scheme options offer private hospital cover, but some low-cost options offer cover for treatment in state hospitals only and some have a hospital cover limit. Beyond this, scheme options differ in the cover they provide for doctors who treat you in hospital, the cover they provide for major medical expenses such as treatment for cancer, and how they provide for your day-to-day healthcare needs.
Scheme options are typically one of the following types:
* Traditional options. These pay benefits up to certain limits and vary from very comprehensive and usually very expensive options to cheaper, quite limited ones. Limits may be expressed as rand amounts or, for example, a fixed number of consultations. The benefit limits do not carry over from one year to the next.
* Hospital plans. These options typically cover only major medical or hospital expenses, and emergency services such as ambulances. No day-to-day expenses, except for those for the prescribed minimum benefits (PMBs) – particularly the chronic conditions – are covered. Be careful not to confuse a medical scheme hospital plan with an insurance product that offers limited hospital cover for certain specified events.
* New-generation options with savings accounts. These options offer certain insured benefits – usually those covering hospital and major medical expenses – and members self-fund other benefits by contributing to a medical savings account. These options usually allow members to spend their savings contributions as they wish on any medical expenses, but the rules of certain schemes may limit payments from these accounts to, for example, scheme rates. If you choose an option with a savings account, you take on the risk of not having enough to cover your claims. If you do not spend your savings account contributions in any particular year, the balance in your account carries over to the next year. Contributions to a medical savings account cannot exceed 25 percent of your total contribution.
Certain schemes offer above-threshold benefits to members on options with medical savings accounts. These benefits can be accessed once you have spent a certain amount on certain claims and exhausted your day-to-day cover or the funds in your medical savings account.
The claims that count towards this threshold are usually what are regarded as essential claims and there may be rules about what counts and what does not.
* Network options. Some scheme options, typically lower-cost ones, restrict members to using certain hospitals and certain doctors, pharmacies, optometrists and dentists that operate within a network. Some options may have a network for only some providers, or only for PMBs, or make use of a network of “preferred providers” that you must use if you want to ensure the scheme pays the costs in full.
When you choose a scheme, look at some of its vital statistics relative to other schemes in the market – a good source is the Council for Medical Schemes’s annual report, which is released in September each year, or use the services of a qualified and independent medical scheme broker. To ensure stable contributions and benefits, look for a scheme that: has a growing membership; is larger and more stable; has a lower average age than other schemes; has a lower pensioner ratio than other schemes; and has a solvency ratio (reserves as a percentage of contributions) that is equal to or above the legal requirement of 25 percent and is making an operating surplus. The scheme should also have a good claims-to-contribution ratio relative to its peers.
Also check that the scheme has no governance issues with its board of trustees.
Lastly, make sure you match your medical needs to those offered by a particular option. Use your existing needs as a guide and consider any possible future needs based on your plans for a family or history of illnesses in your family.
DEFINITIONS
* Co-payment: the part of a doctor’s or pharmacy bill you must pay from your own pocket.
* Late-joiner penalty: a penalty amount on your contributions, which may be imposed if you join a medical scheme after age 35 without a certain number of years of membership.
* Medical savings account: a “savings account” you have with the scheme, which comes from your contributions and covers most out-of-hospital day-to-day expenses. You get access to the full amount at the beginning of the year, even though you contribute to it monthly over the year.
* Option: benefit package. Each scheme offers a range of options, from low-cost to expensive, from which you may choose, based on your needs and what you can afford.
* Waiting period: when you join a scheme or switch schemes, this is a period of either three months or a year during which you will have limited cover.
* With thanks to Bestmed Medical Scheme for its assistance in compiling this feature.