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in BUS 4027W - Actuarial Risk Management by (130 points)
What is the difference between private medical insurance and medical aid schemes? 

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by (1k points)

TLDR: This fleshes the points out quite well

I think this a tough one given the uniqueness of SA's offering of medical aid schemes. I think a general distinction can be made between the two in that one should operate like a scheme whereas the other should operate like an insurance company (which would usually have less restrictions). This isn't really a hard distinctions as it depends on how those entities are defined by the particular country's legislation. 

In the South African context, medical aid schemes are regulated by the Medical Schemes act whereas any company providing health insurance products would be regulated by the insurance act (Long-Term Insurance Act). Some differences in the regulation of the two refers to:

  • The difference in tax benefits on either.
  • The underwriting required for each (remember how medical schemes in SA are required to have open-enrollment)
  • Types of benefits they can offer

 Probably a quicker way to get to an answer to your question is to breakdown how the benefits work typically:

  • Medical Aid schemes offer benefits that aim to cover medical costs for predetermined treatments. The contributions that a member pays will, in part, depend on what conditions/disorders/treatments they wish to cover in future.
  • Schemes tend to cover these costs directly with the providers of treatments rather than paying the covered life and letting them cover the costs themselves. 
  • Insurance products are things like disability cover, critical illness or hospital plans. These often define the benefits from the outset. 
  • These benefits paid by the insurer are paid to the insured life. 
  • I think that point is a key difference as it means that the insurer isn't directly concerned with providing you with medical treatment but rather they are concerned with protecting you against a financial loss as result to health-related event.