OPINION: The difference between medical scheme cover and health insurance
As financial intermediaries, we are often asked why medical scheme cover is so expensive compared with health insurance. Three main factors influence this:
1. Underwriting and open enrolment. The legislation governing the medical scheme industry states that all registered medical schemes must accept any person who wants to join an open scheme and the scheme may not discriminate against the person in any way except in terms of income and family size. Therefore, a scheme cannot reject an application.
The scheme must accept any person and can impose a general three-month waiting period, a 12-month exclusion from cover for any existing medical condition, and a late-joiner penalty, a fee that the scheme may impose on any person older than 35 based on the person’s previous medical scheme membership in South Africa (underwriting).
2. Prescribed minimum benefits (PMBs). The scheme cannot exclude any condition that was not diagnosed or treated in the 12 months prior to applying to join the scheme.
If a person is involved in a very serious car accident after the three-month general waiting period, the scheme must cover the event.
If the scheme imposed a 12-month exclusion on a particular medical condition and the 12-month period has lapsed, the scheme must cover the condition according to the plan member’s choice.
The scheme must also cover 270 life-threatening medical emergencies and 26 chronic conditions irrespective of the plan an individual joins.
3. Community rating. Schemes cannot charge members different contributions for the same plan. The only time the scheme may charge different contributions for the same plan and family size is if the member has a late-joiner penalty or the plan has income bands (the monthly income then plays a role).
Low-cost primary health insurance solutions have entered the marketplace primarily because medical scheme cover remains unaffordable to low-income earners. The products are currently registered under either the Long Term Insurance Act or the Short Term Insurance Act (sometimes under both).
Hospital treatment is expensive, and in order to make health insurance premiums more affordable to the low-income market, many providers have created health insurance solutions that exclude or limit private hospital cover and cater for basic day-to-day medical services through a network of private providers.
Top-of-the-range plans can include comprehensive day-to-day benefits and private emergency hospital stabilisation benefits. Entry-level plans normally include basic day-to-day benefits only.
Health insurance products are not registered under the Medical Schemes Act and thus don’t have to comply to the regulations of this act.
However, in 2016 a framework was legislated as a guideline to providers of indemnity products (health insurance) that conduct business of a medical scheme that want to apply for exemption in terms of section 8(* ) of the Medical Schemes Act. The Exemption Framework provides for the granting of a two-year exemption.
The table below shows the main differences between medical schemes and health insurance products.
Riaan Oosthuizen is a consultant at Alexander Forbes Health.