Medical Schemes: What are late-joiner penalties?

Late-joiner penalties are one expense that can cause you to literally pay for the folly of your youth for the rest of your life. If you join a medical scheme after a certain age, you may pay more than everyone else for the rest of your life. This was a surprise to me, too, when I learnt about this fact.

Regulation 13 of the Medical Schemes Act (131 of 1998) prescribes a formula whereby people who join a Medical scheme after a break of coverage may pay between 5% and 75% more than anyone else in the scheme for the rest of their life. This happens when the member joins who is 35 years or older and did not have medical scheme coverage for a certain period of time.

At that time, I had a break in my medical scheme cover, so my knee-jerk reaction was: How on earth does the Medical Aid Industry get away with this type of discrimination?

Let me tell you a little story:

Imagine a gentleman, let’s call him Klaus. Klaus has just turned fifty and has been living in the bush for the last 20 years. He has gangrene in his little left toe and broke his right clavicle wrestling with a lion a while ago. It has healed, but it still bothers him on cold winter mornings. He is also coughing constantly because he tends to sample his tobacco and weed crop in the back of his tent too much.  He also has a sneaking suspision his home-made brew burnt a hole in his stomach.

He wakes up one morning, really concerned about all his ailments. He hobbles into town to find a that damn charlatan, the local doctor. The doctor takes one look at him and starts giving him a rundown of some costs. “Jiminy cricket”, he says, “I can’t afford this!”. He wonders: “This can’t be normal. What do other people do?”

“Other people have medical aid!”, says the doctor.

Klaus decides to check this out. He goes to the nearest Medical Aid and finds out that the lovely constitution of the land allows anyone to join a medical scheme, because refusing would be considered discrimination. He also finds out about a “waiting period”, before the scheme pays for a treatment. “This sounds promising”, he schemes, “let me pay my premiums for a year, have the Medical Aid pay for my procedures and then stop paying the premiums again”.

So, he goes back home and pays the premiums for a year. He returns and decides to have some teeth-whitening done too – he reckons that his two sparkling teeth would blind his next prey and give him a competitive advantage.

This ends up being quite a deal: he paid R5,000 and gets millions of rands worth of procedures done. He’s even more chuffed, because his sales of the good stuff has skyrocketed from all the bystanders who inquire about his produce. Maybe he should come into town more often…

If I were a young member of a medical scheme paying in for years without claiming, I would be more than mildly annoyed that I am paying this guy’s medical bills.

The way Medical Schemes work, is that the older members, who generally get ill more often are subsidized by the premiums of younger members, who claim less. As the younger members get older, their medical costs are increasingly paid by the new younger members and so forth. (cue: “the circle of life” by Elton John)

A medical scheme, just as in any good budget, stays healthy if their income (the premiums) exceed the outgo (medical expenses, administration and other fees). A person joining just before they get sick is similar to someone jumping the queue and not “paying their dues”, which could leave the Medical Aid in bad financial health. This will spoil the amount of benefit available to everyone else in the scheme.

Sounds pretty logical, right?

Why would there be such a debate over the late-joiner penalty?

As in most situations, the legislation is not perfect. In the next post I will show you how the late-joiner penalty is calculated and who should be worried about having to face the extra costs.

Kevin Mzansi

Disclaimer: This post is only an overview of how medical schemes and specifically, late-joiner penalties work. Please consult your own financial adviser or medical scheme to find out more about the details of these regulations and whether it may apply to your unique situation.

Image by hoyasmeg