Schemes treat all as equal in the aid equation
It does not matter if new members are ill, but latecomers must pay a premium, writes DAVID JACKSON
COMMUNITY rating and risk pooling are fundamental principles in the way that medical schemes operate, in line with the philosophy of social solidarity in which cross-subsidisation occurs between the young and healthy and the sick and elderly members of medical aid schemes.
Heidi Kruger, head of corporate communications for the Board of Healthcare Funders of Southern Africa (BHF), says: “This means that everybody is treated equally, no matter what health risks they may bring with them when joining a medical aid scheme. This contrasts with insurance products, which are based on risk rating, where the premium that you pay is based on the risks you are deemed to be bringing.”
Medical schemes are obliged to community rate by law, Kruger points out.
“While there are certain protection mechanisms in place for a medical scheme, they must charge everyone the same rate, regardless of the risk that the individual brings to the scheme. The fundamental difference between a medical scheme and an insurance product therefore is that everybody has to be charged on the same basis on a medical scheme,” says Kruger.
Medical schemes can be regarded as more of a long-term facility and are run on social solidarity principles, she says.
As a result, they rely on the money pooled from contributions, which revenue is then used to cross-subsidise among members on the scheme.
This is why “late joiner fees” are often levied on people who join medical schemes only later on in life. Late joiners cannot be refused scheme membership or medical treatment because of the community rating and pooling-of-risk principles that medical schemes are obliged to implement in terms of the Medical Schemes Act. So the late-joiner fees go towards trying to redress the imbalance in the medical scheme pool resulting from any influx of late — and possibly ailing — entrants.
Waiting periods are another protection mechanism for medical schemes and their members. Kruger says that medical insurance products, such as hospital “cash-back” plans for example, mostly do not pay for specific health-related benefits but serve as a form of “income replacement vehicle” for time spent by patients in hospital, typically paying out a set amount of money per day spent in hospital, and therefore should not be confused with medical aid.
“People don’t always understand the difference between a medical scheme and a medical insurance product. Medical schemes offer a variety of benefit options and pay out according to the condition which the member receives treatment for, while a hospital insurance plan usually pays out a fixed amount per day. It is often the case that consumers believe they have medical cover when in fact they have an insurance product. It is important that consumers understand the difference between the two.”
Since chronic diseases were added in 2004 to the list of prescribed minimum benefits — consisting mainly of hospital and specialist-type healthcare interventions that medical schemes are obliged by law to pay for — even the most basic medical scheme options are now compelled to cover the 25 chronic conditions.
“And these basic, or lowercost, medical-scheme options operate under exactly the same principles as any other benefit option, including community rating, risk pooling and cross-subsidisation,” says Kruger.
Given that medical schemes, by law, are not allowed to make a profit, they try to keep medical premiums as low as possible, Kruger says, while at the same time offering the maximum possible benefits.
“So when a scheme is forced to squeeze back on what it pays for a particular benefit it is invariably because of a cost blowout somewhere else in the healthcare chain. It is very difficult for medical schemes to budget accurately for costs in the current environment in which there is no set of agreed tariffs in place for services rendered by healthcare providers.”
The Health Professions Council of SA is undertaking a process that may result in a new tariff or price schedule for doctors and dentists, but no specific time-frame has so far been set, says Kruger.