Medical aid versus health insurance – know the difference

THERE are important differences between medical aid cover offered by medical schemes and health-care cover offered by short-term insurance companies, known as health insurance or medical insurance. You need to know these differences before you choose cover in order to avoid any unpleasant surprises when you come to claim.

First, it’s important to know the background about legislation governing the health-care sector in South Africa.

Back in 2016, regulations were introduced to provide a clear separation (or “demarcation”) between medical schemes and short-term health insurance products. To manage the transition, the Council for Medical Schemes (CMS) established an exemption framework that gave insurers time to adjust their products and practices.

The date of expiry of the exemption framework was initially extended from March 2019 to March 2022. The Covid-19 pandemic complicated matters, leading to another extension. The exemption period was extended for another two years, to March 2024, and has recently been extended yet again, to March 2025.

This state of limbo in the industry is largely the result of division over the controversial National Health Insurance Act, which has been contested by political parties in the Government of National Unity and a large portion of the business sector. Although the act was signed into law by President Cyrl Ramaphosa in May, its implementation date is yet to be finalised.

However, even if the act became effective today, its proposed changes to the medical aid and health insurance landscape would take years to be realised.

How do medical schemes differ from health insurers?

Medical schemes and short-term insurance companies operate under different acts of Parliament – medical schemes under the Medical Schemes Act of 1998 and insurance companies under the Insurance Act of 2017.

Unlike insurance companies, medical schemes operate on a not-for-profit basis, says a Medshield spokesperson. “As such, they must exercise good governance, hold an exceptional international credit rating and maintain a solvency ratio of at least 25%. The solvency ratio is the percentage of the total premium income remaining after all claims and operating expenses have been met.”

The Medical Schemes Act also requires schemes, on all their options, to cover a list of life-threatening conditions under the so-called prescribed minimum benefits, or PMBs.

“Insurers are under no such obligation,” the Medshield spokesperson says. “Medical insurance covers a list of pre-selected benefits with a monetary value attached to each. In essence, it offers a more focused range of benefits than a medical scheme.”

Another major difference is in requirements regarding who may be covered.

“Medical schemes may not refuse anyone membership, even if they have a pre-existing illness. Instead, they are entitled to decline claims for treatment of pre-existing conditions or apply a waiting period to this condition, other than PMBs, for a pre-agreed period.

“By contrast, insurers can adopt the same criteria that they apply to motor insurance and may either hike your monthly premiums or suggest that you seek cover elsewhere,” the spokesperson says.

According to the Council for Medical Schemes and Medical Aid.com, areas where medical schemes and insurers differ are:

1. Membership and pricing

• Medical schemes: All members pay the same amount, depending on the selected plan and the number of members (family size). However, late-joiner penalties may apply to people older than 35 who join a medical scheme for the first time or who rejoin after a break in membership.

• Health insurance: Premiums are risk-rated, and an insurer may require that an older policyholder pays a higher premium than a younger policyholder, provided that all policyholders of the same age pay the same premium.

2. Hospital benefits

• Medical schemes: You have comprehensive cover for emergencies and PMBs. While hospital costs are generally fully covered, specialists are covered only at the scheme’s set rate, meaning that if they charge more, which most do, you might have to settle the difference from your own pocket.

• Health insurance: This pays a predetermined amount after hospitalisation, regardless of the cost of medical care. This may be a fixed rand amount a day in hospital and/or fixed lump-sum payouts for specific events. Note that some conditions, including cancers, are extremely expensive to treat, and that health insurance might cover only a small portion of the costs.

3. Day-to-day expenses

• Medical schemes: depending on your option, day-to-day expenses, such as visits to your clinic or GP, and prescribed medicines, may be covered by your scheme from your risk benefit, from your medical savings account, or you may be required to pay for them yourself. Schemes have established networks of providers, and on certain options, services and products from these providers are fully covered.

• Health insurance: policies may cover you and your family for day-to-day expenses up to a certain annual limit (for example R2,000) a person. The insurers also make use of contracted provider networks.

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