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In the previous article we discussed that providing Prescribed Minimum Benefits (PMB) to members is one of the most important obligations put on medical aids. These PMBs must be provided to all members without discriminating, which means that all members will have to pay the same price for any given plan regardless of their medical needs and health conditions.
In order to afford providing these PMBs to all members without discriminating, medical aids are allowed to enforce other measures, such as waiting periods, medical scheme rates and network doctors, which were all discussed in the previous article.
In this article we will unpack two more of these measures to better understand how medical schemes operate.
Measure 4: Co-payments
Similar to most short-term insurance, medical aids can, and often do also impose co-payments on claims. A co-payment is a fixed amount medical aid requires the member to pay from their own pocket for a specific medical treatment or procedure based on the plan on which they are. Insurance companies use co-payments to share health care costs to prevent moral hazard. It may be a small portion of the actual cost of the medical service but is meant to discourage people from seeking medical care that may not be necessary.
Measure 5: Late joiner penalty fees
A late joiner penalty (LJP) is imposed on members over the age of 35 if they had a break in their membership before applying to become a new member any time after the age of 21. This penalty is added to the member’s monthly premium indefinitely and is calculated based of a set formula.
How to calculate a LJP:
- Step 1: Calculate (A): Count how many years it has been since you turned 35
- Step 2: Calculate (B): How many years were you a member of a credible medical aid since you turned 21
- Step 3: Calculate your penalty band: Subtract (B) from (A) (thus, (A) – (B))
- Step 4: Based on the below table you will consider with what percentage your monthly contribution will be increased for the articular plan applied for
|Number of years applicant was not a member of a medical aid since turning 35 (a.k.a. penalty band calculated in step 3)||What percentage is added to your contribution||Penalty|
|1 – 4 years||5%||1.05 x contribution|
|5 – 14 years||25%||1.25 x contribution|
|15 – 24 years||50%||1.50 x contribution|
|25+ years||75%||1.75 x contribution|
The LJP was put in place to encourage members to join a medical aid while they are still young, regardless of their health. If LJP weren’t imposed members would only join a medical aid when they are older and would need to claim more often which would not be sustainable from the point of a medical aid business.
It is therefore important to be a member of a medical aid from the age of 21 years, despite being in good health and not often benefiting from your membership. When you are older you may be more dependent on your medical aid to cover large medical expenses which may only make sense financially when you are not paying high penalties along with your monthly premium.
Additional reasons to have medical aid despite good health.
When we are young or healthy, medical expenses do not seem like such a huge burden and it may be tempting to cut this expense from our budget completely, especially when we do, in the odd occasion, go to a health care provider and can’t claim for it. However, the risk of large medical bills increases exponentially when one has a chronic illness to manage or when an accident or emergency happens, and one needs hospitalisation and extended medical care. Without the protection offered by a medical aid scheme, a patient is either left without the necessary medical care or could be financially depleted (or even ruined).
From a personal financial plannings perspective it is non-negotiable to have some sort of medical aid in place, even if you are on the least comprehensive plan. Being hospitalised without having medical aid will derail all other financial goals because the cost of healthcare can escalate rapidly.
Medical aid should not be thought of as a piggy bank that covers all your medical bills even if you don’t claim that often. By understanding how a medical aid business operates, what benefits the member is entitled to and what risk one is exposed to without having medical aid may help better justify paying for those monthly premiums.