Will I pay a late-joiner penalty if I join a medical scheme?

A late-joiner penalty can be added to your contributions if you join a medical scheme after the age of 35 and you haven’t been a member before, or you have had a break in your membership.

Be aware of these penalties if you take a break in membership any time after age 35.

The penalty can be anything from 5% to 75% of your contributions and can add a significant amount to an already expensive contribution.

Why do schemes apply these penalties?

Medical schemes are obliged to admit anyone who applies for membership and contributions can only be based on the option you choose and the number of dependants covered.

A medical scheme cannot increase your contributions if you are sick or old. Conversely, a scheme cannot discount your contributions if you are young and healthy.

Schemes do, however, rely on younger, healthier members to subsidise the healthcare costs of those who are older and sicker. Their financial health depends on members joining when they are young.

Late-joiner penalties are intended to protect schemes from people who wait until they are sick and need to claim before they join a scheme, knowing that the scheme has to admit them. This is known as anti-selection.

How much will I pay as a late-joiner penalty?

The late-joiner penalties are calculated using a formula that is set down in regulations under the Medical Schemes Act.

The penalties must be calculated for each member or dependant registered on the scheme using each person’s details.

First, you calculate the number of years of medical scheme cover you are missing using these steps:

1. Add up the number of years you have been a member of a scheme since age 35
2. Add 35
3. Subtract the answer in 2 from your age on joining a scheme
   
   

Use the number of years determined in step 3 to work out how much of a penalty you will pay with this table:

What counts as previous cover?

You can count the following as previous years of membership:

• Years after age 21 that you were a member of a scheme;
• Years after the age of 21 that you were a dependant of a member of a scheme;
• Years in which you belonged to an entity that enjoyed an exemption from the provisions of the Medical Schemes Act – for example, a bargaining council scheme;
• Years in which you were in the South African National Defence Force and enjoyed medical benefits from it;
• Years in which you were a member or a dependant of the Permanent Force Continuation Fund.

You must be able to prove your membership of a scheme.

If you have lost records of your previous membership of a South African medical scheme, or were a member of a scheme that has been liquidated, you can sign a sworn affidavit stating when you were a member.

You cannot use the following as previous years of membership:

• Any period during which you enjoyed cover from a health insurance policy that is not a medical scheme;
• Any period during which you were out of the country with no membership of a local scheme or covered by a foreign scheme or health policy.

Many members find this unfair, but schemes say it is hard to verify membership of schemes in other countries and while overseas you do not contribute to the reserves of a medical scheme.

How long will I pay a late-joiner penalty for?

You can end up paying them for as long as you belong to a scheme.

If you move from an open scheme that imposed such a penalty to a new open scheme, the new open scheme may also impose the late-joiner penalty. 

Restricted schemes typically do not impose late-joiner penalties, so you can avoid the penalty while you are a member of one of these schemes.  However, if you then leave and join an open scheme, you could still have a penalty imposed on your contributions.