The big, annoying hole in Medical Aid cover
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. But as some of you may have already experienced, there is often a gap between what your medical aid pays and what your medical specialists expect to be paid.
The issue arises because medical specialists such as anesthetists, plastic surgeons, general surgeons etc, don’t charge rates that the medical aids generally see as being ‘reasonable’ which means that the medical aids don’t pay all their fees. Yes, they’re allowed to do that.
Outrageous and boring at the same time.
What rates specialists can charge and that medical aids should be paying to their members, has been the subject of much debate and legal wrangling, none of which we’ll go into now.
Suffice it to say that specialists are free to charge you whatever they want. If you don’t like it you’re free to go somewhere else. Likewise, most medical aids will only pay your costs that arise while you’re admitted into hospital with reference to a particular price list – their ‘scheme tariff’.
In each case, the referenced scheme would be the medical scheme that you are a member of, with almost all schemes basing their scheme tariff in turn on the NHRPL.
The National Health Reference Price List is a list that is drawn up by the Department of Health and that gets revised annually in consultation with the medical industry.
The NHRPL makes reference to thousands of tariff and ICD-10 codes. Without boring you to death, each code describes a very particular type of treatment, service, diagnosis or disease each with its own suggested amount attached to it, suggesting the price which should be settled for such item.
So it’s a pricelist for fixing you.
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 doesn’t agree 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.
This is why you’ll often see a polite little sign on the counter of your doctor’s reception that says that all accounts are to be settled by the patient and then subsequently claimed from medical aid.
Too many doctors have been burned by treating patients, claiming 33% of their costs from the patient’s medical aid and then sitting with a patient that doesn’t see why they should be paying when they have medical aid. Patients don’t understand what benefits their medical aid offers and just assume they have full cover.
This gap between what specialists charge and what your medical aid covers is not going anywhere. For so long as medical aids base their scheme tariff on the NHRPL and for so long as medical specialists are free to price their services in accordance with a free market – expect the gap.
Enter Gap Cover
All is not lost. Those clever insurance companies soon came up with a product called, not surprisingly, ‘gap cover’. It is precisely that: insurance to cover you in instances where you have a gap in your medical costs.
The idea is that 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 isn’t covered by your medical aid, will be paid by your gap cover.
Thankfully most hospitals, if not all, charge 100% the NHRPL price for their facilities, which means that medical aids generally settle them in full. This is why most hospitals never ask you for money directly, as they know that they can get settled in full by your medical aid.
However, reality hits when you go back to your doctor a few weeks later for a follow up consultation and you get served with their invoice.
The players involved in Gap Cover: the short version.
We did say that we wouldn’t get into the legal nitty-gritty and the industry in-fighting, but it is relevant for you to best understand your options in terms of how you deal with your potential gap.
Gap cover is underwritten by short term insurance companies whilst medical schemes are registered with the Council for Medical Schemes. There is a turf war between the two and it’s still raging. Medical aids will list many actuarial reasons why gap cover policies should not exist, while the short term insurers have their own set of reasons why their product has a legitimate place in the market.
You may be asking yourself why medical aid schemes don’t simply adjust their scheme tariffs to pay up to 300% – then nobody will need gap cover. The answers are not simple and we don’t presume to know them all but we can state as follows.
Firstly, to issue gap cover you will need a short term insurance licence which very few medical aid scheme providers have. Secondly, the cost at which a medical aid scheme can underwrite a medical scheme for scheme tariff costs of up to 3 or 4 times the NHRPL rates is far more expensive than can be achieved by a short term insurer.
If you are slightly clued up about your medical aid provider, you may notice that they may in fact offer multiple schemes; some of the more expensive ones may in fact cover you for up to 3 times scheme tariffs, but look at the premium!
The premiums can get VERY premium.
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 R260 per month.
To add insult to injury, the R4, 000 was for one member and the R260 was for a family of three.
The increase in price to have your medical aid scheme settle your medical costs at 300% scheme tariffs vs. 100% scheme tariffs will be in the region of R3, 000 per member. This compared to a monthly gap cover premium of R260.
To be fair, the more expensive medical aid schemes do offer some bells and whistles and a savings element, but when you’re buying medical insurance, you want assurance.
There is no comfort in knowing that should you end up in hospital and needing tens of thousands of Rands in specialist care, that your medical aid will leave you with a hefty gap to settle.
Most people are risk averse. They want to know that if something happens, that they won’t be left with costs they thought they could insure against.
Why Gap Cover is better than getting more medical aid.
So in wrapping up, yes you can get a medical aid scheme that covers you for up to 3 times the scheme tariffs, but the premiums are excruciating. Consider rather getting gap cover that bridges that shortfall, for the cost of a Nando’s meal for four.
One without the other.
One of the caveats of taking out gap cover is that you need to be a member of a medical scheme first. This is why many people, including some financial advisors, see a relatively low tier of medical aid when combined with gap cover as making for the ideal health insurance strategy.
To start dissecting the various medical aids is a complicated task and we’re not going to do that now. But understand that some people are better off with quite specific medical aid schemes.
Everyone is different and if you have chronic health care needs, it may be that you require a higher tier medical scheme to provide for your day-to-day benefits. However if medical cost insurance is something you’re after, consider a gap policy.
As the market for medical insurance is so lucrative there continues to be much debate about whether short term insurers should be allowed to offer gap cover, as well as what that gap cover should look like. There is talk to limit the amount of cover that someone can benefit from under gap cover by either introducing a monetary threshold or by limiting the kinds of event that it can cover you for.
It’s a dynamic industry and product offering and whether it looks like it currently does in 2016 remains to be seen, but for now it’s a very effective product that could easily fill a need in your financial plan.
Now’s the time to ask for help.
As gap cover is a contract for short term insurance, one can always expect some small print. As we had said earlier, gap cover is not a standalone product and you are required to be a member of a medical aid scheme prior to taking out gap cover. There are generally waiting periods imposed, with longer ones applying in instances where you know that you require medical care.
We won’t go through all the detail but would ask that if gap cover is something that you think you could benefit from, that you consult a financial advisor. There are many different gap cover providers and their products differ wildly. A good independent financial advisor will be able to share their experience with the various insurers and guide you to an appropriate product.
As luck would have it, in two articles’ time, we’ll deal with financial advisors and how to go about finding not only the best one, but how to get the most out of your relationship with them.
 We admittedly have not analysed every single scheme, so your specific scheme experience may differ.