Updated 05 September 2014

Beware of medical insurance scams

The Minister of Health has said that most medical insurance schemes encourage collusion between patients and doctors, unnecessarily extending hospital stays in order to cash in.

If you’ve been tempted by the ads on TV that promise you large amounts of cash for every day you spend in hospital, you need to think twice.

There is a lot they are not telling you, and the over 1.5 million South Africans (2.4 million lives) who have these plans often find this out the hard way.

The Minister of Health, Aaron Motsoaledi, has expressed his concerns about this type of insurance and openly called the insurers ‘cheats’.

He was also troubled by the fact that the plans encourage you to go to hospital rather than doing everything you can to stay healthy. Most often, these patients land up in state hospitals, which are already under strain.

ReadIs medical insurance enough?

He also said that these plans encourage collusion between patients and doctors, unnecessarily extending hospital stays in order to cash in.

In fact, the whole hospital insurance industry is under fire, and if the Health Minister had his way, they would probably be outlawed.

The world of medical schemes is a complicated one and not everyone understands how these things work. Advertisers can easily exploit this.

ReadMedical schemes threatened by health insurance?

What does medical cover cost?

Medical schemes and hospital plans are expensive in South Africa. Full cover for a single member for 2014 on an open scheme is in the region of R3 000, depending on the scheme and the option you have chosen.

Full cover for a family of two parents and two kids comes in at anything between R5 500 and R7 000. That’s a lot of money for the average wage earner.

High cost is also one of the main reasons why the percentage of the population with full medical cover has remained fairly static over the last few years.

Low-cost hospital plans for an individual member cost an average of about R1 100 in 2014, with the lowest being Discovery’s Keycore plan at R556 per month for a single member who earns less than R6 650 per month.

A family of four will be set back in the region of R2 700 per month for a no-frills hospital plan on other open schemes, where income does not determine your contribution.

No wonder people are tempted by the plans that cost only a few hundred rands per month and promise to pay you between R1 000 and R5 000 per day you spend in hospital.

Many of them also offer a percentage of your premiums back in cash after five years, regardless of whether you have claimed or not.

ReadEnd of gap cover and hospital insurance?

Here’s what you need to look out for:

Hospital insurance is not a medical scheme. These plans do not cover your hospital bill, or the cost of an operation. They pay cash per day, regardless of what medical procedures you’ve had.

If you are in the ICU, or whether you need to have large operation, it is entirely possible to incur hospital costs of R60 000 or more for a two-day stay in a private hospital. The cash-back plans just don’t cover this.

State hospitals, although much cheaper, are also not free, as people pay according to their incomes.

Hospital insurance is not covered by the Medical Schemes Act of 1998. A medical scheme and a hospital plan have to cover you for over 270 Prescribed Minimum Benefits (PMBs)– diseases or conditions for which they are legally obliged to foot the bill.

Hospital insurance does not have to do that, as they merely pay for a hospital stay, regardless of the reason for it.

Read: What you need to know about Medical Gap Cover

No chronic cover

Medical schemes and registered hospital plans by law have to pay for chronic medication for 27 specified conditions.

This can run into thousands of rand, even if you are not hospitalised. Medical insurers do not have to pay these costs, which is one of the reasons why their premiums are so low.

Trustees vs. an insurance company 

A medical scheme has trustees, half of whom are member-elected, to represent them at trustee meetings where decisions about benefits and contributions and fund reserves are taken. Hospital cash-back plans are run by an insurance company, not a board of trustees, so there is no member representation.


Medical schemes are not run for profit. Their income is derived from contributions members pay and the payment of claims by members is what they spend the vast majority of their money on.

Administration costs usually count for about 10% of expenditure. Excess money goes into the reserves, which legally belongs to the members. Hospital cash plans are run to make a profit.

No appeal.

If you feel you have been unfairly treated by your hospital cash-back plan, you cannot appeal to the Council for Medical Schemes to look at your case. These cash-back plans do not legally fall under them and you have no recourse.

Clarity about benefits. Medical schemes and hospital plans provide a clear benefit breakdown of what you are covered for. Much of this information is available online.

Hospital insurers tend to be vague about what they cover (vaguely mentioning payment for daily ailments such as flu and tummy bugs). Many members are under the mistaken impression that they are covered for extensive medical expenses – until they try and claim.

Age limits. Medical schemes may not refuse anyone membership based on their age or their state of health.

ReadHow the funds of medical schemes are spent

Hospital cash- back plans can and do turn away older members, especially if they think they will be high claimers. With some the cut-off age for joining up is as young as 54.

Premium pay-back. Hospital cash-back plans often pay back a portion of your premiums. Medical schemes are legally not allowed to do this and any extra cash goes into the funds’ reserves. Low limits.

Many medical schemes and hospital plans have unlimited hospital cover. The hospital insurance plans have definite limits – and they can be as low as R200 000 per annum.

While some people have both a medical scheme and a hospital cash-back plan (or gap cover) as a back-up, many people have only the hospital insurance, which is insufficient.

Fraud issues. In 2011 the insurance ombudsman investigated a scam in KZN in which it was alleged patients and doctors colluded to defraud the hospital insurers. If a patient is being paid to lie in hospital, and a doctor gets a kickback, it is in their interest to extend the hospital stay as a source of ready cash.

Read more:

7 Things you need to know about your medical scheme
Is your medical scheme rolling in the cash?
There are 2 Sides to the Gap Cover story
Why every woman needs a hospital plan

References:; Council for Medical Schemes;; Clientèle Limited; Old Mutual; Affinity Health; Sunday Independent

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