The Growing Importance of Medical Aid in South Africa

  • August 14th, 2020

In recent years society’s dependence on private healthcare services has been growing in parallel to the ever-declining quality of healthcare services offered by the state, with all but a few teaching hospitals now limited to the provision of primary care in the wake of staff shortages and underfunding. While under the state-funded system one might have once received even the most costly of treatments for just a nominal sum or at no cost at all, if unemployed, all costs for private healthcare must be settled in full. Without medical aid, few in South Africa would possess sufficient funds to do so.

Apart from the high cost of private healthcare, the occurrence of poor health among the nation’s population has also been increasing. In common with most developed countries, a more laid back lifestyle and an increasing tendency to consume junk food and highly processed products have led to obesity and its related complications, such as diabetes, heart disease, stroke, and osteoarthritis. Without medical aid in South Africa, the chances of receiving timely treatment and subsequent recovery have, in many cases, become minimal.

The cost of a week in hospital and a relatively minor operation could easily add up to a hundred grand, so it is not too difficult to imagine how much a triple bypass could cost. Imagine paying out that kind of sum from your monthly salary or the family’s savings account. It is only the financial assistance provided by medical aid funds that has made private healthcare a viable option for the average South African citizen.

So how do these schemes work? In practice, they operate in a manner that is very similar to a short-term insurance company and, in fact some of these insurers offer a product that provides limited financial assistance to policyholders while they are hospitalised. The sums actually paid, however, only amount to a small fraction of their actual costs. The similarity lies in the fact that both the insurance companies and the more specialised entities known as medical aid funds rely on the statistical principle known as “shared risk” for their continued operation in South Africa and everywhere else.

Simply put, this means most people either will have no claims or only small ones in a year, while just a few will be responsible for the larger claims. This means there should always be surplus of cash from premiums to ensure that all the claims and running costs are met. In the case of the insurance companies, any surplus cash is seen as profit and a portion of this will be paid to their shareholders while, by contrast, all of the medical aid funds that operate in South Africa are required by law to operate as not-for-profit companies. In this case, the percentage of premium money remaining, at year-end, is known as the fund’s solvency ratio and should amount to at least 25% of its income.

In most cases, the sums paid by a fund are sufficient to cover the bulk of a member’s healthcare costs if not all, although this will depend on the service provider, as they are at liberty to charge well above the rates approved by the Council for Medical Schemes (CMS). Medshield, however, chooses to appoint preferred service providers in order to minimise any such disparities in South Africa.

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