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How do Medical Schemes work in South Africa?

Article provided by Medshield

When first launched, the nation’s public healthcare service was the envy of many countries but, as its workload increased, waiting lists became longer and soon reached the stage where those who could afford it chose to seek help from the private sector. For those who were less well off, it was insurance companies that first created medical schemes to assist patients in South Africa with their private healthcare expenses.

Given that, statistically, most of the insured would make no claims or only minor ones, insurers applied the principle known as ‘shared risk’. By building a sufficiently large client base, they could ensure meeting the larger claims of the minority and still show a profit. This early form of cover, however, was limited to a daily cash sum paid to claimants only while in hospital and, although helpful, did not come close to covering their treatment costs. Only later, did a group of dedicated providers begin offering medical schemes with more practical benefits in South Africa.

Initially, these new medical aid companies only offered group cover, so their target market was companies, professional bodies, and similar organisations. Their employees or members enjoyed the benefits of this closed type of scheme at a more favourable price based on the high membership volumes. Later, the industry also began catering for the self-employed. While open schemes may command slightly higher premiums, they form part of a more competitive market that has meant more people in South Africa can now enjoy the benefits of a medical scheme.

To remain viable, these not-for-profit companies must attract sufficient membership. Not only must the annual income from premiums (contributions) allow all of their claims to be met on time and in full, but their regulating body requires them to maintain a cash balance equivalent to 25% of their total income. This figure is known as the solvency ratio. Furthermore, since the charges levied for medication and treatments vary between service providers, insurers must set limits on the related claims. Sometimes that means a member must pay an excess, better known as co-payments,  although medical schemes in South Africa do their best to negotiate prices that allow them to meet most claims in full.

The Medical Schemes Act established a legal body to act as the regulator for medical aid companies (Council for Medical Schemes or CMS). The Act also prescribes some fundamental conditions to which they must adhere. These include providing full cover for life-threatening emergency cases, the diagnosis, treatment, and care of around 27 named chronic illnesses plus 270 defines diagnostic/treatment pairs. Absorbing these added obligations requires careful management and sound governance and medical schemes in South Africa have adopted differing approaches in their efforts to remain affordable yet supportive.

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