Benefits 101 ·20 Jun 2023

Understanding Medical Aid in South Africa: A Guide to Making Informed Choices

Does Medical Aid Matter?

Our health is one of the most important components of our wellbeing - without our health, every other part of our life is compromised. For many South Africans, the cost of looking after our health is often the biggest single cost item in our expenses - bigger than our spend on food, clothes or transport. So understanding and managing our healthcare directly impacts our financial wellbeing.

Looking after our health involves both prevention and cure. Whilst many medical schemes are trying to help us make healthier choices and promote fitness by giving goodies and status badges, the main work of healthcare insurance is to provide us with cures when we fall ill - through hospitals, doctors and medicines.

Because the cures for serious illnesses or injuries would be unaffordable for most of us (a heart op or cancer treatment could easily cost more than a million rand), medical schemes work on the basis that members pay a regular monthly premium into a collective pot, whether they need to use the benefits in a particular month or not.

Members can access this pot of funds when they have to pay for medical bills (depending on the scheme's rules and the benefits of the particular option that they've signed up for).

The Difference Between Medical Aid and Medical Insurance

There are two types of healthcare insurance schemes - Medical schemes (also referred to as a medical aid) and medical insurance. These are very different types of protection.

• Medical aid schemes are regulated by the Medical Scheme's Act. This Act requires all medical aids to be non-profit organisations, so what is paid into the pot in the form of monthly contributions is what is paid out in claims. Medical aids must charge the same amount for everyone on the same plan, regardless of your state of health. The only time that a member can be charged more is if they have not become a medical aid member before the age of 35, in which case a "late joiner fee" will be added to your contribution. This is to compensate the "pot" with the premiums that you have missed paying, relative to a member who joined when he/she was younger. Medical aids are required to provide certain prescribed minimum benefits (PMBs) in the event that their member has a serious condition. These conditions are listed and include diabetes, HIV, epilepsy, and events such as heart attacks and strokes. Even hospital plans which have no day-to-day benefits (so the plan doesn't include medication or seeing a doctor or specialist) must provide a prescribed level of medical care, both out-of-hospital and in-hospital, if you have a PMB condition, to help you manage this condition. Medical aid schemes are more generally offered as an employee benefit than medical insurance.
• Medical insurance plans often pay out a predetermined Rand value for a stay in hospital or a serious injury (like the loss of a limb). Gap cover is also a form of medical insurance designed to cover the "gap" between what the medical aid will pay for a hospital stay and what the hospital actually charges. Gaps have arisen because private hospitals, surgeons and specialists are not regulated as to what they charge, so those professionals who are in demand (because of their skills and reputation) are able to charge a premium. Medical aid schemes have standardised rates that they will pay out, so this premium becomes the patient's problem. Medical insurance plans are only allowed to operate if they have been granted an "exemption" which means that they do not need to comply with all the requirements of the Medical Scheme's Act. That might sound like a good thing, but it does mean that a medical insurance plan could find itself (and its members) up a creek without a paddle if the exemption is ever withdrawn.

Choose The Right Plan For You

There are huge differences between the various plans offered by medical aid providers, from basic hospital plans to comprehensive plans which include access to a wide range of dental, optical, physio, specialists, etc.

Generally, all plans provide cover for emergencies requiring admission to hospital and major conditions such as cancer, as well as treatment for chronic conditions, but the rate that they will pay out can differ. Each medical aid option will have detailed information regarding the benefits and the scheme's rules (the T's & C's), which will limit what can be claimed, so it's really important that you understand the option very carefully and select an option which meets your particular needs.

The first step in choosing the right option for you will be to be clear about what healthcare benefits you really need from your option.

It makes sense for younger, healthy members to be on a hospital plan, with a hospital network that is convenient for you. If you would like to add some day to day benefits, like doctor visits, dental or optical, a savings account can be a good way to build up a kitty for these healthcare costs.

Then, if your healthcare challenges increase, upgrade to a richer, more comprehensive plan when you start needing additional healthcare benefits. Also, you might consider adding a gap cover (see healthcare insurance) to cover you for any "gaps" between what a specialist could charge and what your option will pay out if you end up in hospital.

Changing your Medical Plan

Generally, it is not possible to upgrade to a more comprehensive plan option during the year to protect the existing members of the more comprehensive plan against the cost of increased claims (due to selective upgrades). Every year (usually at the end of November), medical aids allow members to revisit their options and to upgrade their plan for the following year (meaning the change will be effective from 1 January).

Most medical aids will allow you to downgrade your plan choice at any time.

You can submit a change request via the Bento platform. Feel free to reach out to us should you have any questions.

Understanding Medical Aid Costs

What you pay (your contribution) for your medical aid option is not based on you or your health profile – it is based on the claims profile of all the people who are members of the same option as you. This is called your risk pool. Each option has rules and benefits which limit how much everyone in the risk pool can claim. So the cost of your option will be based on how much your risk pool claims.

If there are lots of claims because your risk pool claims a lot, and there are lots of benefits (so members can claim for a lot of things) then the option is going to be expensive. If there are lower numbers of claims or less benefits available, then the cost of that option will be reduced.

One way that medical aids try to prevent some members from claiming a lot, at the expense of other members in the risk pool, is through medical savings accounts. If you choose an option with a savings account, then you can claim for “day-to-day” healthcare expenses – such as doctor visits, medicines, optical, dental etc – up to the amount that you contribute into your personal savings account annually. That way, what one member claims for “day-to-day”, doesn’t affect the cost of that option for everyone else.

Another way that medical aids are managing costs is via networks. In a network option, members must use a specific hospital, doctor or pharmacy chain, because the medical aid has an agreement with that chain about the standard of healthcare it must provide and what it will pay. This helps protect the plan option from excessive claims, which will have to be funded by the contributions from its members.

Medical aids must charge the same amount for everyone on the same plan, regardless of your state of health. The only time that a member can be charged more is if they have not become a medical aid member before the age of 35, in which case a “late joiner fee” will be added to your contribution. This is to compensate the “pot” with the premiums that you have missed paying, relative to a member who joined when he/she was younger.

How Will National Health Insurance Impact Me?

In South Africa, the State currently only provides access to public facilities for medical care. Many people therefore choose to buy private healthcare insurance by joining a medical scheme.

This has created a parallel system with public healthcare clinics and government run hospitals on the one side, and private healthcare with doctors and hospitals paid by medical schemes or by the patients directly on the other side. The inequality between the healthcare available to those who can afford private healthcare versus those who cannot, has led to the intent to introduce National Health Insurance (NHI).

Although there has been a lot of news and draft legislation regarding the introduction of NHI, at this stage it seems unlikely that we are going to have the capacity or the funds to achieve a national healthcare framework in the near future.

National Health Insurance is intended to work in exactly the same way as medical schemes in that funds are pooled into a collective pot which is used to pay the medical bills of its members. The difference is that all South Africans would have access to the pool regardless of how rich or poor we are, whether employed or unemployed, or whether we are healthy or fragile. The pool would be financed by tax contributions from tax payers. The difference is that the government (via a CEO and a Board who will be appointed by the Minister of Health) will be in charge of the management of the pool of funds and for making payments to your doctor, hospital or pharmacy, rather than a medical aid company.

Tax Relief on Medical Contributions

If you are a member of a medical aid, you will qualify for a tax credit of R 332 (tax year 2022) for every month that you are a member. If you have dependents on your medical aid, your tax credit increases by R332 for the first dependent and an additional R224 per dependent for all other dependents.

The actual tax credit amounts are determined by SARS. The amounts change each tax year and are published by SARS here.

Tax credits directly reduce the income tax you would normally pay. This is different to the way that tax deductible expenses or allowances work - tax deductibles or deductions (such as your retirement fund contributions) reduce your taxable income. This means that your income tax is lower because it is calculated on a lower base. This leads to an indirect reduction in tax.

The concept of tax credits seeks to achieve greater equality in the way that medical aid contributions are treated across all income groups in that the same value of tax credit applies to everyone regardless of how much they earn. The only reason that a person can qualify for a higher tax credit is if you are supporting dependents by including them on your medical aid.

Example Calculation: Tax Credit

Example Calculation: Tax Deductible Expenses