February 2008

Choosing the right medical scheme

How do you go about choosing a good medical scheme to join? Or how can you assess if the scheme you belong to is a good one? There are some critical issues to look at it and factors to consider when making this decision.

The Council of Medical Schemes
First of all you need to know that a statutory body was established by Parliament to provide supervision over medical schemes. This is the Council of Medical Schemes (CMS), and it plays a regulatory and advisory role. The Council can be contacted if you have any queries about the medical scheme you are considering, particularly if you have questions that the scheme cannot (or will not) answer. Visit the Council's website at www.medicalschemes.com, or phone 0861 123 267.

Your five-step guide to choosing the right scheme
(You can also use these points to assess your existing medical scheme.)

1. Ensure that the scheme is registered in terms of the Medical Schemes Act 131 of 1998. The names, addresses and telephone numbers of all registered schemes are published on the Council's website.

2. Get an overall view of the scheme's financial position. You can do this by requesting the latest financial statements and annual report of the scheme. (These reports are also available on the Council's website).

You'll need to find out the medical scheme's solvency level, which is the amount of money the scheme has in reserve (expressed as a percentage of its contribution income). Schemes are required by law to have 25 percent of their contributions in reserve to cushion the scheme in the event that it suffers underwriting losses in a particular year.

When choosing a medical scheme, you need to know if it meets the 25 percent reserve level. If a scheme does not, how does it plan to reach this level, and what are the consequences for members? For example, a medical scheme whose reserves are too low will either have to raise contributions steeply or reduce the benefits it offers to its members, or both.

3. Find out the size of the scheme. The larger the scheme, the greater negotiating power the scheme has when it comes to negotiating the rates it will pay to healthcare providers. The CMS reckons that a scheme should have at least 6 000 members. Any scheme under 20 000 principal members is considered relatively small, especially when it comes to negotiating power and achieving economies of scale. (Because of this, many smaller medical schemes have consolidated.)

4. Find out the scheme's credit rating. Most open schemes are rated by a ratings agency called Global Credit Ratings. Your scheme's website should provide you with the scheme's credit rating, if it has been rated. These ratings measure each scheme's ability to pay claims. If a scheme has an A or higher rating, it is generally stable.

5. Find out what proportion of members' contributions is spent on "non-healthcare" expenses. The non-healthcare expenses that schemes pay include the administration costs, managed care fees, broker commissions and bad debt. The CMS recommends that non-healthcare expenses should be less than 10 percent of members' total contributions. Realistically though, the current average is about 16 percent. The CMS website contains information on each scheme's non-healthcare expenses. However, don't look at the percentage spent in isolation. If a scheme's administration is really good, it's worth paying a bit more for that.

Still not sure?
If the task of choosing a medical scheme on your own is overwhelming, or you just don't have the time to find out all the information above, you can employ the services of a medical schemes broker (intermediary). Ensure that he/she has been accredited by the CMS and that your selection of scheme is based on informed consent. To ascertain whether a broker has been accredited, insist on proof of accreditation, or verify the broker accreditation status on http://www.medicalschemes.com/Consumer_Assistance/FindBroker.aspx.

Next month: Now that you've chosen a scheme, how do you choose the right option for you within that scheme?

Click here for previous issues of Money Matters.