The biggest difference between medical schemes and medical insurance products is that medical aids are non-profit organisations governed by the Medical Schemes Act (MSA) , while medical insurance products are for-profit organisations governed by the Long-Term Insurance Act (LTIA). They both have a role to play within the medical industry, but there are crucial differences between them.
How medical aids work
The most important factors governing medical schemes is that applicants are guaranteed acceptance when joining even if underwriting is applied as per the MSA, and medical schemes pay the actual medical costs incurred by the member. If you are hospitalised, your medical scheme will pay your hospital bills directly to the hospital, specialist, anaesthetist and so on.
Medical aids are obligated to charge members the same premium for the same plan. For example, a member who is 28 years old with no health problems will pay the exact same amount as a 55-year-old who requires chronic medication.
Medical schemes provide cover for most medical conditions and treatment, and are also obligated to provide prescribed minimum benefits for a wide range of conditions, life-threatening emergencies, and for a specified list of 26 chronic conditions. They accept applicants at any age, so no maximum entry age is applicable, although if you join a medical scheme for the first time after the age of 35 you will pay a higher premium. Finally, medical aid premiums increase once a year at the end of each year.
How medical insurance works
Health insurance provides for hospital cover and day-to-day benefits. A predetermined set amount is paid out to the client for each day in hospital in the form of a daily cash-back or payment per insured event, with a maximum amount per event, as well as a maximum limit amount per annum.
The hospital cover that health insurance offers covers several serious illnesses if you are below the age of 65, as well as maternity needs, accidents, ICU care, and dread diseases. Health insurance also offers cover for conditions such as hernias, appendectomies, gall bladder issues, kidney stones, and hysterectomies etc.
These policies pay out a stipulated benefit after hospitalisation. The stipulated benefit is unrelated to the actual cost of medical services as it is aimed at covering incidental costs, such as loss of income. This means that medical insurers do not pay the hospital based on the care you needed, but rather they pay out a specific sum based on the insurance cover you signed up for. Think of it like household insurance – if your house floods and you lose all of your furniture, insurance will pay you the amount your belongings were insured for – not the actual replacement cost of your goods.
This is because medical Insurance products are issued by for-profit organisations who rely on underwriting and actuarial knowledge to predict expected future claims over the long term. They do not have to accept all applicants and they can permanently exclude medical conditions. They also do not need to pay the insured amount, regardless of the actual expense incurred.
Health insurance premiums differ between individual clients depending on several factors, including pre-existing chronic and other medical conditions, and age and family size. Health insurance also offers less cover in comparison to medical schemes, covering customers either with a Rand value per day or an overall monetary limit per hospital event and per year. Medical insurance premiums can also increase when you claim, any time of the year, just like all insurance products.
However, there is a benefit to having both. Medical aid ensures you are covered if you need to be hospitalised, have a chronic condition under prescribed minimum benefits or need day-to-day benefits. However, medical insurance ensures you receive a pay-out if you are hospitalised and cannot work or earn a living. It also covers other expenses that may occur during your hospitalisation. It is like any other insurance – you hope you never need it, but it can be hugely beneficial to have if you ever do.