Many regard the debate of health insurance vs medical aid as an issue of semantics. However, the fact is that the two are quite different and it’s important to know what you could potentially be paying for. So, what's the difference?

The most basic difference between the two is that health insurance is an insurance product, much like life insurance, and medical aid is not. Health insurance charges a monthly premium for fixed pay-outs that are stated in your policy schedule. It works on a simple basis of if situation A happens, you’ll be paid X. On the other hand, a medical aid scheme is not an insurance policy and pays out a wide variety of benefits when needed by the members who have been paying contributions into a mutual fund.

While this is the basic difference, there are quite a few more significant factors that need to be taken into account. To start with, health insurance companies are profit-driven, while medical aid schemes are non-profit. Another factor is that health insurers pay you, while medical aid schemes pay the suppliers.

In addition, health insurance companies are governed by the Financial Services Board and are regulated by the South African long term Insurance Act. Medical aid schemes, on the other hand, are governed by the Council for Medical Schemes Medical Aid and are regulated by the Medical Schemes Act.

What this breaks down to is that medical aid schemes must stick to the rules of the different legislature that applies to them. For instance, certain conditions and emergencies must be covered in full by the medical schemes regardless of the plan type the member is on (called Prescribed Minimum Benefits). They also must adhere to an open enrolment principle and a community rating principle, which means that no one will be turned away and all members pay the same rates.

A health insurance company does have the ability to turn away members and because premiums are calculated based on individual risk, the rates differ. Now, because they aren’t under any obligation to accept everyone and pay for anything they don’t want to, health insurers come in at a lower cost and are often more appealing.

At the end of the day, when it’s time to make a decision of health insurance vs medical aid, it’s important to know exactly what you’ll be profiting from. It may be that health insurance is a viable financial option, but it could be to your detriment to pay for something you thought was similar to a medical aid scheme.

The MoneyShop Team.

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