THE DIFFERENCE BETWEEN A MEDICAL AID FUND AND MEDICAL / HEALTH INSURANCE

Although it is common practice for these two terms to be used interchangeably, there are, in fact, differences between a medical aid fund business and a medical or health insurance business. The most significant point of divergence between these two industries is the fact that the short and
long-term insurers operate for profit, sharing risks with re-insurers at times,

and investing premium capital as a further hedge, whilst a Medical Aid

Fund in Namibia is required to operate as a not-for-profit organization.

What is a Medical Aid Fund?

A Medical Aid Fund helps you to pay for your healthcare needs, such as visits to healthcare practitioners, nursing, surgery, dental work, medicine, and hospital accommodation. Medical Aid Funds are regulated in terms of the Medical Aid Funds Act, No. 23 of 1995 and are subject to regulatory oversight by NAMFISA. Medical Aid Funds are non-profit organizations and belong to their members. Medical Aid Funds operate through the collective pooling of good risks (fund members with low claim profiles/history) and bad risks (fund members with high claim profiles/history). Members belonging to a Medical Aid Fund make contributions to the Fund and in return receive medical cover according to the rules of the Fund. Benefits are indemnity-based and are usually paid directly to the service provider (direct payments to members are also occasionally made with the member then having to reimburse the service provider).

Medical Aid Funds can be grouped into two main categories: restricted Medical Aid Funds, which are only accessible via membership of a specified/closed group (usually employer based) and open Medical Aid Funds offer membership to all individuals able to afford membership. The Medical Aid Fund is managed by a Board of Trustees whose members are elected by the Fund’s members. The Board of Trustees is responsible for directing the Medical Aid Fund’s activities

to the benefit of its members.

Medical aid cover, as provided for by Medical Aid Funds, is a plan that allows you to access medical care without or with minimum financial burden, (depending on the medical option you chose) should something unexpected happen to you. Medical aid cover:

• Is based on tariff codes and procedures;

• Often has a shortfall (member co-payments), due to the difference between the Namibian Association of Medical Aid Funds (“NAMAF”) tariff and what the healthcare professionals charge. NAMAF annually determines the benchmark tariffs Medical Aid Funds are willing to pay healthcare professionals;

• Has specified annual benefits which may vary from option to option. The benefits available to the member under each option are not unlimited and are capped at certain thresholds/amounts; and
• Does not include any personal accident disability and loss of limbs cover.

What is a medical insurance policy?

A medical insurance policy is a contract sold by an insurance company to a policyholder in terms of the Long-term Insurance Act, No. 5 of 1998 (“LTIA”) or the Short-term Insurance Act, No. 4 of 1998 (“STIA”) and is subject to regulatory oversight by NAMFISA. The policy promises to pay for certain stated benefits when the policyholder is ill or injured, in return for a premium. Generally, the premium is directly related to the age, health status or income of the individual covered by the policy (i.e. “individually risk-rated”). Specific types of exclusions and conditions may also be built into a policy, which can have the effect of limiting who the policy can be sold to, or excluding certain circumstances under which the policyholder can claim under the policy.

Medical insurance:

• May be used as a gap cover in conjunction with your medical aid for cover where your Medical Aid Fund may fall short;
• Protects your financial assets and promotes wellness and health;

• Covers certain accidental injuries such as disability;

• Can cover your salary when you’re unable to work due to an

accidental injury;

• Gives you the option of including death and/or funeral cover to your plan; and
• Covers health events at fixed or stated amounts paid directly to the member as opposed to a medical service provider.

The diagram below illustrates the major categories of health insurance products available in the international market.

Figure 1: Medical insurance general product overview

Medical Insurance

Income Critical Private Private
protection illness health health
products products insurance insurance
products products

Source: Review of the South African Market for Hospital Cash Plan Insurance (applies to the definitions below as well)

Income protection products provide cover for the insured’s income in the event that the policyholder is unable to work due to injury or illness. Benefits are usually available for a pre-defined period (usually up to retirement age). Short term variations like accident policies and sickness policies, also exist.

“Do not leave yourself or your family unprotected against financial storms…

Build up savings.” Ezra Taft Benson

Critical illness products provide cash benefits on the diagnoses of a specified list of diseases, or in the event of a specified surgical procedure, or on reaching a predefined level of impairment or disability.

Private health insurance generally refers to product offerings aimed at meeting the cost of medical care. Products vary greatly and the more common options relate to dental plans, optical plans, major medical expense plans, excess options (gap cover products), medical cash plans, waiting list plans and personal medical expense plans.

Long-term care insurance refers to policies that provide cover for the cost of care in a residential or care home facility once the insured is unable to care for him/herself. These products usually relate to elderly persons and can provide cover on either an indemnity or cash basis.

There are a number of critical illness products and private health insurance products available on the Namibian market.

Many Medical Aid Funds have been adversely affected by the exodus of younger and healthier members, who opted to take up low-cost hospital plans. This exodus has meant that the cross-subsidization of older, sicker members by younger, healthier members, has been reduced. This has contributed to an increase in contribution premiums charged by Medical Aid Funds.

Medical insurance comes at a substantially lower cost than medical aid. However, it is of utmost importance to consider your medical needs before you decide to switch from medical aid coverage to medical insurance coverage. If you are healthy and unlikely to have high ongoing day- to-day costs, a hospital plan might be enough. However, if you are older, or if you have ongoing medical problems, you might be bankrupted by out-of-hospital expenses. Hospital plan insurance will not apply to any doctor visits, treatment or medication received when not hospitalised. Consider your family’s medical history when making this decision. Also keep in mind that the onset of a sudden chronic condition could have negative financial repercussions for you.

Joining a Medical Aid Fund later could cost you more, as you might have to pay higher contribution premiums as a result of your age. Depending on the Rules of the Medical Aid Fund, you may also not be allowed to claim benefits, either indefinitely or for a specified period of time, for the treatment of a particular condition. If everyone joins Medical aid Funds only when they fall ill, all Medical Aid Funds would soon be bankrupt.

The cost of even a relatively minor operation is likely to prove to be a shock for anyone required to foot the entire bill without assistance.

While the fees of surgeons, anesthetists and the rest of the theatre team are obvious, the fact that each suture, swab, surgical glove and disposable instrument also carries a price tag is easy to overlook, as are laboratory tests and ward accommodation.

When faced with the limitations of a fixed daily subsidy from a medical insurer, many have found that they should have paid the extra medical aid contribution premiums that would have covered the lion’s share of such costs. Therefore, the advantages (importance) of medical aid are as follows:

• It protects you financially if you suddenly have to pay large, unexpected medical costs. You can usually rest assured that there will be no delay in your medical treatment because you do not have the funds to pay for it. However, only as long as the aforementioned medical costs are covered by your medical aid benefit option and as long as the medical costs are within the benefit limits of the option you belong to; and
• Being a member of a fund also means you get better medical care because you are treated by private doctors, specialists and hospitals, instead of usually overcrowded public health services.

Your health is important and protecting it is vital. It remains important for anyone who may be considering medical aid or medical insurance to be absolutely clear about precisely what is being offered by his or her choice of product and what is definitely not part of the deal. For those who may not be as fortunate with their general health and who have the means to afford it, there is little doubt that the best option is to invest in the cover provided by one of the more comprehensive medical aid products.

References:

Choosing-a-medical-scheme/Hospital-plan-vs-medical-scheme-

Health-insurance-vs-gap-cover

Difference-between-medical-insurance-and-medical-aid-scheme

Review of the South African market for hospital cash plan insurance by B Childs and D. Erasmus

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