Medical insurance vs. a medical scheme

Health insurance – iStock
Health insurance – iStock

Many consumers have been quite confused about the differences between medical insurance and medical schemes. Active advertising campaigns by the medical insurance industry have also, at times, led to greater confusion.

The world of medical cover is a complicated one, and many people with medical insurance only discover on admission to hospitals that their medical costs are unlikely to be covered by the daily amount paid out by their hospital cash-back plans.

Read: Medical schemes - the basics

Gap cover, available to medical scheme members only, is also an insurance product, further muddying the waters in the minds of consumers.

Medical schemes

A medical scheme is regulated by the Medical Schemes Act of 1998. Its regulatory board is the Council for Medical Schemes.

Medical schemes are not run for profit, and are required by the law to pay for the treatment of a list of 270 prescribed minimum benefits (PMBs), whether you have an expensive comprehensive plan, or a normal hospital plan. They also all have to pay for the treatment of 26 chronic conditions.

Read: 10 tips on choosing a medical scheme

Schemes have to pay for the treatment of PMBs in full and at cost, and a scheme may only limit the payment for this treatment if a scheme member chooses to use a provider other than the designated service provider (DSP) of the scheme (if it has one).

Hospital cash plans

Hospital cash-back plans and gap cover do not fall under the Medical Schemes Act and are run for profit by insurance companies. Traditionally, hospital cash back plans cost far less than full medical schemes or hospital plans, making them attractive to low-income earners.

Hospital cash plans will pay you a cash amount for every day you spend in hospital (some of them only pay from day three or day five and others from the start), regardless of the medical costs you have incurred. Hospital cash plans do not cover medical expenses or the actual costs of an operation or a hospital stay.

Read: Some of SA’s cheapest hospital plans

One of the proposed amendments to the Demarcation Act will force these plans to pay from the first day. Hospital cash back plans do not differentiate between private and public hospitals.

Gap cover

Gap cover, also an insurance product, up till now has only paid the difference between specialist costs and the amount a medical scheme will pay for in-hospital treatment. The amendment to the Demarcation Act proposes to extend gap cover to other health-related products and services, where the actual costs exceed the amount paid by the medical scheme –even for non-PMB treatment.

Read: Are South Africans baffled by medical scheme benefits?

This would mean a far closer monitoring of the gap cover industry as a whole, which could in future, resort under the laws governing medical schemes, rather than those governing the insurance industry. This would mean far greater protection for the average medical scheme member, but possibly also a substantial rise in the cost of gap cover in the future.

Proposed amendments to the Demarcation Act aim to differentiate very clearly between the business of a medical scheme, and the business of insurance companies providing health-related insurance products. The protection of the consumer, and the greater understanding of the business of medical cover on the part of the consumer, are the ultimate aims of these amendments.

Read more:

Potential amalgamation between Bonitas medical fund and Liberty medical scheme

10 tips on choosing a medical scheme

25 chronic conditions your scheme must cover

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