The “new generation” of medical aid systems provides a solution for smaller businesses to manage their own healthcare. These flexible schemes combine comprehensive hospital cover, a fund for day-to-day medical expenses and an optional health savings account to top-up cover.
Only one in five South Africans can actually afford comprehensive medical aid cover, the rest of the population rely on the state for medical care. At the beginning of this year South Africa had 119 registered medical schemes. Not all medical schemes are open. In fact, of the 119 medical schemes, only 37 are open to the public.
“In South Africa at the moment there are fewer medical schemes but membership to existing medical aids is increasing rapidly,” says Alexandra Serwa, Communications Manager for the Council for Medical Schemes.
To understand how medical schemes (medical aids) operate isn’t difficult. Medical schemes use the income they receive through members’ contributions to pay claims as well as other non-health costs that are necessary to enable the effective administration of the scheme. By law, it is required that all schemes need to have a 25% solvency level. Should a scheme not manage to maintain its reserves at this level, the Registrar of Medical Schemes may put the fund under review, invoke changes to benefits and contributions and, in extreme cases, even put the fund under curatorship.
Taking care of employees
Finding a medical scheme that meets the needs of all your staff at an affordable cost is daunting. But it can be done, usually with the help of a broker, or directly with medical aid providers and through local or national business associations, who often offer group health insurance plans that you can join.
Another option for small business owners is that they can form a group with other similarly situated small businesses and pool resources. Medical insurance companies provide discounts to people or businesses that are engaged in similar types of activities.
Because there are certain known factors about a particular group of people, medical schemes have a better idea of what the risks are and can therefore price their products more competitively. Business owners also have to consider the financial implications carefully if the company elects to subsidise monthly contributions.
Some smaller companies use the “cost to company model” where the employee receives a salary package, which includes a monetary provision for healthcare, and they must source their own healthcare scheme. This can make a company more attractive as an employer.
“Employee benefits such as medical aid, increase staff motivation and encourage workplace commitment as employees see these benefits as ‘giving them something’,” says Melissa Appel, GM of customer retention and quality assurance at Spectramed.
These are the pros, according to Appel:
- Medical cover reduces liability for the small business in cases where employees require a loan for medical expenses
- It provides the security of knowing that staff have access to quality primary healthcare so they don’t come to work ill, which results in better productivity
- Access to disease management programmes (such as HIV/Aids) encourages employee wellness and compliance with treatment regimes
- Compulsory medical aid membership for all employees, including new staff members, means that they can join, regardless of age or other factors, without a waiting period before they can make a claim
- It’s easier to manage staff as medical aid membership means employees don’t spend long periods of time queueing at public hospitals.
“Dependent on the option, your staff members have access to preventative healthcare, such as blood pressure tests and access to GPs so that ailments can be treated before they need sick days off,” adds Appel. “It therefore improves workforce productivity. The peace of mind that comes with knowing you have healthcare cover can lead to improved health due to reduced stress,” she says.
Appel says there are some cons to medical cover:
- Medical aid membership can be expensive for small businesses
- Only higher-earning salaried employees, as opposed to wage earners, can afford medical cover
- There are no lower rates for small groups. For larger groups of over 60 members, there is the advantage of group underwriting.
- The cost in this economic climate is an inhibitor; employees may choose the wrong option for their needs and thus run out of benefits
“An increase in medical inflation coupled with an above average increase in contributions across the industry affects affordability for both employer and employees,” Appel says. “Once a small business is committed, it is difficult to ‘buy-out’ of that commitment.”
Choosing a medical scheme
Small businesses should look at options available in the industry and select a medical scheme with a range of product options to suit all employees’ needs. Consult with staff to get an understanding of their thoughts, needs and requirements as well.
“Small businesses must take into account the solvency of the medical scheme they are considering, or at least review the business plan approved by the Council for Medical Schemes, to ensure that the scheme is in the black,” says Appel.
There are some important points to think about. Once you have worked out which medical scheme may fit your profile, the research process will continue. You will need to consider service levels offered by the medical scheme and whether or not the medical scheme has a service level agreement (SLA) with various service providers.
- Small businesses must look at the non-health expenditure of the medical scheme in question
- Consider the company budget and decide whether or not you will subsidise employees or build “cost of employee benefit” into the salary package as cost to company
- Choose the top three schemes to present to the company – their products, contributions, benefits
- Finally, make sure that the scheme you have selected has a good relationship with hospitals and service providers
Business owners need to make a principle decision based on several factors: Eligibility for membership (will you subsidise the employee only or the entire family?); is membership compulsory or voluntary (if there is a subsidy then it’s usually compulsory); what options will the company subsidise and what will you offer employees?
Once this has been agreed, an employer application form must be signed. Next, each employee must complete a membership application form.
The employer will pay the contributions to the scheme as monthly payments and then recover the funds back from employees through salary deductions.
Do-it-yourself vs advisors
If you don’t have any idea where to start, an advisor or medical aid broker could be the answer. Make sure the person you choose is FAIS (Financial Advisory and Intermediary Services) accredited so that you can be sure they are offering sound advice.
“If you know what you are looking for then going direct to the medical scheme is advisable as this minimises the scheme’s exposure by not having to pay unnecessary broker commission,” explains Appel.
With or without a broker’s help, look carefully at your specific needs. If you’re still unsure, talk to another objective independent healthcare broker who will be able to help you choose the right scheme and product option.
Once your business offers medical aid to its staff, make sure that the scheme is evaluated regularly so that you can adapt it to your needs as the business expands.
Can staff switch medical aids?
It is very easy for someone who already has a medical aid to switch to a company package. All they have to do is give notice and request a transfer to the company medical aid. “The larger the risk pool offered by the small business, the better the underwriting terms and conditions can be,” says Appel.
Most small businesses have a policy in place whereby employees don’t have to belong to the company’s scheme if they belong to a spouse’s or partner’s medical scheme.
Do employers get a discount of any sort?
The Medical Schemes Act 131 of 1998 does not permit discounts in a community rated environment.
The only negotiable is a reduction or waiver on terms and conditions applicable to underwriting. This means that big companies can underwrite a better rate and scheme for a company if there are enough members.
Are medical aid contributions tax deductible?
From 1 March 2009, the monthly monetary caps for tax deductible contributions to medical schemes increased from R570 to R625 for each of the first two beneficiaries, and from R345 to R380 for each additional beneficiary. Replacement of the medical aid contribution deductions with a non-refundable tax credit is currently under discussion and could be implemented within the next two years. The tax credit would be set at about 30% of the prevailing deduction.
All contributions made by employers to the medical aid fund on behalf of employees would then be taxable in full, and the employee would therefore be able to claim a tax deduction for the contributions up to the cap.