EDINBURGH — National Health Insurance (NHI) is set to put pricey private medical scheme membership out of reach for many people already struggling with the basic monthly household expenses. The good news is that there are ways to structure private cover for medical expenses outside scheme membership. Independent financial advisor Dawn Ridler outlines four options that can help to cover the costs of serious illness and reduce your vulnerability to the state system. She explains here how the NHI proposals are likely to squeeze your personal finances. Dawn Ridler suggests you start adjusting your medical spend now, so that you put less into a medical scheme and more into other products in preparation for when the new system kicks in. – Jackie Cameron
By Dawn Ridler*
As if it wasn’t enough that Medical Aid premiums have been consistently increasing well above inflation for years, the National Health Insurance (NHI) government proposals that have been on the backburner for years are now a hot topic.
Why now? For a start it is a popular move that will play well to the voting public (with elections less than 2 years away). Secondly there is a perception that, with the billions being thrown at SAA or SABC, there is spare cash floating around (especially if they start tapping into the PIC – government pensions.) Of course, the NHI also has its eyes on the R20bn in medical aid tax credits given to us taxpayers, and it is quite possible that this is going to disappear – as soon as the next budget in February 2018. This R20bn is actually a drop in the ocean – in 2010 the cost of the NHI was estimated at R450bn pa (for cover equivalent to the Government Employees Medical aid known as GEMS). It may take another year or two before the NHI becomes compulsory, and it will likely start as a ‘lite’ version but it makes sense to start anticipating it now and aligning your costs accordingly.
If you want to be smart about mitigating your medical risk then you need to look at divvying up your hard earned cash into the right products (no, it isn’t an investment, as much as the broker might tell you it is – you can put lipstick on a pig but it is still a pig).
Most of us have to prioritise our spend, so this is how you could do that:
- Hospital plan– if your closest or preferred hospital is on their ‘network’ list – use that and save a couple of hundred bucks (which you can use for your Gap Cover). Hospital plans are Medical Aid (the faux medical aids that were actually short-term products have been outlawed) and the regulations are quite different to Gap cover (regulated as Short-term insurance) and Severe Illness cover (regulated as Life cover). Medical aid plans can be changed once a year in January (but the window closes in the first week in December). You cannot be refused medical aid cover (you can be refused life cover) but you can have a general waiting period (3 months) and condition-specific 12-month waiting period. There is also a ‘late joiner’ penalty that can be imposed to prevent people waiting until they are older and sicker before joining a medical aid.
- Gap cover– this is for hospital expenses that medical aid doesn’t pay. The biggest risk is specialist fees which can be as high as 500% of Medical Aid rates and leave you out of pocket by tens of thousands. Mercifully, Gap cover is a fraction of the cost of a full hospital plan, let alone a comprehensive medical aid. One piece of advice, never disclose to any medical provider you have Medical Gap Cover. Yes, I know they ask for it, but you are under no obligation to tell them and there are far too many incidences where they have used that information to pad their fee. Leave it blank. While you may not be out of pocket and your doctor happy at extra bucks, if Gap Cover premiums have to keep increasing because of this, it will affect you at the end of the day. In my practice I do not recommend a Gap Cover product from any of the Medical Aid providers and use independents only, it keeps both them on their toes. There is little enough competition without limiting your choices even more.
- Day-to-day expenses. This is often covered by your “Medical Savings Account” (MSA). If you have this in your plan, ask your provider for a 2-year breakdown of all your claims and do the math. Would you be in a better position if you pay the difference between a hospital plan and this ‘better’ plan into your own savings account? High day-to-day needs often happen when you have children – while you may think twice about going to the doctor for every sniffle, you don’t want to take the chance with your children. If you’re willing to give up your choice of preferred medical provider you can also bring those costs down dramatically with something like the ‘Smart’ Plan by Discovery with minimal co-pays for doctor visits (on their network) and chronic meds. Sure, the doctors on this network are usually younger and less experienced, but for everyday ailments – more than competent. You can save thousands on your premium with just this change. Put all these premium savings into an emergency fund.
- Severe Illness (life) insurance. If you have a severe medical event and have a Hospital Plan Medical Aid and Gap Cover, most of your direct, in-hospital expenses will be paid, but the out of hospital expenses can really mount up – especially for home care. Even open heart surgery patients are discharged in days, and many chemotherapy treatments are done as an ‘outpatient’. Not all Severe Illness Cover is created equal, so do your research and choose the best plan with a major provider (even if they aren’t the same provider as your Life cover, but they have a superior product). Make sure that your severe illness cover is as broad as possible, pays out quickly and preferably pays you the maximum amount from the start (not dole it out 25% at a time as you get sicker). Some providers will also let you cover children on your policy, some for free, others with an additional premium.
Why do I suggest we split it up your medical spend like this?
If you’re going to have to pay for NHI, probably as a percentage of your income, and your medical aid tax credits are gone, you are probably going to have to make some hard decisions because paying for both is just going to become unaffordable. Even killing off Medical Aid tax credits is probably going to make it unaffordable for lower paid workers.
Where does the biggest risk lie? I would suggest it is probably in the hospital care – not in the work of the specialists. Poor hospital care can kill you and many of us have had experience with the ‘private hospital’ system which also leaves much to be desired – the sooner you can get home probably the better – and with severe illness, you can get an insurance payout to help you fund that. When NHI is introduced, unless the Medical Aids manage to get a good deal (they are in constant talks with the government to do that), you are probably going to have to still pony up for some sort of hospital plan too.
In order to construct your medical risk cover properly, you need to take a diversified approach. If your medical aid confuses you and you aren’t sure how it works, join the club. I recommend that every year, around early November you get the new ‘member guide’ for the following year from your provider and actually read it. If it isn’t available on the website, phone and ask them to send it to you, along with the new price list.
If you can get your medical risk expenses running lean and mean in the next few years, your disposable income need not take a huge knock when they start to filch NHI premiums out of your income. There is also the potential of a compulsory state pension being introduced but this is so unpopular with the bulk of the voting public and labour unions that the most basic reforms have been kicked down the road year after year.
Action: Start aligning yourself with proposed medical risk changes now – perhaps reducing the medical aid spend and diverting the savings into gap and dread disease cover.
- Dawn Ridler is an Independent Financial Advisor with extensive experience in both financial advisory and business. Her unusual combination of an MBA, BSc and CFP ® has evolved into an ‘ecological’ and holistic approach to advisory, which she has tagged ‘Wealth Ecology’ in her company, Kerenga.
This article is published here on BizNews.com with the kind permission of Dawn Ridler. Copyright: Dawn Ridler