Creative Commons License photo credit: pheaber

The separation of medical schemes and administrators is poorly understood. This confusion leads to any number of misguided arguments about the miserliness of the industry. There are plenty of other, better reasons to complain, but that’s a different post!

Medical schemes

Medical schemes are non-profit entities established to provide medical cover pooling and administration to members.

If you want to get legal about it, they are independent legal entities regulated by The Medical Schemes Act no.131 of 1998.

The schemes needs to show solvency by having a surplus (assets greater than liabilities) of more than 25% of gross written premium. (“Gross” is really unneeded since it means before allowing for reinsurance which is effectively non-existent in the industry any more.) The solvency margin provides security to members that their claims can be paid even if more claims need to be paid than planned for in the pricing of the medical scheme contributions.

Medical schemes administrators

Medical scheme administrators are typically for-profit companies provided a service to medical schemes and charging a fee for this service in the hope of making a profit.

The administrators negotiate fees with the medical scheme. Since pretty much the start of this millennium, administrators have not made profit out of not paying claims.

So who is ripping me off then?

When a medical scheme declines to pay your claim, it is not the big profit-seeking administrator that benefits. Remember, they just get a fee per member for administration. The people who benefit are the other members of the scheme. There is more money in the fund available to pay their claims, to protect the surplus and to reduce contribution increases next year.

When someone’s cosmetic surgery is approved by the scheme, the other members pay the price. Continue reading →