This is part 1 of a four-part series on you and your medical scheme.
Many members blame their medical schemes for not paying their bills, or complain that schemes make big profits, but these false accusations have their roots in myths about how schemes operate.
When you join a medical scheme, you belong to a community where the members rely on each other for support. A scheme operates like a mutual society or stokvel, rather than an insurance company.
Younger members, who tend to be healthier and claim less, subsidise older members, who usually have more illnesses and claim more.
“We ‘pay it forward’ in our younger years, and then, when we are older, our high healthcare expenditure is carried by the next generation of younger members on the scheme. It’s all about the greater good, about giving to receive later,” Jeremy Yatt, the principal officer of Fedhealth, says.
But younger members can also incur high expenses, for example, when they have a baby and are raising a family.
Some people believe that if they don’t have dependants and are in good health, they don’t need to join a medical scheme. However, no one is immune from accidents and life-threatening diseases, such as cancer, which can occur at any age. If, for example, you are involved in a serious car accident, you will be admitted to intensive care and have to undergo surgery, which will cost hundreds of thousands of rands.
You might think that you can wait until you are older, or your health is poor, before joining a scheme. Or that if you are a scheme member with a health condition, you can save money by leaving the scheme once your treatment is over. The practice of joining a scheme only when you are elderly and/or need to claim is known as anti-selection or adverse selection.
Schemes would be unsustainable if the bulk of their membership consisted of unhealthy high-claimers; they need a large number of low-claiming healthy members to pay the claims of those who need expensive treatment.
The Medical Schemes Act, which regulates all schemes, allows schemes to use two measures to prevent anti-selection: waiting periods and late-joiner penalties.
Waiting periods are periods (either three months or a year) during which benefits are denied or restricted. Late-joiner penalties are a loading on contributions for those who join a medical scheme after the age of 35 and have not been a member of a scheme for a specified period previously.
Many members think their schemes are responsible for their health, whereas your health is your responsibility and your scheme can only help. Many members also don’t understand that looking after your own health can help to ensure your scheme’s costs are more manageable. This ultimately translates into your contribution increases being more affordable.
Yatt says you can help your scheme to keep down costs by:
• Adopting healthy habits, which reduce the risk of “lifestyle” diseases, such as Type-2 diabetes, stroke, high blood pressure and cardiovascular disease. To this end, you should maintain a healthy weight, exercise, eat nutritious food and not smoke. Chronic medications for lifestyle diseases are very expensive, but these diseases are largely preventable.
• Making use of the screening benefits provided by your scheme. Going for health screenings, such as a pap smear or cholesterol check, at the prescribed intervals can help to ensure that potentially serious illnesses are detected before becoming untreatable or expensive to treat. Older and pregnant members should get an annual flu vaccine to avoid getting seriously ill, and parents should immunise their babies and young children to protect them against potentially harmful diseases such as polio, tuberculosis and meningitis.
• Avoiding surgical procedures when more conservative treatment could work just as well.
• Choosing a generic medicine, instead of the brand-name product.
Your contributions to your medical scheme must be based on what is known as community rating. This means that if you join a particular option, your contributions cannot be based on the risk that you personally pose to the scheme because you are, for example, elderly or in poor health.
Apart from any late-joiner penalties that may apply, you will pay the same contributions as any other member on that option regardless of your age, state of health, gender or the frequency with which you submit claims.
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, schemes limit membership to the people in a group to which the scheme is available – for example, the employees of a particular employer or members of a trade union – but cannot exclude anyone in that group.
HOW SCHEMES ARE RUN
Members mistakenly believe that their schemes are out to make a high profit and do not know that a medical scheme is not allowed to make a profit. Schemes collect contributions to cover your claims and certain necessary costs. Any surplus the scheme makes must be ploughed back into the scheme or paid into a reserve fund, which, by law, should be 25 percent of the contributions it collects from members.
Not all of your contributions are used to settle your claims. Schemes also have non-healthcare expenses, such as administration, marketing and paying commission to brokers.
Most schemes contract with an administrator, which collects your contributions and pays your claims. Unlike a medical scheme, an administrator is a for-profit company. A few schemes employ staff to do administrative 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.
A scheme is run by a board of trustees, who are responsible for ensuring that the scheme is managed properly and remains sustainable. If a scheme contracts with an administrator, the trustees must ensure that it provides efficient, value-for-money service.
The Medical Schemes Act requires that half of the trustees must be elected by the members of the scheme. You, as a member, can help to ensure that your scheme is governed properly by attending the scheme’s annual general meeting and participating in trustee elections.
Trustees are paid, and because of the expertise required to run a scheme, and the onerous responsibilities on trustees, remuneration can be high. This again highlights why you, the member, should take an interest in how your scheme is being run to ensure that your trustees are providing value for the money they earn.
HOW COSTS ARE CONTAINED
Medical schemes do not have unlimited resources, and the cost of medicines, medical technology and the tariffs demanded by doctors and specialists are increasing every year at rates that exceed the headline inflation rate.
Schemes have implemented measures to contain costs and ensure that members do not abuse their benefits. These measures benefit members, because they keep contribution increases under control.
The measures include:
• You have to obtain pre-authorisation for hospitalisation and for certain procedures.
• You may have to register on a chronic medicine programme to receive cover for chronic conditions.
• Schemes provide benefits that cover doctors at set rates. If your doctor charges more than this rate, you will face an out-of-pocket payment. However, if the condition is a prescribed minimum benefit, the scheme must pay in full.
• Schemes draw 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.
• Schemes set limits on benefits or impose co-payments, which means you may still face some medical bills that you will have to pay yourself.
• Schemes will not cover all healthcare costs – they will not, for example, pay for cosmetic procedures or untested treatments.
THE PRESCRIBED MINIMUM BENEFITS
All schemes must provide you with certain minimum benefits, known as the prescribed minimum benefits (PMBs), which cover:
• Emergency medical conditions;
• About 270 conditions that are life-threatening or seriously affect your quality of life; and
• 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 (DSP), for PMBs. Schemes can make you responsible for co-payments or deductibles (the part of an account you must pay from your own pocket) on PMB claims if you do not use the DSP, unless it was an emergency, or the provider was not available, or was not reasonably close to where you live or work.
WHAT DIFFERENT BENEFIT OPTIONS OFFER
Medical schemes offer different options at different contribution rates and with different levels of benefits.
Most options offer private hospital cover, but some low-cost options offer cover for treatment in state hospitals only and some have a limit on hospital cover. Beyond this, 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.
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.
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 the prescribed minimum benefits (PMBs) – particularly the chronic conditions – are covered. Do not confuse a medical scheme hospital plan with an insurance product that offers limited hospital cover for specified events.
• New-generation options with medical savings accounts, which provide benefits for day-to-day healthcare services, such as visits to a general practitioner and the medication prescribed, optometry and dentistry. 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 want 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 can access the full amount at the beginning of the year, although you contribute to the account monthly over the year. If you do not spend your savings account contributions in a particular year, the balance in your account carries over to the next year. Contributions to a savings account cannot exceed 25 percent of your total contribution.
However, the savings are often inadequate and run out during the year, leaving you to foot the bill 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.
Certain schemes offer above-threshold benefits to members on options with medical savings accounts. These benefits can be accessed once you have spent a specified amount on certain claims and exhausted your day-to-day cover or the funds in your medical savings account. Usually, only what the scheme regards as essential claims count towards this threshold, and there may be rules about what counts and what does not.
• Network options. Some options, typically lower-cost ones, restrict members to using certain hospitals and 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.
MEMBERS GET A TAX BREAK
If you are a taxpayer, you will receive a tax credit, or rebate (an amount deduct ed 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 R286 a month for yourself plus R286 a month for the first dependant. For each additional dependant, you receive a tax credit of R192 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 receive 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.