A medical scheme is a non-profit organisation, governed by a board of trustees, and must be registered with the Council for Medical Schemes.
This means it does not have shareholders or pay dividends and that the Scheme's income can only ever be derived from member contributions and investment returns. The Scheme pools all members' contributions to fund members' claims, and any surplus funds are transferred, in accordance with regulations, to Scheme reserves for the security and benefit of members. A medical scheme therefore does not make any profits.
Schemes exist for their members as all funds are pooled and safeguarded, to be used to pay claims in accordance with the scheme's rules, and ensure that all members are equitably and fairly cared for (relative to their choice of benefit plan).
All medical schemes in South Africa operate in accordance with the Medical Schemes Act 131 of 1998, and are regulated by the Council for Medical Schemes.
What does 'open medical scheme' mean?
Restricted (closed) medical schemes are administered on behalf of companies for their staff and their families, or can be joined by people working in a particular industry.
Open schemes, on the other hand, are open to the public and anyone can join if they are over 18, not currently a member of another medical scheme and can afford to pay the monthly contributions.
Why does Discovery Health (Pty) Ltd administer the Scheme?
Discovery Health Pty (Ltd) provides administration and managed care services to Discovery Health Medical Scheme. Managed care is rules based programmes that use clinical and financial risk assessments to provide appropriate, quality and value-focussed healthcare services.
Schemes can either outsource its administration or perform this function in-house. The medical scheme environment is complex. It requires significant expertise to manage a scheme effectively, to provide the infrastructure required and to make sure it meets the needs of all its stakeholders, while keeping that scheme affordable, both now and into the future.
Most schemes in South Africa use external administration organisations to provide these expert services to their members. It is essential that schemes and their administrators work with the same objectives in mind - to care for their members at an acceptable cost - even though administrators are able to make a profit, unlike schemes.
To ensure that this is the case, Discovery Health Medical Scheme has implemented a world-class outsourcing model called Vested Outsourcing to govern its relationship with Discovery Health (Pty) Ltd.
Medical scheme administrators charge administration fees to manage aspects such as:
- Risk
- Benefit design
- Underwriting
- Service
- Collection of contributions
- Processing of claims
What restrictions does legislation impose on a medical scheme?
The Medical Schemes Act 131 of 1998, as amended, regulates all medical schemes. The biggest challenge in managing a medical scheme is that legislation imposes many restrictions that the Scheme must balance. These restrictions are:
Open enrolment
All medical schemes must accept all applicants and charge them the same monthly contribution (per benefit plan), regardless of their age and health status.
Regulatory reserve requirements
When a member joins, a scheme must hold 25% of the yearly contribution in cash reserves from day one (even before the member has paid their first contribution).
Prescribed Minimum Benefits (PMBs)
All medical schemes must provide a set of minimum healthcare benefits. These conditions and procedures are called Prescribed Minimum Benefits (PMBs).
Schemes can use tools such as networks, designated service providers and formularies to manage costs associated with PMBs.