Medshield explains the difference between medical aid schemes and medical insurance

Well, far from it. The two products are vastly different. The fundamental difference lies in the respective coverage of the products. Understanding these differences is, therefore, very important in helping people make the right and intelligent decisions on the type of health cover they need.

How do the medical aid schemes work?

Just like the insurance companies, medical aid schemes operate on the principle known as shared risk. They rely on the statistical probability that most members will make no claims or only minor ones. Providing they have enough members, their premium income should be sufficient to cover the claims of the minority and leave some cash in reserve. Despite rising healthcare costs, medical aids must strive to keep quotes competitive to maintain sufficient membership.

Unlike insurance companies, these schemes must operate on a not-for-profit basis. 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. Premium prices are a crucial factor in determining a scheme's success. They must be high enough to cover costs yet sufficiently affordable for medical aids to offer realistic quotes. Different fund managers tend to approach this challenge in various ways.

So, what are the differences between medical aid schemes and medical insurance?

The nation's medical aid schemes and insurance companies fall under different regulatory bodies. This has a marked influence on the terms and conditions each is permitted to apply and the services it is obligated to deliver. For example, the former must honour the terms of the Medical Schemes Act of 1998, which states that all of their products, including hospital plans, must cover certain prescribed minimum benefits (PMBs). Insurers are under no such obligation.

At a high level, medical aid schemes typically cover a wide range of day-to-day and in-hospital benefits and are regulated by the Medical Schemes Act. Medical aid schemes must provide prescribed minimum benefits for various conditions, including 26 chronic conditions.

Medical insurance, on the other hand, covers a list of pre-selected benefits with a monetary value attached to each. In essence, medical insurance is a risk-based product offering a more focused range of benefits than medical aid. There's usually a limit to what medical insurance will cover.

Note also that medical aid schemes may not refuse anyone membership or load their premiums, 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 their monthly premiums or suggest that they should seek cover elsewhere.

According to the Council for Medical Schemes, there are three main areas where medical aids and medical insurance differ. See the comparisons as indicated by the council:

• Price: For the medical schemes, all members pay the same amount depending on the selected plan and the number of members (family size). Health insurance premiums are risk-rated, and an insurer may require that any policyholder entering into a contract after a specific age pay a higher premium than any policyholder entering the contract at a younger age, provided that all policyholders with the same age pay the same premium.

• Hospital and chronic benefits: Medical schemes provide comprehensive coverage for dreaded diseases and are accepted by most private hospitals (elective and emergency) depending on the scheme benefits package, selected plan and pre-authorisation required. Health insurance provides a limited lump sum or daily rand amount for hospitalisation costs, but it is usually a rand amount of events per year that covers dreaded diseases.

• Types of cover: The medical aid scheme covers in-hospital benefits according to the national recommended price list, limiting benefits as per the plan and fully covering prescribed minimum benefits. Medical aid schemes carry the covered risk of adverse medical catastrophes. Health insurance covers your day-to-day medical expenses or the cost of a specific medical procedure but does not have to cover PMBs. It pays out a specified benefit when you suffer from a health event covered by the policy.

Given these differences, is having a medical aid or medical insurance better?

It is imperative that whatever option you eventually choose not only suits your pocket but also reflects your total healthcare needs and gives you the best health outcomes. In our view, medical aid should always be the default healthcare option, coupled with a gap cover insurance policy instead of medical insurance to provide a well-rounded healthcare safety net.

Your health and that of your family are important, and even if you all enjoy good general health, an unexpected accident or severe illness could leave you drowning in debt. Medshield offers some of the country's most affordable medical aid options, including fully comprehensive products and hospital plans with unique free core benefits.

We also understand that choosing a medical plan can be a difficult task, especially with so many options to choose from. At Medshield, we make this process easy for you with our Medshield Plan & Benefit Option Comparison which is available on the website at www.medshield.co.za. This will assist you in comparing plans, benefits and contributions, enabling you to make the right choice when choosing a Medshield medical aid plan. It's quick and easy to use. It only takes two minutes to complete.