Insurance

In pursuit of the perfect Medical aid strategy

For some time now, there has been a suggestion doing the rounds for the perfect medical coverage. We’ll attempt to interrogate this hypothesis and give you the low-down.

SPOILER ALERT: We think it works and it’s what most of our editors have been doing for ages.

A recap on medical aid schemes

We’re all familiar with medical aid schemes, which help you avoid your worst fear as suggested by the media – ending up in a state hospital.

We like to think of medical aids as essentially providing three distinct functions.

Hospital care

The first, is providing cover for your in-hospital costs should you find yourself needing to be hospitalized for whatever reason. This doesn’t generally cover elective procedures – only things like casualty, disease, chronic illness, sickness, etc. Hospital costs can get very expensive but fortunately they are all typically charged at medial scheme rates, so your medical aid will settle them entirely. If you need a reminder as to what your medical aid does and doesn’t do, then read this previous article of ours on Gap Cover.

Saving for the unexpected

The second is an optional medical savings account, attached to your medical aid. As your medical aid normally only pays for in-hospital costs, any other medical costs that you might become liable for that are not covered, would need to be funded by you. These would include things like visits to a doctor, dentist, pharmacy costs, and that visit to the physio for your gammy knee.

To fund this medical savings account, some medical aids will take a portion of your monthly medical aid premium that you pay and allocate it to a savings account, such that you can still submit certain out-of-hospital costs to your medical aid and have them settle it, but if your medical savings run dry, then you’d have to pay for it yourself.

This savings account offers you no magical interest rates or ability to settle medical costs at a discount, it is simply the lazy person’s ideal way to save for a medical rainy day. There is no enhancement or economic benefit to savings for medical costs in a medical aid savings account; you should be no worse off had you simply saved money in a money market unit trust, or bank account and dipped into that from time to time.

In fairness, some medical aid plans that offer savings elements do have additional lightweight benefits, over and above a simple savings plan. An example of this would be the ability to have some out-of-hospital costs covered that would ordinarily not be covered.

It might be convenient for some people to not have to worry about setting money aside for the whole family to see the dentist next year; rather they prefer to have a little bit set aside every month by the medical aid. This is fine and we get that.

The common culprits of ill health

The third, is the management of a specified list of medical conditions, covered under what is called the Prescribed Minimum Benefits (“PMB”). All Medical aids need to cover these conditions and fund the costs related to the diagnosis, treatment of, and care of these 270 medical conditions regardless of what medical aid option you choose. This list is long and deals with a host of conditions from heart attacks, asthma, to mental conditions. PMBs do specifically also cover a host of medications for chronic health conditions.

A reminder about medical specialists and shortfalls

Most medical aid schemes will set their scheme tariff at 100% for in-hospital costs for each code or tariff. Don’t think yourself stupid for presuming that 100% means “all”, or “complete”. Rather, this practically means that your medical scheme will pay ‘one times’ the rate on their scheme tariff for your particular in-hospital cost.

If the Department of Health thinks that R1, 000 is a fair amount to pay an orthodontic surgeon for pulling out your aching wisdom tooth, then chances are that R1, 000 is what your medical aid will pay your orthodontic surgeon.

The issue arises when your orthodontic surgeon disagrees with the Department of Health.

In practice, you’re far more likely to get charged a multiple of 3 or 4 times your scheme’s tariff by a specialist, meaning that you get left with the difference. Patients very often don’t understand what benefits their medical aid offers and just assume they have full cover.

Gap cover

If you are admitted to a hospital and subsequently incur medical costs for in-hospital cover, any costs that you are obliged to pay to either the hospital or a medical specialist that aren’t covered by your medical aid, will be paid by your gap cover.

These gap cover products are a much cheaper way to meet the medical specialists’ fee shortfalls than medical aid schemes can.

We wrote this previous article that gives a working example as to how Gap cover works in a real-world example.

Without naming names, one medical aid offers a scheme whereby they will pay scheme rates at 3 times, but the premium is over R4, 000 per month. Compare this to the premium for a very comprehensive gap policy for only R330 per month.

To add insult to injury, the R4, 000 was for one member and the R330 was for a family of three.

One of the caveats of taking out Gap cover is that you first need to be a member of a medical scheme. This is why many people, including some financial advisors, see a relatively low tier of medical aid, combined with gap cover, as the ideal health insurance strategy.

The hypothesis

It must then follow that if the medical aids are not specifically great at covering medical shortfalls for a reasonable cost, then it must make sense to get the cheapest medical aid one can find that still meets your expectations as to things like great administration and timely processing of claims, as this then gives you a basic level of insurance against health-related financial calamity that you need – at the lowest cost.

You can slap on a savings element if you want, if setting aside money for out-of-pocket costs is not something you want to have to think about, alternatively go for the bare bones medical aid that gives you the comfort that most people are really looking for.

The cheapest option is generally called a ‘hospital plan’; although this is used in the colloquial sense – not to be confused with hospital cover short-term insurance.

A hospital plan is the name typically given to that medical aid scheme option, that gives you the least benefits as required by law, which would be the first (covering your hospital costs) and third element (PMB) as discussed above. It is designed to cover your in-hospital costs and not any day-to-day benefits, eg: opticians, dentists, doctor visits.

Now that you’re insured against the cost that hospitals charge you, and you’re covered against any diseases and conditions, as listed under the PMB, you now only have to really think about finding a good Gap cover.

If you need help figuring out what gap cover is appropriate for your needs, we have covered that in this informative article on choosing the best Gap cover.

The pudding

What you have now built is a combination of a bare-bones medical aid that provides all that a medical aid should provide, no more, no less – and for the least amount of money. As you are a member of a medical aid, you now meet the requirements for entering into a gap cover policy.

Together they allow you to deal with all those aches and pains you can’t explain (as long as you’re required to go to hospital to have them dealt with), being admitted to a private medical facility and being charged several hundred rand a minute for Intensive Care treatment, and you can now look your surgeon in the eye when you go back to have your cast removed, as you’re likely to be in a position where between your medical aid and your gap cover, you’re able to settle specialist costs up to 500% of the medical scheme rates.

Can it be this simple?

Yes it can, but in fairness we should consider what a more comprehensive medical aid might offer you that a hospital plan would not.

The more comprehensive plans generally offer day-to-day benefits, but we would argue that these costs should not be thought of as a true insurance cost. For many younger people, being a member of a medical aid and having gap cover, offers insurance against medically-induced financial ruin, should they be involved in an accident or suffer a serious health calamity. In building the leanest, and most potent insurance against these events, knowing that your family doctor will be paid by your medical aid for tennis elbow is furthest from your goals. Worst case you scale back on some discretionary spending for a short while if you need to. No amount of cutting out your morning cappuccino is going to pay for the R50, 000 Intensive Care stay – unless you’re a caffeine fiend.

Medical aids are complicated

Of all the financial products out there, medical aids are some of the most complicated. We cannot go into all of them and advise what might be appropriate for you, but we hope that you’ve read enough to give you an idea as to what really matters when considering a medical aid, and with this info at hand, you can have a solid conversation with a financial advisor specialising in medical aids who can guide you to a great product.

Things change, and so can medical aid

If you find yourself in a position where you have paid the least for a medical aid option and are now needing your out-of-hospital costs covered, many medical aids allow you to switch plans either mid calendar year, or at the end of the year. So all is not lost.

So why do people still take out expensive, more comprehensive, medical aid plans?

Fear.

Fear that paying less means getting less than they need.

Fear that their kids will not get the care they need if something awful should happen.

If an oncologist told you that they would provide assistance with your cancer treatment but that you had two options; The Super-Thrifty R999 special, or the Executive Comprehensive option, which would you choose?

We don’t blame you.

Medical aids are no different. Not many things come to mind as being more worrisome than not getting good care when you or a family member are ill.

The difference now though, is hopefully that you’ll not be emotionally swayed into choosing expensive medical options, simply because of the adjectives used in the name of the option. Speak to a specialist, do some finding out. Save some money!

The Editors

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