Understanding Medical Aid

Medical Aids Demystified

1.1 What is the purpose of a medical scheme?

Medical Schemes, as is the case with most insurance, were established originally to provide cover for unexpected health events for which an individual had not budgeted or could not afford. Medical Schemes are to health expenditure what motor insurance is to serious accidents. A medical scheme is simply the pool of members’ money, with benefits designed to maximise the use of these funds for the health benefit of all its members.

A medical scheme is a non-profit organisation with no shareholders. It is a collective funding mechanism to ensure that its members receive appropriate clinical treatment, as and when needed. It does not therefore operate to enrich anyone financially, unlike insurance companies. All unutilised premium earmarked for medical expenditure and administration costs remain in the reserve pool. This may be drawn on in years where the claims exceed the budget. It is important for a scheme to have sufficient reserves to be able to cover the costs of unexpected events, e.g. the swine flu outbreak. In the rare event of a scheme having to dissolve, the unutilised reserves are distributed among the active members.

Premiums and benefits are designed to incorporate PMB’s (see paragraph 1.2 below), members’ claiming patterns, cost escalation of healthcare and other services. Members can therefore play an active role in helping to contain the premium increases by striving to lead healthy lifestyles thereby minimising their health spend and limiting their ‘down time’ owing to illness.

Medical scheme vs. Loyalty programme

Individuals are often attracted to medical schemes by the scheme’s “optional extras” or “bells and whistles”, e.g. cheap flights and movie tickets. Although these items may have a tangible benefit as it is perceived to take some of the grudge out of the medical scheme purchase, it is important to note that these perceived benefits are completely divorced from the medical scheme offering. They require an additional premium and add no value to the service provided by the scheme.
Whilst many may feel these “benefits” are important, they provide no clinical advantage when illness strikes. One should not choose a scheme based on the quality of the loyalty programme.

In practice it is generally much cheaper to pay full price for flights and movie tickets than have out of pocket expenses for hospitalisation. Sadly, in many cases, people do not realise the full value of their medical scheme until they become seriously ill or have an accident, and need to claim.
Schemes are progressively moving towards preventative healthcare. And, while reduced fees for gyms through the loyalty programmes are a bonus, keeping members healthy is a far more complex issue where some schemes add significant benefit. The lower the claims are, the less the draw on benefits. In the long run, this can lead to lower scheme contributions.

1.2 Why do medical scheme premiums increase in excess of inflation?

There are a number of factors which impact on the cost increases in medical schemes:

• Technology: Many of the new techniques and much of the new equipment used by doctors increases the cost of the service delivered. Whilst this is beneficial to members, practitioners need to recover their costs for this technology and this is usually achieved through increased tariffs. In nearly all cases the new technology improves clinical outcomes as diseases are detected earlier or identified.
• New high cost drugs being registered by the SA Medicines Control Council (SAMCC): Research, funded by the pharmaceutical industry, is developing new, high cost treatments for chronic conditions. Once a new drug is registered, the cost of the research is built into the price of the new drug. This drug cannot be copied (generics) until the patent expires, which can run for up to 15 years.
• Exchange rate fluctuations and import duties: As the industry is largely dependent on importation of medical products, costs are dependent on the exchange rate and import duties.
• Service provider negotiations: Schemes are required, by law, to negotiate individually on all price increases with service providers e.g. private hospitals. The Competition Commission specifically excludes medical schemes from any form of collective bargaining. Critical mass to enforce lower prices is therefore not easily secured.
• Prescribed Minimum Benefits (PMB’s): PMB’s are a defined set of conditions and treatments that need to be paid in full by each and every Scheme (refer to the CMS website for detail). In terms of the Medical Schemes Act, PMB’s must be paid by the scheme at cost. It is therefore relatively simple for service providers to charge excessive fees and these must be reimbursed, in full, by the scheme. Owing to the magnitude of the list and payment having to be in full, it is extremely difficult for any scheme to offer a low cost option.

1.3 How do I choose the most appropriate Option?

Choosing the most appropriate option is influenced directly by an individual’s needs and expectations.

It is therefore important to consider the following:

• The scheme’s benefits
• Levels of discipline to save for ad hoc, day-to-day expenses
• Chronic conditions
• Family size
• Income

As medical schemes are primarily there to cover unplanned, high value expenses e.g. hospitalisation, it is important to ensure that cover related to these benefits is comprehensive. Choose an option where the reimbursement rate for doctors in hospital is in excess of the base rate or obtain an insurance top-up cover for the difference.

Decide whether you are disciplined enough to carry your day-to-day medical and dental expenses. Also determine how often you anticipate visiting your doctor for minor ailments, e.g. colds and flu. If you are able to set aside money on a monthly basis for day-to-day costs and/or do not visit the doctor regularly for ad hoc illnesses, a hospital plan may be ideal for you. These options are generally cheaper and they cover all the essentials should you be hospitalised. In any event most day-to-day benefits have a limit, which is usually exhausted before the year-end. If you have been diagnosed with a chronic condition or have family history placing you at risk for certain diseases, choose an option with adequate cover for the condition.

If you have a large family, identify options that offer premiums where contributions are limited to two adults and one child, with the remaining children being covered for free. It is important, however, to consider the health status of all family members. Look for income-based options if you are price sensitive. Options with a network of providers are often cheaper; but may offer limited benefits. If you cannot afford to pay for a doctor’s visit and claim back from your medical scheme, the network options are often a good choice as there are usually few instances of co-payments.
However, there may be limits on basic services such as X-rays (Radiology), blood tests (Pathology) and dentistry.

1.4 Why can I not choose the medical scheme to which I wish to belong?

Many schemes do not make provision for an employer to allow their employees to select from more than one scheme. As mentioned under point 1, each scheme has a fund pool that must cover the costs of the health requirements of all the members over an extended period of time. The membership of all schemes is made up of healthy and unhealthy, young and older members and, claimers and non-claimers. As in any mutual type structure, the non-claimers pay for the claimers; except in the case of day-to-day benefits.

If employees were allowed to select whether they wanted to join their company’s scheme or not, many would not join until they faced their first major expense. The problem then is that they will have had no time to build up their share of the reserves, which the scheme draws on when major claims arise. A scheme that only has claimers who have not built up some reserves will very quickly be bankrupt. All schemes therefore require the full risk pool of an employer. It is very rare that a closed scheme will allow an employer to offer an alternative scheme.

Ultimately it is the executive team of the employer that must identify the scheme which best meets the needs of their employees. An inadequate scheme will generally fail to meet the needs of their employees, will put the employees’ health at risk and, inevitably, will result in an increased level of absenteeism.

1.5 Why do schemes impose formularies?

As set out in 1.1, a medical scheme has the responsibility to manage the members’ investment in the pool of funds to ensure the most appropriate and successful health outcomes.

A formulary is a defined list of preferred medication to treat specific diseases, based on clinical effectiveness and cost. It can include generic medication and patented medication, where a generic is not available. The formulary is updated regularly as new medication is registered, new generics become available or prices change.

1.6 How can I assist in curtailing medical scheme premium increases?

Members are often unaware of the impact they can have on their medical scheme contributions. Since schemes do not have the profit motive, any excess funds are accumulated for the future benefit of members for improving benefits, for limiting contribution increases and for building reserves for unforeseen circumstances.

Members can reduce claim costs by undertaking the following:

• Looking after personal health. Seek regular screening of blood pressure, glucose levels, cholesterol and HIV status. If any risks are identified, a visit to the doctor is essential. If a diagnosis is made, immediately contact your scheme disease management programme for educational material and approval of your medication. This will provide you with an enhanced understanding of your disease and how best to limit the impact of the disease on your daily living experience;
• Exercise regularly and follow a healthy eating plan. Take your medication as prescribed, in particular chronic medication, to prevent deterioration of your health and possible future hospitalisation;
• Request an appropriate generic equivalent for prescribed medication from your doctor or pharmacist;
• Interact with your medical service providers to determine if they charge ‘medical scheme’ rates (to which many providers still refer) for your hospital procedure or PMB condition;
• Do not treat your annual medical scheme benefits as a shopping list. When the year comes to an end, some members look at their remaining benefits to identify what they can still claim. This merely drives up the claims cost often without any clinical benefit.