Understanding the interplay between healthcare financial planning solutions

By Martin Rimmer, CEO of Sirago Underwriting Managers

Martin Rimmer, CEO of Sirago Underwriting Managers
Martin Rimmer, CEO of Sirago Underwriting Managers

Consumers are taking serious financial strain in every aspect of their living costs.  Rising inflation means the costs of everyday household items are going up, some exponentially – think food, fuel, electricity, gas, rent, school fees, healthcare and so on.

Inflation also drives up interest rates which means that anyone servicing debt – such as bonds, vehicle loans, credit cards and unsecured credit are paying significantly more each month on debt repayments. Fundamentally, it means that disposable income is shrinking, costs are increasing and consumers will need to reconfigure their household budgets to cope.   

Healthcare funding is in the same crosshairs, with healthcare costs growing at levels well-beyond inflation for many years already.  In many households, medical scheme benefits easily constitute 20% of total household spend – after bond repayments, healthcare funding is easily the biggest cost, one of the major drivers of the annual ‘buy-down’ experienced by medical schemes.

Given this untenable, hyper-inflationary situation, many consumers will be forced to buy-down on their medical scheme benefit options to ‘core’ plans in a bid to retain access to private in-hospital care in a worst-case scenario. This buy-down risk has thrown the spotlight on the critical need for gap cover to ensure that medical scheme members are not faced with onerous out of pocket expenses for in-hospital treatments as they migrate to more affordable ‘core’ benefit options.

Having access to private healthcare is an expensive but imperative financial safety net that consumers who are members of a medical scheme do not want to live without, especially when it comes to hospitalisation and facing a serious health crisis.

However, more affordable medical scheme options mean less benefits and more restrictions related to accessing benefits. It’s important to understand that any buy-down in medical scheme benefits comes with a commensurate reduction in benefits, both in terms of what is and is not covered, as well as the rates at which claims are reimbursed.

This is where gap cover and supplementary insurance solutions come in. In formulating your healthcare funding strategy, in conjunction with your accredited health broker, it is important to understand what will be covered and equally important, what is excluded and how you can mitigate the gaps in your risk planning in an affordable and effective manner – a task with many complexities and moving parts that is best undertaken with the advice and guidance of your broker.   

Tips for planning your healthcare funding strategy

If you are looking to reduce your expenses and move to a more affordable medical scheme option, it is important to understand what the different healthcare funding options are, their relationship to your medical scheme benefits and what they will and won’t cover. 

Sirago offers the following insights:  

  • Firstly, Gap Cover is a positive and cost-saving supplementary add-on to your medical aid. It is not the same as medical aid, nor can it do the job of your medical aid. You cannot get gap cover if you do not belong to a medical scheme.
  • In order for a gap cover benefit to be paid out, the trigger event is ALWAYS an initial payment or intention from your medical scheme to pay their portion of the claim.
  • Simply put, gap cover will pay for the shortfalls where doctors charge more than the medical scheme rate at which you are reimbursed for in-hospital procedures.  These shortfalls can range anywhere from 200% to 500% higher than the rate paid by your medical scheme. So, if your medical scheme option only pays out at 100% of tariff, like many core hospital plans do, you will then be liable to pay the shortfall of the other 300% to 400% charged by your healthcare provider as an “out of pocket” expense.   
  • These shortfalls occur in several ways including when healthcare providers charge more than the contracted / agreed rate with your medical scheme for certain in-hospital procedures; or your medical scheme applies co-payments or deductibles on certain in-hospital admissions and or procedures; and when certain expensive in-hospital items and appliances have annual sub-limits, for example the internal prosthetic devices used in a joint replacement procedure.  
  • Gap Cover provides cover for these shortfalls up to an annual Overall Annual Limit (OAL), per beneficiary of R183 000, as per regulations. This OAL is revised annually with an effective date of 1 April of every year in line with prevailing legislation.
  • It is important to note that gap cover cannot provide cover for any procedure or event that your medical scheme does not pay towards.  This comes back to the regulations which state that gap cover is not a substitute for medical aid, nor can it do the job thereof. As a simple example, if your medical scheme option does not provide any cover for an MRI procedure, then your gap cover may not provide cover.  It is only where there is a shortfall on a claim or event that your medical scheme does pay towards, primarily for in-hospital procedures, that gap cover will step in. 
  • On some core hospital plans, medical schemes may exclude certain procedures entirely in a bid to keep the cover more affordable.  For example, procedures like back and neck surgery, bunion and knee surgery, joint replacements and hiatus hernia surgery may be excluded entirely.  This means that should you require a hip replacement for example, you would need to fund the costs of such surgery from your own pocket as your medical aid benefit will not cover it, and nor will your gap cover for reasons explained above.  If you are on such an option, then Sirago’s Exact Cover, which is a stated insurance benefit and is not the same as gap cover, pays a fixed amount towards the cost of funding such a surgery. For example, Sirago Exact cover will pay R50 000 towards joint replacement surgery, or R10 000 towards MRI and CT scans due to an accident.   
  • If you are moving to a more affordable ‘core hospital plans, then make sure that you add gap insurance to cover any potential in-hospital tariff shortfalls. Also be prepared for a certain level of self-funding which you will need to pay for your day-to-day medical expenses for GP visits, dentistry, optometry and the like which will not be covered on a core hospital plan.
  • You may want to consider a health insurance benefit which provides cover for primary healthcare needs (out of hospital, day-to-day healthcare) such as GP visits, dentistry, optometry, pathology, x-rays, chronic and acute medicine and so on, up to set limits defined in the policy wording. The primary care services are provided by a national network of healthcare providers that the health insurer contracts with at pre-negotiated rates. This is an affordable and savvy way to protect your self from out-of-pocket expenses for primary care, which is excluded from your core hospital plan benefit with your medical scheme. 

Given the affordability challenges and the way that medical schemes are having to restructure their benefit options to ensure sustainability, the need for supplementary solutions like Gap Cover and Co-payment Cover as an insured solution is a crucial part of your healthcare financial planning.

At the same time, the complexity of comparing different benefit options and matching this to your needs analysis based on your claims history, state of health, any chronic conditions and financial position, means it’s a task best done with the guidance and advice of a professional healthcare advisor.

With such a wide variety of insurance solutions and the complexity of product and benefit structures, you will be hard pressed to make an informed choice about something as fundamental as healthcare funding without professional advice.

While the need to manage costs and reduce expenses is real, it is equally important not to leave yourself financially compromised.

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