Medical aid schemes – how do late joiner penalties work?

medical scheme late joiner penalties

How do Late Joiner Penalties work when you join a medical aid scheme in South Africa?

The Medical Schemes Act 1998 (“MSA” or “the Act”) governs all aspects related to private healthcare in South Africa. The MSA regulates entities such as medical schemes, medical scheme administrators, managed care organisations and financial advisors (brokers).

According to the Regulations to the MSA, medical schemes may impose on new members joining a scheme, a penalty for joining “later in life”. This penalty is called a Late Joiner Penalty (LJP).

The funding model for medical schemes is based on the principle of cross-subsidisation.  In other words, the funding model is reliant on younger / healthier members who contribute to the risk pool of a scheme for a reasonable period whilst not claiming anything major. During this period, they then subsidise the higher claims of generally older / more sickly members.  And, over a period of time, the younger members will eventually get older and will then in turn benefit from the younger / healthier members who contribute to the risk pool. 

Selective abuse of medical scheme funds, where members join at an older age (or only when they are in need of medical treatment) and then claim large amounts shortly after joining a scheme (without having contributed to the risk pool of funds) would have an adverse effect on the general funding model of medical schemes. Ultimately this will result in increased contributions for all members.

What are Late Joiner Penalties?

A “late joiner” refers to an adult applicant (main member or dependant) who, at the time of joining a medical scheme, is 35 years or older and who was not a member of one or more medical schemes in South Africa as from a date preceding 1 April 2001, without a break in membership exceeding 3 consecutive months since 1 April 2001.LJPs may therefore be applied in order to protect medical schemes from “anti-selection practice” – a term used to describe the practice of joining a scheme later in life, when you are more likely to need expensive cover, but have not contributed to the risk pool of reserves built up by existing members. 

Late joiner premium penalties shall not exceed the following bands

The MSA sets the following maximum penalties. Depending on an applicant’s age and overall health / risk profile at the time of joining, medical schemes may however apply their discretion in determining a suitable LJP. An LJP may be less than the below penalties, but it may not exceed it.

Penalty bands (based on the number of years without medical scheme cover after age 35)

Maximum penalty

1 – 4 years

Plus 5%
of monthly

5 – 14 years

Plus 25%
of monthly

15 – 24 years

Plus 50%
of monthly

25+ years

Plus 75%
of monthly

Late Joiner Penalty Example:
Mary is 63 and applies for medical aid membership.  She belonged to a medical scheme for 3 years for from the ages 36 – 38 years and again for 7 years from 42 – 48 years.

Formula to calculate Mary’s late joiner penalty:
63 – (35 + 3 + 7) = 18.

Mary’s number of years without medical aid cover after the age of 35, and her current age, are 18 years.  She therefor qualifies for a 50% late joiner penalty on her monthly contribution.  If the monthly contribution of the option she wants to join is R1 500 per month, her premium will therefore be R1 500 plus an additional 50% = R2 250.

Remember – medical schemes may not exceed the above stipulated maximum penalties, but they may, at their discretion, reduce it.

Overseas medical scheme cover / health insurance products

Membership of overseas medical schemes and / or health insurance policies will not count as membership years in South Africa. LJPs, if applicable, are charged for as long as you are a member of a medical scheme.  It is therefore a “life-long penalty”. Members are therefore encouraged to join a medial scheme early in life to avoid these penalties later in life.

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