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What is a medical aid scheme and how do they operate

It has not been an easy two years in terms of the global pandemic as well as the financial ‘wellness’ of South Africa’s economy. We continue to face tough financial challenges in 2022. With the uncertainty around economic growth, incomes being reduced and unemployment on the rise, the decision on how to spend your money wisely is critical.  However, the pandemic has also highlighted the need for quality healthcare and there has been a move for people to join a medical aid scheme. SMMEs are no different.

If you have not belonged to a medical aid scheme previously and you and your employees are considering joining one, here is the lowdown on the structure and running of medical aid schemes and their administrators.

How do medical aid schemes work?

Members of the scheme pay a monthly amount, called a contribution, into a ‘collective pot.’ This money is used to pay out medical claims made by members. The surplus or money left over, after all the claims have been paid, is invested. Apart from the members’ contribution, the only other income for the scheme is investment returns.

So medical aid schemes can make a profit?

No, they are not-for-profit and owned by the members of the scheme. The scheme appoints a Board of Trustees to manage the affairs of the scheme to ensure that they are in the member’s best interests. Any extra funds are only for the benefit and security of the members and in line with the plan they have chosen to be on.

How are trustees are appointed and are they paid?

The Board of Trustees is appointed and elected by the scheme’s members in terms of the scheme rules. Remuneration is also governed by scheme rules with the remuneration policy approved by members at the AGM.

All members in good standing have the opportunity to stand for election as a Board of Trustee member. Members also have the opportunity to vote at trustee elections.

What is the difference between a medical aid scheme and an administrator?

Medical scheme administrators are separate entities to the actual medical scheme. Unlike the medical aid scheme, they operate on a for-profit basis.

What is the administrator’s function?

The administrator is appointed to undertake the day-to-day administration between members, healthcare practitioners and the scheme.

Who oversees and regulates the medical aid administrator?

The Council for Medical Schemes (CMS) oversees medical schemes and administrators. The CMS is a statutory body established by the Medical Schemes Act (131 of 1998) to provide regulatory supervision of private health financing through medical schemes.

Is there any benefit to belonging to a larger medical aid scheme rather than a smaller one?

Size does matter, the larger the scheme the better chance of sustainability because:

  • There is a more diverse risk pool
  • Greater stability in claims experience, this results in predictable costs which in turn translates into competitive increases year on year
  • Economies of scale should drive down administration costs
  • Greater bargaining and negotiating power with service providers

The membership profile (ie.age of members) is also critical to ensure a balance risk pool.

Is the administrator also overseen by the Executive of the Scheme even if they are separate entities?

Yes, they are, as this forms part of the contracts set up between the scheme and the administrator. These contracts include detailed service level agreements that need to be adhered to. The relationship is not necessarily of one agency, which means a scheme can take legal action against its own administrator.

Who decides on increases, pay outs, etc?  

The medical scheme does a thorough analysis and investigation on an annual basis, via its actuaries, to determine the increases for the following year. This is usually decided based on  members’ claims for that existing year. The Rules of the Scheme determine the benefits, which have to be approved by the CMS before it could be affected.

What are the possible conflicts between the administrator and the medical aid scheme?

The Medical Scheme Act clearly states that there should not be any conflict of interests between medical schemes and administrators, for example a staff member of the administrator is not permitted to be on the Board of Trustees of the medical scheme.

The CMS reviews the fiscal health of the administrator annually and provides accreditation.

Although the scheme and administrator are separate entities, the administrators are still under the auspices of the Board of Trustees who monitor the contract to ensure adherence.

Medical aid schemes are often misunderstood and under appreciated as was the case when the pandemic started and the value of quality healthcare became a priority.  If you are considering joining a medical aid and/or enrolling your staff on a medical aid, ensure you you understand how the scheme works and what it offers in terms of plans and benefits.   

Bonitas Medical Fund is a proud Partner of the NSBC

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