Medical Aid consumers can avoid late joiner penalties, imposed on applicants joining medical schemes later in life, by joining a scheme early in their careers when they are younger and healthier.
Late joiner penalties are additional fines added to contributions of member applicants who are 35 years and older when they first apply for membership or as beneficiaries to a medical scheme. Schemes use these to minimise risk since the Medical Schemes Act (MSA) bars them from declining membership applications.
Late joiner penalties once implemented are applicable for life, and these are a fixed percentage of medical scheme contributions. It should be noted that medical scheme cover can be costly and late joiner penalties make it more difficult for beneficiaries to afford cover later in life.
According to Board of Healthcare Funders of Southern Africa’s Head of Research, Charlton Murove, there are gaps in the MSA which provides medical schemes sector regulatory framework. This MSA is built on three core principles.
“First, there is no price regulation, yet schemes are required to pay for Prescribed Minimum Benefits (PMBs) in full. This means medical schemes have to pay for these benefits in full despite what the provider charges. In some instances, schemes pay millions to treat a single member in a year,” said Murove.
“Secondly, schemes are supposed to charge the same contributions for all beneficiaries despite difference in age and health status of the beneficiaries. This is the principle of community rating,” continued Murove. Schemes may only differentiate the contributions by income and family size of the principal member.
“Lastly, there is the principle of open enrolment that says schemes must provide coverage to everyone who wants to join yet there is no compulsory membership,” said Murove.
This leaves schemes prone to anti-selection, where new beneficiaries tend to have a worse risk profile than the beneficiaries’ schemes are covering. Late joiner penalties are a provision in the MSA that may be used by schemes to protect themselves from anti-selection.
According to Medshield Principal Officer, Thoneshan Naidoo, the protection from risk offered by the penalties is not adequate.
“They do not provide adequate funding to make up for those members who join late and then claim for high cost biologic medicines that are priced in excess of R1 million for treatment,” said Naidoo.
“For example, a member who has not been contributing to a medical scheme for 25 years will have a 75% penalty. It would take a further 23 years of this member’s contributions to fund a R1 million treatment,” continued Naidoo.
Late joiner penalties are paid indefinitely. Schemes are obliged to report a member’s late joiner status when they terminate membership so that new schemes can continue imposing the additional costs.
These additional costs are supposed to encourage people to join when they are much younger and healthier. According to Hosmed Executive Principal Officer, Dr Vusi Memela, this is the best way to avoid permanent penalties.
“Ideally members should be joining a scheme earlier when they’re young and healthy and may make use of the screening and preventative care benefits timeously, thus reducing the burden of disease and high cost events later,” said Dr Memela.
Various other people also risk qualifying for late joiner status and having penalties perhaps unfairly added to their contributions. This includes people unemployed for longer than three consecutive months and unable to pay contributions while still hunting for another job.
“The high unemployment rates prevalent in South Africa especially in the young ages compound the problems of low scheme membership in the young ages,” said Murove.
“Affordability is a general concern in recent economic times for all and not only newly joining members. The recent publication of the Council of Medical Schemes’ Annual Report 2016/17 indicates a decline in new members joining medical schemes,” said Dr Memela.
Another group who could find themselves vulnerable are people who are out of the country for longer than the stipulated period. Upon their return to South Africa they may be charged late-joiner penalties.
The only people exempt from these penalties are those who can prove that they were adequately covered by a previous scheme. This is referred to as creditable coverage.
Some schemes, like GEMS, opt for waiting periods rather than impose late joiner penalties. This is another form of restriction MSA allows.