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Late joiner penalties as stipulated in the Medical Schemes Act (MSA) – how should these be structured?
The purpose of the discussion will be to unpack the late joiner penalties. This will focus on both the funder side as well as the beneficiary side. The discussion paper will cover three questions.
iii. What is the best age for members to join medical schemes given the late joiner penalties currently in place and the cost neutral late joiner penalties.
Medical Schemes in South Africa are established under the Medical Schemes Act. The schemes are trust funds which are based on strong social solidarity and has three main pillars which are:
The medical schemes environment in South Africa experiences an incomplete regulatory space. There are some gaps which these three pillars need to be filled to ensure sustainability. There is no price regulation, yet schemes are required to pay for PMBs in full. There is a principal of open enrolment yet there is no compulsory membership, leaving schemes prone to anti-selection. There is also community rating implying there is no risk rating while the medical schemes act has limited livers to manage risks by the schemes.
Medical scheme contributions have been increasing in excess of inflation – between 3% to 5% above inflation. This presents affordability challenges especially in the younger ages were the income level may not be high. The high unemployment rates prevalent in South Africa especially in the young ages compound the problems of low scheme membership in the young ages. This scenario obvious results in poor cross-subsidisation within schemes further compounding the sustainability challenges.
The MSA provides some protection to schemes by penalising the beneficiaries who join a scheme late. They are obliged to pay higher contributions because they are joining late – this is known as late joiner penalties.
The project will make recommendations on the appropriate level of the late joiner penalties given the age-related claims. The discussion will also have a member focus to establish when it may be most financially beneficial for beneficiaries to join schemes. The discussion will explore possible alternatives on structuring late joiner penalties given the above considerations.