It has to be remembered that the income of any scheme is derived from two sources: income from investments made with money in the reserve, and member contributions.
As the money from the reserve originally comes from member contributions, it can be argued that that is the only source of income for medical schemes. No member contributions, no investments, in other words.
Schemes essentially spend their money on two things: healthcare expenditure and administration costs.
A pool of funds
Restricted schemes have the benefit that a certain pool of employees, many of whom are young and healthy and low claimers, are obliged by company regulations to belong to the scheme. Open schemes, who rely on voluntary membership, run the risk of predominantly attracting members whose healthcare needs are high. For this reason, open schemes also spend money on advertising. The greater the cross-section of members, the healthier the financial position of the scheme.
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It has to be remembered that medical schemes essentially function as a pool of funds used for the benefit of all its members. You may have belonged to a scheme for 20 years without ever having been hospitalised, and then in year 21 you could be in a car accident and rack up a hospital bill of millions. Or it could happen six months after you have joined. This is not something over which you have control. In short, it functions a bit like an insurance scheme, with the difference that just about everyone claims something every year. It wouldn’t be financially viable for schemes to pay out no-claim bonuses.
Soaring claim costs
Schemes have to spend their money in such a way that it benefits the majority of their members, within the confines of the regulations of the Council for Medical Schemes, the industry’s regulatory body. This affects the benefits that schemes can offer. If members of a scheme as a whole are claiming more than they are paying in, the scheme will run into trouble very soon. Claims costs have soared in the past few years: just in 2012, they were up 10.9% on 2011, worsening the financial situation of both open and restricted schemes.
Read: Cut medical scheme costs
In order to protect the reserves of the scheme, trustees often have to curb the benefits payable to members. But every now and then, when there is an excess in the reserves, schemes will introduce extra benefits for the members. Every year scheme contributions increase, but so do the amounts payable for certain services. To stay afloat, many schemes have to cut their benefits, causing unhappiness among their members, who often feel they are paying more and getting less.
Some facts and figures on how your scheme spends your money:
- In 2012, medical schemes received 9.4% more in contributions from their members – a total of almost R 117.5 billion. Of this, R103.7 billion (88%) was paid out in healthcare benefits.
- Of this, 36.7% was spent on hospital services, almost 90% to private hospitals.
- Payments to medical specialists amounted to 23.3% of the total and GPs received 7.2%.
- Total non-healthcare expenditure came to R8.8 billion. This included administration fees, fees paid for managed care, broker fees and re-insurance.
- A big part of the medicine bill consists of treatment for lifestyle-related conditions such as hypertension and type-2 diabetes, with hypertension drugs topping the list.
- Administration fees of schemes usually account for about 10% of their total income.
What you can do to reduce your scheme’s annual contribution increases:
- Live a healthy lifestyle and don’t smoke.
- Keep your weight in check.
- Don’t feel that you are obliged to spend every last cent to which you are entitled in your scheme benefits. Use what you need. The money not used by other members can be used to pay your hospital bill in a crisis.
- Opt for generics rather than brand-name medication.
- Don’t visit the doctor unnecessarily.
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(Council for Medical Schemes; Hospital Association of South Africa; CAMAF Medical Scheme; South African Medical Association; Statistics South Africa)
Susan Erasmus, freelance writer and member-elected trustee of Naspers Medical Scheme
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