Medical schemes are very different to traditional health insurance companies. They are not-for-profit organisations and belong to their members. Medical schemes function by pooling together contributions from members and then when members are in need of medical services, these funds are used to pay for the expenses. Medical schemes or similar organisations can be found throughout the world, but are particularly common in South Africa.

Choosing the right product option to suit your pocket and cover you and your family can be a lot simpler than choosing the right medical scheme. Choosing the right product usually comes down to two factors; benefits and price. When people select a medical aid product, they look at what they can afford to pay each month and then try to find the option that provides the most benefits for that amount of money.

Selecting the right medical scheme can be a lot more difficult though. Usually people ask their friends and family who they think is the best medical scheme, but this can be misleading as everyone tends to think that their choice in medical scheme is the right one… until they encounter problems. Some people go further and contact a broker to give them advice. However, brokers are not always impartial as they usually favour schemes with which they have financial agreements.

Choosing the best medical scheme is a very subjective task, however identifying schemes that one should not sign up with can be easier. Here are some things that you should check on before making a decision:

Number of members

With medical schemes the bigger the better. This is because bigger schemes have a diversified risk pool and a greater capital base. They can also achieve better economies of scale and negotiate better deals with hospitals and doctors due to their size. So if the scheme that you are interested in is small you should be cautious as small schemes usually merge with other schemes when they become too small to be financially viable.

Growth

Medical schemes should grow in members each year. If they do not, their membership base will begin to age and the number of claims will increase. Schemes need young healthy members to subsidise older members. However, a rapid increase in members can be bad too as this can put pressure on the scheme’s solvency ratio. Also a rapid decrease in members can be indicative that the scheme has administration problems and that members are dissatisfied.

Financial stability

Schemes are required by law in South Africa to always have a specific amount of cash in reserve. This amount is 25% of its contributions and is required as a cushion in case claims exceed those predicted for a particular year. This is referred to as the scheme’s solvency ratio. If a scheme’s solvency ratio is below 25% this is a bad sign.

Just like companies, medical schemes either record an operating loss or profit each year. A scheme with an operating loss over several years is a definite red flag.

Contribution increases

It is normal for schemes to increase the required contributions for membership. These increases take effect each year and if reasonable should not be an issue. However, be careful of schemes that increase contributions above the norm. A higher than normal increase could indicate that a scheme is experiencing financial difficulties and is trying to compensate for this by increasing member contributions.

Service levels

Poor service levels might not directly affect the financial stability of a medical scheme, but for members this is the most important factor for judging whether a medical scheme is good or not. Judging whether a scheme has good or bad service levels is not easy; however you can get a ‘feel’ by visiting consumer complaint websites and reading what current members of the scheme are saying.

Using these criteria to separate the medical schemes that are performing poorly from the ones that are doing well, will help hopefully make your choice of scheme easier.