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How Does A Medical Scheme Work?

You belong to a Medical Scheme but do you know how your scheme actually works? Here is a breakdown, in layman’s terms.

Medical aid plans or health insurance, like any other form of insurance, is a form of collectivism. All that really means is that people collectively pool their risk. When it comes to medical aid schemes, we pool our risk against the very real likelihood of incurring medical expenses, which we would otherwise find difficult to pay out of our own pocket!

The premiums (money you contribute) for your healthcare plan, each and every month, gets pooled with all the other member contributions and together this forms a gigantic cash pot from which the medical aid fund pays out claims.

Ok, that’s easy enough to understand, but how does a scheme know how much money is needed to cover healthcare expenses?

Think of it like your company budget:-
  1. To meet budget we must either sell more
  2. Reduce our cost, or
  3. Increase our prices
Here is how a medical aid scheme works the budget:
  • Medical Aid schemes estimate the overall annual risk of its member’s healthcare expenses. They do this by looking at past history and expected increases in the cost of medical treatment, moving forward.
  • Then they set up a finance structure (your monthly premium) to ensure that sufficient money is available to pay for the healthcare benefits, which they plan on selling to you. In simple terms they analyse how much their members claim, what they claim for, and the cost of the healthcare treatment.
  • They then know what to charge members, in terms of premiums for coverage. The higher level of coverage you require the more you pay. That makes sense because if you want access to a bigger part of the accumulated medical scheme cash pot, your contribution towards it needs to be bigger. If you are wanting access to a smaller part of the pot, your contribution needs to be smaller. That’s also why you can’t upgrade during the year.
Each year, around the end of November, they release their premium increases for the coming year.

How the medical scheme was able to control expenses during the past year will determine how much more they are going to charge the following year.

Oh and don’t forget another important factor which influences annual increases – How many members left and joined the scheme. If medical aid schemes are losing members, they either need to reduce benefits, across the board, or seriously hike up premiums.

Now you know how your Medical Scheme works.

The iHound team