Medical schemes: late joiner penalties

(Shutterstock)
(Shutterstock)

A MEDICAL scheme may not refuse to take you on as a member in South Africa, but they can impose what is called a late joiner penalty. What is this and how is it calculated?

Before the Medical Schemes Act of 1998, schemes could refuse to take on a new applicant as a member. This could be based on many factors such as age, health status or medical scheme membership history. Now schemes can only penalise you for joining late by loading your contribution, or they can exclude you from treatment for certain conditions for a fixed period of time.

Medical schemes are allowed to do this, as they would definitely go under if there was no incentive for people to join the scheme when they are young and healthy. If everyone waited until late in life to join, when they would be more likely to need expensive medical attention, the reserves of any scheme would quickly be depleted. It would also be unfair to members who had been contributing all their lives to have to ‘carry’ late joiners.

According to the law, the reserves of a scheme should consist of at least 25% of all contributions, and belong to the scheme members. If a scheme should dissolve, current members will be paid out a share of these reserves.

Late joiner penalties depend on several factors, such as age, the number of years the applicant was a member of a medical scheme, and the number of years he/she had no cover at all.

The way in which these are calculated are as follows:

Age upon application minus (35 + years covered previously) + the number of years the applicant was not covered.

A percentage is used to calculate the penalty:

0 - 4 years uncovered: 5% of total contribution;
5 - 14 years uncovered: 25% of total contribution;
15 - 24 years uncovered: 50% of total contribution; and
25 years or more uncovered: 75% of total contribution.

How it is calculated

1. Joseph is 41. He only had medical cover for three years from the ages of 28-31 when he worked at a mine.

So the formula to work out Joseph’s contribution would be:

41 – (35 + 3 years of previous cover) = 3

Joseph’s number of years uncovered come to three, which means he will have to pay a 5% late joiner penalty. If the normal monthly contribution for the option he has chosen comes to R2 500, he would have to pay an extra 5% which would come to R125, making his total contribution R2 625.

2. Priscilla is 77. She was a member of a medical scheme for 7 years from age 31 to age 38. Then she had no cover until age 51, when she took out a hospital cash-back plan.  At age 73 she moved to the US for four years where she belonged to a medical scheme. Upon her return to South Africa she applied for membership of a South African medical scheme.

Her contribution would be calculated as follows:

77 – (35 + 7 years of previous cover) =  35

Her number of years uncovered come to 35 (do remember that hospital cash-back plans are not medical schemes, according to the law), which means that she will have to pay a late joiner penalty of 75%. That means that if the option she has chosen costs a normal member R1 600 per month, her contribution will have to be R2 800 per month.

Two things to remember: if you are on your parents’ medical scheme, it is only counted as membership years after you have reached the age of 21. The second thing to take note of is that membership of overseas medical schemes do not count as membership years in South Africa. Only South African medical schemes do. This can have quite an effect on South Africans who work abroad for long periods of time.

(References: The Council for Medical Schemes, Fedhealth, Selfmed)

* Susan Erasmus is a freelance writer. Opinions expressed are her own.

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