In 1919, almost a decade after the establishment of the Union of South Africa, the government introduced its Health Act which led to the formation of a nationwide public health department. The department established hospitals and primary healthcare facilities, offering free healthcare to those in need of it. While well-intentioned, the state-funded system could not meet the nation’s demands, sparking a parallel private healthcare sector’s growth. However, for those of average means, without the help of a medical aid scheme, it would not have been possible to meet the much higher costs typical of private treatment.
Insurance companies were the first to respond to this need with a policy that paid a cash sum for each day the policyholder was confined to a hospital bed. Though this was a way to make up for lost income and cope with minor expenses, the bulk of the hospital bill remained the policyholder’s responsibility, as did all other medical costs incurred while an outpatient. By contrast, a medical aid scheme‘s primary aim is to reimburse its members for most and often all of their private healthcare expenses incurred in a given year. So how does this work?
How It All Works
Just as with any type of insurance policy, a medical scheme’s feasibility depends on a principle known as shared risk. Simply put, the insurer expects that most people will make no claims or only minor ones, leaving plenty of premium income to cover the few who claim more significant sums and their operational costs, with some left in reserve. However, a medical aid scheme differs from an insurance company in that it is legally required to trade as a non-profit entity with no shareholders to pay. Instead of sharing its profits, it must maintain a minimum percentage of its annual income in reserve. This is known as its solvency ratio and is intended to cover any unusually high and unexpected claims that might arise. Nevertheless, given that there is a remote possibility that the reserve may be insufficient, schemes also need a good international credit rating.
The strength of a medical aid scheme over a traditional insurer stems from its management’s superior knowledge and experience of healthcare matters and the associated costs. This enables a fund manager to offer benefits consistent with the actual cost of any given procedure. In exchange for an appropriate monthly premium, the scheme undertakes to pay its members all, or an agreed percentage of each expense incurred during the membership year, subject to specific terms and conditions.
As with any legal agreement, prospective members need to take a close look at those benefits and T&Cs before agreeing to enrol in a medical aid scheme. They need to read and make certain they have understood the small print and how it might affect them when making a claim.
No scheme can work without sufficient members, and freebies are an effective way to attract them. However, be aware that you will probably b paying for them by receiving correspondingly less in the way of core benefits. For affordable, comprehensive benefits with no hidden snags and some genuinely free yet valuable health-related extras, Medshield is fast becoming the medical aid scheme of choice for many South Africans.
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