In order to meet the costs of private healthcare, the vast majority of patients in South Africa must rely on the help of a medical aid scheme. With the exception of the nation’s wealthier citizens, those who are not members of such a scheme have no alternative but to wait their turn for treatment at one of the country’s state-funded hospitals or clinics. The cost of healthcare, whether private or public, is high and steadily increasing; and while underfunding has led to long queues and waiting lists at public facilities, for those who can afford it, private healthcare is instantly accessible.

Although they operate on the same basic principle as a short-term insurer, those schemes that serve to subsidise the cost of private treatment differ in some important aspects. To begin with, each of the 90 or so medical aid schemes in South Africa is mandated, under section 21 of the Companies Act 61 of 1973, to trade as a non-profit company, and is governed by a board of trustees rather than shareholders.

In common with the insurance industry, these schemes rely upon the statistical principle known as shared risk. This assumes that the bulk of those covered will submit no claims or only relatively small ones during the insured period, thus ensuring that there should be a sufficient surplus of cash from the premium income to meet the far more substantial claims submitted by the minority. However, while the nation’s insurance companies are permitted to refuse to provide cover to those who are seen to be a high risk, the medical aid schemes in South Africa are not. Instead, they are permitted to withhold cover for treatment of a pre-existing illness for a prescribed waiting period, whilst accepting claims relating to other contingencies.

Because a scheme must keep its prices down in order to attract a sufficient number of members, whilst also meeting the high costs of treatments as fully as possible, such waiting periods are unavoidable to ensure a sufficient reserve of funds to meet valid claims. Consequently, anyone who joins a scheme will not be entitled to make any claims for the first three months, unless they can prove they had been receiving cover form one of the other medical aid schemes in South Africa within the three-month period immediately prior to their application.

The cash reserve referred to is known as the scheme’s solvency ratio, and amounts to a fixed percentage of its premium income. That percentage is a legal obligation set by the industry’s governing body, the Council for Medical Schemes or CMS. The council is also responsible for reviewing applications to increase annual premium rates and to act as a mediator in any dispute that may arise between a member and his or her particular scheme.

While schemes such as Medshield Medical Scheme retain designated service providers who charge approved rates, others do not. The latter, therefore, are more likely to require their members to meet any excess costs with a co-payment.