Many South African professionals struggle to choose between medical aid and health insurance, particularly when health insurance is often nicer to the pocket. Younger individuals, professionals starting out in their careers, and the more budget conscious often end up selecting health insurance without knowing exactly what they are getting. It even occasionally happens that people believe that the product they have bought is a medical aid product, when it is not, because both products are offered by different but affiliated companies with the same name.
We sat down with Craig Comrie, Profmed’s Chief Executive to get some insights into what qualifies as medical aid versus health insurance and what all South African professionals should know before making their choice.
Why is it important to understand the difference between medical aid and health insurance?
Most people don’t really understand whether they are paying for a medical scheme product or an insurance product, as long as it provides them with a level of security in terms of their health care needs. The challenge is that the level of care is not the same, and so when a selection is made based purely on price, an individual will only discover that they are not adequately covered once they experience a healthcare event. For example, the product could only provide for telemedicine services or an initial consultation with a nurse, followed by a doctor if necessary. Because health insurance products tend to be priced at a far more affordable rate, they also have significant limitations and co-payments. Buying cheap is often the worst thing to do because you only get what you pay for, or what you are covered for. If that is all you are looking for, and you know exactly what you are getting, then that is perfect. However, we know that medical aid and health insurance products are complex and so the critical details can sometimes be missed. It is worth noting that when medical aid and health insurance products are similarly priced, they tend to offer similar benefits.
What is the difference between medical aid and health insurance?
The biggest difference is that medical schemes are regulated by the Council for Medical Schemes and subject to the Medical Schemes Act. This means that all medical aid benefits include Prescribed Minimum Benefits (PMBs), a set of defined benefits to ensure that all medical scheme members have guaranteed access to certain health services, regardless of the medical scheme option they have selected. The aim is to provide people with continuous care to improve their health and well-being and to make healthcare more affordable. However, health insurance products do not include PMBs, which is one of the reasons why they are more affordable. Medical schemes must be accredited by the Council for Medical Schemes, whereas health insurance products are registered with an insurance license with a clear profit motive to make money for shareholders.
The key difference therefore is that medical aids are not-for-profit organisations and are owned by the members who participate in the scheme. The administrators such as Momentum or Discovery are profit making entities but they do not own the scheme itself. In Profmed’s case, PPS is our administrator, and they are a mutual fund. They do not have external shareholders, and so all profits are returned to members or policy holder’s through a profit share model, which in my view always aligns with a motive to take care of members.
Insurance products on the other hand, are for-profit products. Finally, health insurance predominantly works in a primary healthcare setting, which means the hospitalisation is mostly trauma cover and not ongoing lifesaving treatment. If you need an operation that does not count as trauma, such as a hip replacement or a sinus operation, it will not be covered by most of these products.
What should an individual consider when choosing between medical aid cover and medical insurance?
If you are unsure, then medical schemes are the better more comprehensive choice for cover. A cost-effective alternative to pay less is to consider a medical scheme hospital plan, like Profmed’s Savvy option that requires network hospitals to be used. This typically results in a 10% lower premium. There is an added consideration here as well. In South Africa, you must be a member of a medical scheme before you turn 35 or your premiums will be loaded with late joiner penalties for the rest of your life.
Why are premiums loaded for members who are older than 35?
Medical aid is based on younger, healthier members contributing to a pool of funds that they won’t need unless there is a healthcare emergency or until they are older. You are effectively investing in your future health care needs. However, if you haven’t contributed to that pool from a younger age, you can’t access the same benefits, which is why your premiums will be higher. It is this regulated system that balances the costs between young and old. It is clear that in the last 8 months of a person’s life they use all they have contributed during the 40 years they have been members.
Are all members of medical aids and holders of health insurance products treated equally?
No. Medical schemes are community rated, which means that anybody joining a medical scheme may have a three-month general underwriting period or if you have a specific chronic condition this may be excluded for 12 months before they can access benefits. They effectively pay the exact same amount as everybody else on the same benefit option, provided they join before age 35. It does not matter if they have higher medical needs or not, or if you are 25 or 75.
Insurance products are based on risk ratings – which means that based on your health risk and/ or your age, your premium may differ. Someone with a more dangerous job may pay more than an individual who sits behind a desk all day, and so on. This means that higher risk individuals pay more than the premiums advertised, and also have to wait up to 12 months before they can access benefits.
Do you have any advice to offer individuals looking at various products?
Investigate the details of what cover is offered. If you are looking at a health insurance, read the full list of underwriting and co-payments. If it’s a medical aid product, understand your benefits and know that you are covered for a comprehensive set of benefits called PMBs.
DID YOU KNOW - There is a difference between the tax benefits of medical aid versus medical insurance?
What a lot of people don’t know is that members of medical schemes receive a tax rebate. This means that when they submit their tax returns, principal members and first dependants receive R347 per month each year back as a tax credit, and R234 per month for each dependant thereafter. Health insurance products do not have access to that tax credit. This means that while a R900 per month entry level medical aid product is more expensive than a R500 health insurance product, after the tax credit (which is also like saving R347 per month!) the products costs are similar, but the medical aid is more comprehensive in terms of benefits.