By John Cranke, Financial Adviser, PSG Wealth Employee Benefits Midlands
When we’re young and healthy, it’s difficult to imagine needing medical cover, and often getting this in place falls by the wayside. Delaying, however, can cost you considerably more than the monthly premium you’d pay, particularly if you are in your mid-30s and up.
The Medical Schemes Act allows medical schemes to apply late-joiner penalties to those who fit the definition, and this can greatly impact the premium you will have to pay.
Are you running late?
A late joiner is an applicant, or the dependent of an applicant, who at the date of application:
- is 35 years or older, and
- was not a member of, or a dependent on, a registered South African medical scheme (though foreign schemes and insurance policies are not recognised) on, or before 1 April 2001, or
- has allowed a break in cover of more than three months since 1 April 2001.
Why do late joiner penalties exist?
The principle of cross-subsidisation applies and is one that all medical schemes are based on. What this essentially means is that you join a scheme while you are young and healthy, and contribute to the reserves of the scheme, which are used to fund the treatments in respect of the less healthy members, until one day when you need to rely on the scheme to fund your treatment from the reserves contributed by the healthy members at that time. It can almost be seen as a medical ecosystem that can work against you if you don’t participate.
How will your penalty be calculated?
To work out how much your late-joiner penalty will be, the scheme will count how many years you have not been a member of a registered South African medical scheme since you turned 35, excluding any period of cover as a dependent under the age of 21. For this calculation, the medical scheme or schemes you belonged to must be registered at the Council for Medical Schemes.
The percentages as below will be added to the contribution you pay for your risk benefits (used to fund, for example, hospital stays and chronic medicine). The calculated late-joiner penalty is payable for the rest of your life – even if you transfer from one medical scheme to another. Keep in mind that the extra percentage will not be added to the contribution for any medical savings account you may have as part of your eventual cover.
|Number of years not registered on a medical scheme after the age of 35||Late-joiner penalty|
|1 to 4 years||5%|
|5 to 14 years||25%|
|15 to 24 years||50%|
|25 years +||75%|
While it might be considered fashionable to be late for some, in the case of medical cover, it really isn’t the advisable trend to follow.
Better safe than sorry
Unfortunately, we don’t know what the future state of our health (or that of our dependants) is going to be. It’s never pleasant to watch money disappear from your budget into cover you might not need immediately, but smaller financial sacrifices sooner, can really pay off later.