Wealthy Maths: Calculate a medical aid penalty

In Latest, Wealthy Maths by Kristia van Heerden

If you join a medical aid after age 35, you’re subject to penalties. The good news is these penalties are applied only to the risk portion of your medical aid, not to your medical savings account. The bad news is once the penalty applies, you can’t get rid of it.

Top tip: If you’re approaching 35 and don’t yet have medical aid, it’s a good idea to get an entry-level hospital plan. While you won’t have comprehensive cover, you’ll have creditable coverage until you can afford to move to a more comprehensive plan when needed.

Why do the penalties exist?

Medical aid is an insurance product like any other. Those who don’t claim subsidise those who do. When you’re young, you’re less likely to need expensive medical care. Your monthly contributions therefore subsidise older members of the scheme. When you get older and require more medical care, the youngsters subsidise you. 

If you join a medical scheme later in life, you didn’t contribute to the kitty earmarked for the older members of the scheme. The penalty is an attempt to claw back those subsidies. Without the penalties, individuals would only take out medical aid when they get sick, which would make medical schemes economically unviable. 

How are penalties calculated?

A medical aid provider is not allowed to refuse anyone on grounds of age, health or any other factor. When you apply for medical aid they consider your age on application and the years of creditable coverage to calculate your premium. If you’re under 35, you get a standard premium. If you’re over 35, they consider the number of years of cover you had to determine your premium.

Your age and number of years of creditable coverage put you in a penalty band used by all medical schemes. 

Creditable coverage

Creditable coverage means medical cover you had before. This does not include cover you had as a child dependent on your parents’ medical scheme. It also doesn’t include cover you had from a medical aid outside the country.

If you had cover as an adult or adult dependent, it’s considered in the calculation.

How to calculate which penalty band will apply

Penalty band = Your age – (35 + number of years of creditable coverage)

Example

Let’s say you are 45 and looking to join a medical scheme. You belonged to your company’s medical scheme for five years when you had your first job. You left that position to start your own company and haven’t had medical aid since. 

The formula is:

45 – (35 + 5)

= 45 – 40

= 5

Apply penalty band

The penalty band is a percentage penalty that’s added to your monthly contribution. Remember, this is only added to the part of your contribution that goes into the medical aid pool, not your medical savings account.

Penalty band Maximum penalty
1 – 4 years 5%
5 – 14 years 25%
15 – 24 years 50%
25 years or more 75%

In the example we used above, you would fall in the 5 – 14 years penalty band, which means you would pay a 25% premium on your monthly contribution.

As you can see from the table above, the longer you wait to get medical aid, the higher your penalty will be. You will pay this higher penalty for life. That means the sooner you join a medical aid, even if you just take out hospital cover, the lower your premium will be.


Many of us avoid making financial decisions because we worry that we can’t do the maths. Luckily, there are only a few formulas you need to understand to make a good financial choices. This series of articles is dedicated to helping you understand how to do the calculations for yourself. Once you grasp these simple formulas, you can make better financial choices on the fly.

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