This is my third post on Medical Aid Schemes, and it follows on from these two:
And to summarise, here are the key points up to this point:
- Medical Aid Schemes are not “owned” by their service providers. They are owned by their members.
- The service provider is just an administrator.
- So, for example, Discovery Health (Pty) Ltd is not the Discovery Health Medical Scheme. Discovery Health (Pty) Ltd is the administrator of the scheme, and it is owned by the Discovery Group (a listed entity). The Discovery Health Medical Scheme is still owned by its members.
And also, the basic business of a Medical Scheme is as follows:
- Collect contributions from members.
- Pay out healthcare claims for members who are unwell.
- Make sure that the leftover money, which is meant to cover future claims, is properly invested.
The less basic (but more important) part of their business is trying to balance everything:
- The scheme needs to collect enough contributions from members to cover the expected claims.
- If members wants better benefits (ie. higher claims), then they need to pay bigger contributions;
- But if contribution levels are too high, then the healthy members might decide that it’s just too expensive and drop out of the scheme – and because healthy members subsidise the unhealthy ones, the scheme would then be left with still-not-high-enough claims and but-still-higher-though contributions per member, and the scheme would either need to reduce the permitted claims or raise the contribution levels again (you can see how this cycle might get vicious).
- If the scheme lowers contribution levels, then it might attract more members which can help subsidise the claims – but only if the new members are relatively healthy.
- The scheme will also usually attempt to negotiate better medical rates with healthcare providers in order to minimise the claims (and thereby reduce the reliance on constantly increasing the contribution rates).
- The scheme might also create tranches of benefits, with different contribution levels and eligibility for each.
The backdrop for this conundrum is the all-pervasive fact that most people would prefer to join a medical scheme only when they get a terminal disease or need a big operation. While people are healthy, joining a medical aid scheme feels like subsidising other people – and who wants to do that? We only want to be subsidised. Because, you know, the world owes us that or something.
So in order to keep contributions low and claims manageable in the face of people that only want to pay for medical aid when it’s cheaper than paying for the treatment, there are some other factors to be weighed into the offering:
- Benefit windows and temporary exclusions for pre-existing conditions
- Fee penalties for older members that have not previously had medical aid cover.
- Caps on medical aid coverage for certain conditions.
- Prescribed medical aid rates.
There are other, nastier, possibilities as well:
- Openly exclude sick people from joining the scheme.
- Revoke the membership of sick members of the scheme (one can do this in a de facto manner by simply increasing the premiums of sick members far beyond the limits of what they’re able to pay).
- Small print that allows wiggle room on claim approval.
- Indefinite exclusions for pre-existing conditions.
- Requiring pre-authorisation for significant procedures, and then taking your time with the pre-authorisation process, in the hope that no more authorisation will ever be needed for the patient ever.
Fortunately, South Africa has some regulation that deals with many of those.
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