How does a Medical Scheme work?
An independent medical scheme must be registered with the Council for Medical Schemes. It is a not-for-profit organization, governed by a board of trustees. As a result, the scheme has no shareholders or pay dividends, and its income is derived only from member contributions and investment returns. Scheme reserves are maintained for the safety and benefit of members by pooling all member contributions toward claims and transferring surplus funds, as prescribed by regulations, to Scheme reserves. Therefore, a medical scheme makes no profit.
Schemes exist to provide their members with an equitably and fairly treated benefit plan by pooling all funds and ensuring they are safeguarded to pay claims in accordance with the rules of the scheme.
All medical schemes in South Africa operate in accordance with the Medical Schemes Act 131 of 1998, and are regulated by the Council for Medical Schemes.
What does ‘open medical scheme’ mean?
Often companies administer restricted medical plans for their staff and their families, or people working in a particular industry can join.
A public scheme, on the other hand, is open to the public and anyone over 18 can join, no matter what their medical insurance status is, as long as they can afford to pay the monthly contributions.
Typically, medical schemes can either outsource their administration or manage this themselves, however, the medical scheme environment is complex and requires significant expertise to effectively manage and provide an infrastructure that meets all stakeholders’ needs, while continuing to keep the scheme reasonably priced both now and for the future.
In South Africa, the majority of schemes employ external administration businesses to provide expert services to their members; however, since administrators are permitted to make any profit they please, it is important that both schemes and their administrators share a similar goal – the care of members at an acceptable cost.
What restrictions does legislation impose on a medical scheme?
- Open enrolment:
All health insurance plans need to accept all applicants and charge them the same amount (per benefit plan), regardless of their age and health status. - Regulatory reserve requirements:
Upon acceptance of a new member, a scheme is obliged to hold 25% of a yearly contribution in cash reserves from the day of joining (even before the member has made their first contribution). - Prescribed Minimum Benefits (PMBs):
Prescribed Minimum Benefits (PMBs) are the minimum healthcare benefits all medical plans must offer.