It is, statistically, an inescapable part of life that our medical costs and expenses will rise considerably as we become older. Retirees who are drawing down fixed incomes must deal with escalating costs of medical aid and expense shortfalls, creating a significant challenge in coping with erosion of their income at a rate that outstrips the growth of their invested capital.
Jill Larkan, head of healthcare consulting at leading financial and wealth advisory business GTC, says the first task for anyone approaching retirement is to try to estimate member costs for the upcoming year and beyond.
“It is highly unlikely that anyone, at this stage, would need less cover than the previous year, but some people may have a mismatch between their cover and their actual needs. In the unlikely event that an individual is over insured, it would be then be wise to consider downscaling cover and setting aside the saved portion of the premium in a personal savings account to fund any future shortfalls in cover or premiums,” says Larkan. “The member retains the option to upgrade in January of each year, however, may usually opt to downgrade at any time.”
Larkan also advises that when a person is not sure of their anticipated medical expenses, the income tax certificate provided by their medical aid will, not only reflect the premiums paid, but also usually the amount which the medical aid did not cover for the previous tax year. With the addition of a suitable annual escalation, this will help to gauge anticipated medical expenses for the next year.
“We always urge clients to send through all medical expenses incurred to their medical aid, even if they know their medical aid savings are exhausted or, due to exclusions or sub-limits, their expenses will not be covered. The medical aid will record the cost of the unpaid claims on the income tax certificate, thereby saving the member the hassle of keeping a record of medical expenses for the year,” Larkan says.
Larkan also recommends that members on comprehensive plans determine how much of their above threshold benefits they used in the last year, although this usually requires a call to the medical aid’s call centre. “We can then calculate how much it would cost for a cheaper plan without an above-threshold benefit, which would usually be one of the medical aid scheme’s saver plan options. The member can then consider the difference and decide whether it is worthwhile remaining on a higher plan for the coming year.”
A medical savings account comes at a premium cost, and usually includes increased ancillary benefits as well. A comparison of the availability of savings and additional benefits, versus the cost of up or downgrading to a Saver or Hospital plan needs to be calculated, which is where a professional healthcare consultant can help.
“It’s important to remember that there is also a level of risk which the individual may wish to retain or relinquish,” says Larkan.
More comprehensive medical plans not only increase the level of out-of-hospital cover that the member enjoys, but also, usually mean higher cover on numerous other in-hospital benefits like cancer, medicines, appliances, as well as lower co-payments.
“Saver plans have a limited amount allocated to savings every year, so if a member spends much more than the annual allocated savings amount, it may be worthwhile upgrading to a more comprehensive plan. Also, switching to a network plan, which makes use of specific hospitals, should lead to a reduction in premiums because the medical aid will have negotiated special rates with those particular network hospitals,” Larkan says.
A major bugbear for retirees is paying In-Hospital service providers who charge rates higher than what are covered by medical aid, forcing the member to dip into personal savings or even to take out a loan to cover the shortfall – not a simple task for fixed income retirees. “The simple purchase of a top-up or gap cover product, to assist with these unexpected additional costs, preferably before you turn 65, will usually work out cheaper than repayments on a loan, or the amount needed to replenish your savings.”
Retirees using chronic medication instead of generic cheaper alternatives could easily find themselves funding a co-payment for every repeat script.
Larkan suggest that members should seriously consider using generic medication to reduce costs and reserve their savings accounts to spend on other necessary medical expenses.
“Always get quotations for any large upcoming medical expense” Larkan continues. “This will not only forewarn the medical aid about impending expenses and allow them to provide the member with the necessary authorisation codes, but will also allow the member to make decisions about affordability, deferment of procedures until they are able to afford the additional expense or to consider making use of alternative providers within the network to prevent financial shocks.”
Regardless of which medical aid plan retirees are on, it is clear that more attention should be paid during the latter years of one’s life, to some of the key elements within the plan itself.
“Working with a professional healthcare consultant to navigate some of the more difficult areas within an individual’s medical aid plan, can really help to mitigate unnecessary erosion of retirement income,” Larkan concludes.