Your health is one of the most important parts of your well-being. In study after study around the world people agree life satisfaction and health are the most important aspects of wellbeing2. It isn’t hard to see why: without your health, every other part of your life becomes harder to appreciate.
Looking after your health has a few inter-linked components. One aspect is prevention, and another is cure. When you’re looking for a cure, you have to have two things. You have to have access to the right medical services – like a doctor, medicine or a hospital. Then you have to be able to pay for those services.
Being able to pay for these services is where financial well-being finds its overlap with health. In South Africa, there are three ways to pay for medical care:
- The State
- Insurance
- Savings
Because the State only provides access to public facilities for medical care, many employed South Africans use a combination of health insurance and savings to pay for private care.
Within the context of South African health insurance there are two separate vehicles, the first is a medical scheme, the second is medical insurance. These are two very different types of protection and the distinctions are important to understand.
Being able to pay for these services is where financial well-being finds its overlap with health. In South Africa, there are three ways to pay for medical care:
- The state
- Insurance
- Medical aids
- Health insurance
- Savings
A comparison of medical aid and regular insurance
South African medical aids are actually quite special as a form of health insurance. Firstly, your medical aid can’t earn a profit. Service providers to your medical aid, like its administrator, can earn a profit, but your medical aid can’t. Secondly, your medical aid can’t take into account personal factors about your health when it prices your cover. This reflects the principle of social solidarity. Within the medical space, the term commonly used is ‘community rating’ and it means that every member of a medical aid who has chosen the same level of cover has to be charged the same price.
Compare this to other forms of insurance. If you’ve ever tried to take out life or disability insurance in your individual capacity (rather than through your company), they probably ran you through a battery of questionnaires and blood tests. Then, based on your results, they often alter the type of cover you have or they charge you a higher price. In a way, this means they’re ‘personalising’ your cover, precisely to minimise the risk they face by insuring you.
Medical aids can’t do this. This makes the cost of health insurance far more predictable – and reliable – than it is in other parts of the world. The community rating structure makes health insurance more expensive for young, healthy people than elsewhere, but it also makes it far more reliable and accessible for all parts of the population.
However, medical aids are not the only form of health insurance available in South Africa.
Medical aids as insurance
Because medical aids are a form of insurance, many of the questions we asked in the section on insurance are relevant to this discussion. As with other forms of insurance, an adviser needs to help an individual balance their use of insurance against their use of savings and work out which is most useful.
But medical aids are different from other forms of insurance. The reality is that most individuals use their medical aids regularly. Life insurance you only use once. Disability insurance you may never use. You may use short-term insurance occasionally but with little regularity. All of these forms of insurance are unpredictable.
Your health is not as unpredictable. Most people visit the doctor a couple of times a year. The bigger your family, the more likely you are to see the doctor. If you have a chronic condition or poor health, you use medical care more frequently. Everyone is supposed to see the dentist once a year. Some specialist visits are necessary for annual check-ups. Babies have to go for immunisations. So, there is an element of your medical costs that are fairly predictable.
There is also an unpredictable element to your need for medical care. Car accidents, heart attacks and cancer can all be almost impossible to predict. Maybe you have a family history, but even if you do, the timing is unknown. This is where medical aids become more like other forms of insurance.