top of page

“What’s the difference between medical insurance and medical aid?”


It gets even worse. There are hospital plans offered by short term insurance companies and hospital plans offered by medical aid schemes.

You might not have known this, but there are three types of businesses looking to separate you from your money when it comes to your health:

  • First we have the medical aid schemes who don’t always pay in full anyway

  • Then we have the life insurance companies who only pay what you’re insured for – nothing more and nothing less, and

  • Lastly we have the clever kid on the block – short term insurance companies. And these guys can be further broken down into gap cover and hospital insurance.

Now I don’t know whether you’ve been following the taxi intimidation that’s happening all over the country? If they’re not shooting passengers on buses in Mabopane then they’re threatening the guys and gals at Uber.

Would you believe that the same thing happens in government and big business? This is the story of how big business fought with government over your health.

How government put the squeeze on medical schemes

In 1998 the Medical Schemes Act was amended and forced schemes to do the following:

  1. Charge everyone the same regardless of whether they were healthy or unhealthy

  2. Admit anyone who applied

  3. Provide a minimum level of benefits to everyone who joined. This became known as prescribed minimum benefits

The idea was great because they wanted to prevent schemes from becoming too expensive for the elderly and sick.

And the life insurance companies saw an opportunity

You see, insurance falls under different acts:

  • First, there is the Long Term Insurance Act, and

  • Secondly, there is the Short Term Insurance Act

Basically insurance companies can charge according to the risk you and I pose to them. If our risk was way off the charts, they could even refuse to give us the cover. The older we get, the more they can charge as well.

Life insurance companies further sweetened their deal by offering cash values attached to their policies. So the young and healthy could take out a policy, and in 10 or so years, get a healthy cash back benefit if they cancelled. In the meantime they could take a bottom of the range medical aid plan and ‘top it up’ with one of these fancy medical insurance policies.

Problem was that the medical aid schemes needed the young and healthy to subsidise the elderly and infirm. The council of medical schemes decided to throw a spanner in the works.

This is what the council said:

  • Life insurance companies were a bunch of lone rangers who could do as they wanted. They weren’t as regulated as medical schemes were so they could end up ripping people off.

  • They discriminated against the elderly, which is true. Try taking out life insurance when you’re 65 and see how much you’ll pay versus someone who’s 30.

  • Life insurance policies pay out fixed amounts to the doctors regardless of actual cost. This encourages greed amongst the medical fraternity which meant that medical schemes ended up paying more as well. This definitely didn’t work out as the council intended.

It was agreed between the Council for Medical Schemes and the Financial Services Board to demarcate the business of life insurance from that of medical schemes.

The key differences were:

  • Medical schemes must pay the member’s actual medical expenses. The benefits of a health insurance policy (read life insurance here) may not be related to the actual medical costs at all.

  • Insurance policies must cover specific health issues and must insure the person for a fixed sum of money. In other words, it must pay out if I suffer a heart attack and it must pay out the million Rand I’m insured for.

The medical schemes won the battle, but did they win the war?

Today there are quite a few people fortunate enough to still own a medical life insurance policy. It’s an exclusive club with no new members allowed.

The only thing you and I can do is buy critical or severe illness cover. For all the old fogies reading this (Don’t worry, I’m in your camp!), I’m talking about dreaded disease cover.

What happens here is that the life insurance company insures you against certain dreadful diseases. Examples that immediately spring to mind are heart attacks, strokes, and cancer. You then decide on how much you’d like to be insured for, and they quote you a price for that level of cover. The older you are, the more expensive it becomes.

If you are diagnosed with one of those severe illnesses; the life insurance company pays the amount owing to you. You can then use this amount to settle any outstanding hospital bills. You can even spend it on the Lotto (although I’m not so sure that’s a good idea). Remember that nowadays most medical aids don’t pay your hospital bills in full. This is a great way to cover the shortfall.

By the way, if you’re interested in getting a severe illness quotation from various life insurance companies, then we’re your ‘go to’ guys. Remember that, okay?

Featured Posts
Recent Posts
Archive
Search By Tags
Follow Us
  • Facebook Basic Square
  • Twitter Basic Square
  • Google+ Basic Square
bottom of page