What Medical Schemes Act says about late joiner penalties

Linda van Rensburg

Medical schemes are required to maintain a reserve level of 25% of gross contributions.

Members who joined the scheme earlier in life would therefore have contributed towards the scheme’s reserves for a longer period than those that join later in life or when they need to claim.

For this reason, the Medical Schemes Act allows the application of late joiner penalties, not only to encourage members to join earlier in life, but also to protect existing members.

Late joiner penalties are applied after the age of 35 and aren’t applicable to members or dependants who were on a medical scheme before April 1, 2001 and who haven’t had a break in cover of over three months since then.

If this isn’t the case, a late joiner penalty may be applied.

When calculating the late joiner penalty, only coverage on a registered South African medical scheme is taken into account (referred to as “credible coverage”).

Example

An applicant aged 65 declares having been on a medical scheme for 25 years. The credible coverage is deducted from the member’s current age (65 minus 25 = 45), which means the member wasn’t on a medical scheme for 10 years after age 35. The late joiner penalty percentage is therefore 25%.

Note: the late joiner penalty is only calculated on the late joiner’s risk premium, i.e. excluding savings account contributions.

As the late joiner penalty is intended to ensure that reserves are accumulated for members or dependants joining later in life, the late joiner penalty is applicable for the entire period that the late joiner is a member of a medical scheme.

What if the late joiner is an expatriate and had been on a medical scheme in another country before relocating to South Africa?

As expatriates aren’t contributing towards reserves while overseas, a late joiner penalty may be applied upon relocating to SA.

Van Rensburg is senior consultant at Alexander Forbes Health