How Do Medical Funds Work?
Most South Africans see medical aid as an absolute essential for keeping themselves healthy. So how do medical funds work you may ask?
But have you ever wondered how they pay your claims?
And even more importantly, have you ever wondered if medical aid is something you need?
Medical aid companies use the money they receive from members to fund claims
Member contributions are also used to pay for the running of the company.
For the fund to continue member contributions most always be greater than claims and expenses.
That is why medical aid companies are like trusts. A board of directors manages them, and their primary goal is to keep the fund liquid.
Bigger isn’t better – How Do Medical Funds Work
There are medical aid companies of varying sizes, but bigger doesn’t necessarily mean better.
You see, a fund is only as good as it’s member and the risk they pose.
Medical aid companies offer a wide variety of plans to fit your lifestyle
Each of these plans will have its separate fund, and any payouts also come from this fund.
For example, members pay for chronic medication with contributions from members who pay for this as part of their plan.
Successful medical aid funds have been around for decades
By using medical aid South African’s can gain access to above average medical care.
(While at the same time avoiding overburdened public services.)
They are simple to use.
What all of you have to do is find a medical aid scheme which fits your health profile.
And don’t forget there are always Hospital plans if you’re young and healthy or can’t afford medical aid.
Your employer may offer company medical aid – How Do Medical Funds Work
Should you sign up for the company medical fund?
The main advantage is that you’ll pay less for medical aid. You will also receive certain tax benefits But Sign up will also place you into a risk pool with other employees at the business.
An outside party usually manages the company scheme.
Some companies will extend their coverage beyond retirement.
Check with HR as to the exact provisions for post-retirement cover including if you’ll have to make contributions.
If you are not part of a company medical aid, it’s important that you provide for your medical needs after retirement.
Whether you’re planning on using investments or savings you need to start funding now.
The sooner you start, the more money you’ll have which also mean access to better healthcare.
Also, take inflation into account.
Medical aid funds are legally obligated to run at a 25% liquidity rate
If they are unable to maintain cash reserves at this rate the authorities may choose to review the fund, bring changes to how it is run.
(In extreme cases they may even take over its administration completely.)