Do you need gap cover?

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Do you need GAP COVER?

There are no laws regulating what medical specialists may charge you, and they are charging more and more, with cover by medical schemes falling further and further behind. For this reason you may consider taking out gap cover

THE growing values of gap cover claims show a marked increase in the shortfalls between what medical schemes pay versus what healthcare providers charge for in-hospital procedures. Recently, Sirago Underwriting Managers, a gap insurance provider, paid out almost R500k on just three claims for the gap portion alone. Without gap cover in place, a medical scheme member would be liable for this shortfall from his or her own pocket.

Gap insurance covers the difference between the rate that healthcare specialists charge for in-hospital procedures versus what medical schemes pay. Unlike the pharmaceutical industry, there is no pricing regulation on healthcare provider tariffs, and with South Africa facing a dire shortage of healthcare professionals, specialists are free to charge any rate, often 300% to 500% higher than the rate paid by medical schemes. If your medical scheme option only pays out at 100% of tariff, you will then be liable to pay the shortfall of the other 200% to 400% charged by your healthcare provider as an “out of pocket” expense, which can easily run into tens of thousands of Rands.

“Sirago recently paid three large claims for cancer and musculoskeletal surgeries coming in at R153k, R142k and R162k per claim – until recently, claims of this magnitude were the exception, but are now becoming more common,” explains Martin Rimmer, chief executive of Sirago Underwriting Managers.

“A few years ago, gap claims averaged around R6000 to R12000. Because of the significant increase in claims volumes, the average gap claim remains within that range. However, we are seeing claims of R40k almost on a daily basis.

“It remains to be seen whether this jump is an anomaly attributed to the Covid-19 pandemic, and whether claims will revert in the coming months. These claims are for tariff shortfalls not covered by medical schemes that clients would have had to pay from their own pockets, had they not had gap insurance in place. It is certainly not only members on lower benefit options that are facing these shortfalls – even on comprehensive, top-of-the-range medical scheme benefit options, members are facing onerous tariff shortfalls for in-hospital procedures,” says Rimmer.

Medical schemes recently announced their tariffs and benefit changes for 2021, and members have until the beginning of December to make any changes to their medical scheme benefits for the following year. In the current environment where private healthcare costs are in an unsustainable upward spiral, gap cover is proving as essential as private medical scheme membership.

“When you consider the potential financial implications of a shortfall on your medical cover, and that a gap cover premium is about R400 per month for a family, and each family member is covered for up to R164 000 per year (R174K from 1 January 2021), it is clear that gap cover is a non-negotiable part of your healthcare strategy. A single gap claim of R60k would be the equivalent of almost 13 years of premium payments at current premium rates,” says Rimmer.

Specialists are free to charge any rate, often 300% to 500% higher than the rate paid by medical schemes

An analysis of private healthcare costs from 2000 to 2012 show that in real terms, costs doubled. The cost trajectory tells us that by 2028, they will have doubled again. Medical schemes, which carry the bulk of these costs, rank within the top five highest household expenses for many South Africans. Most notable is that while medical scheme contributions increase every year, the benefits are actually decreasing, while healthcare costs are increasing by much more than inflation.

This places a double burden on consumers who not only will be forking out more for the same or less medical scheme benefits, but will also shell out for greater out-ofpocket healthcare expenditure than ever before.

“At the same time, consumers remain under tremendous financial pressure and over the coming weeks may be looking at ways to save on healthcare costs by cutting back on their benefits.

Rimmer advises that you always negotiate the pricing of any planned surgery with healthcare providers, and ask for a formal quotes – from the surgeon to the anaesthetist.

That way there are no surprises or unexpected costs creeping in after the fact, unless there were specific complications during the procedure.

Finally, be wary of doctors asking you upfront whether you have gap cover or not – overbilling based on your medical cover insurance portfolio is a growing unethical practice by some unscrupulous medical specialists.

Money Quiz

Test yourself on your financial knowledge

1.If you put R1000 into an investment that offered compound interest of 20% a year, how much would you have after 20 years (rounded to the closest rand)?

a) R5 000 b) R8 546 c) R20 000 d) R38 337

2. What is a bond?

a) A debt instrument b) A type of derivative c) A capital venture equity investment d) A property investment

3. Who said derivatives are financial weapons of mass destruction?

a) John Maynard Keynes b) Albert Einstein c) Warren Buffett d) George Soros

4. What index measures the overall performance of companies listed on the JSE?

a) JSE/FTSE All-share Index b) JSE/FTSE Resources Index c) S&P 500 Index d) MSCI World Index

5. When does the tax year end?

a) February 28 (or 29 in a leap year) b) July 31 c) September 30 d) December 31

6. In what year did South Africa adopt the Rand as its unit of currency?

a) 1910 b) 1948 c) 1961 d) 1970

7. Who is the Insurance Ombudsman?

a) Zweli Mkhize b) Judge Ron McLaren c) Judge Bernard Ngoepe d) Tito Mboweni

8. Which of the following are classified as retirement funds?

a) Company pension funds b) Company provident funds c) Retirement annuity funds d) All of the above

9. Which government body regulates the prudential affairs of banks?

a) The Department of Trade and Industry b) The SA Reserve Bank. c) The Financial Sector Conduct Authority d) The SA Revenue Service

10. What is the maximum percentage of your annual remuneration that you can contribute tax-free to retirement funds?

a) 10% up to R100 000 b) 14.5% up to R200 000 c) 27.5% up to R350 000 d) There is no maximum

Planning Perspectives

Health is wealth – looking after your most important asset

If you don’t start looking after yourself when you are young, you won’t realise the benefits of good health until it’s too late, writes Lesego Monareng

LIFE is hectic. As we try to balance our careers in a depressed economy, we often forget about taking care of our health. Or we don’t have time. Or we think: “I’ll start tomorrow, right now I’m focusing on paying the bills.”

This is especially true with younger people who are naturally healthier. But if you don’t start looking after yourself when you are young, you won’t realise the benefits of good health until it’s too late.

As a financial planner, I have seen how poor health can completely ruin financial independence on both ends of the spectrum, and it can wreck your quality of life. Remember, your health doesn’t just affect your body – it has knock-on implications for everyone who is close to you and dependent on you. Being sick curtails your ability to earn an income, which affects your ability to look after your family and save for the future.

Here are some guidelines to assist with health planning:

Get medical aid – now!

Consult a qualified healthcare broker or a Certified Financial Planner (CFP) and choose a plan that suits your budget and medical requirements. Medical aids are structured in a way that younger people subsidise the costs of the elderly. If you only decide to join a scheme when you are older, you will pay much higher premiums.

If you are young and in good health, you probably only need a hospital plan, which covers you in the event of an accident or if you need a specific procedure in hospital. You don’t want to have to sell your car to pay for an emergency appendectomy!

Look after yourself

You can’t change your genes, but you can change your habits and do your best to avoid all sorts of lifestyle diseases like heart disease, stroke, hypertension, diabetes and obesity.

A good diet, regular exercise and emotional wellbeing go a long way to reducing future costs associated with health. A gym membership and healthier food might be more costly in the short term, but will benefit you tremendously in the future.

Consider life cover

Life cover is an umbrella term for various insurance products that protect you and your family in the event of your death, or if you become severely ill or disabled. Consult a financial planner to get the balance right.

Be proactive

At the end of the day, medical costs are inevitable but you don’t have to be the victim of a massive hospital bill. Take proactive steps to look after your health, and set up all the necessary safety nets to soften the financial blow. Current legislation permits a deduction against tax for valid contributions towards medical expenses.

There are so many reasons to get your health planning sorted. Don’t start tomorrow, start today!

Lesego Monareng is a CFP and managing director of KLU Wealth & Legacy Management

Here are sources that can help you with financial education, give you more information on savings and investments, and afford you recourse if you have a consumer complaint or a complaint against a financial services provider.

FINANCIAL EDUCATION Financial Sector Conduct Authority MyMoney Learning Series https://www.fscamymoney.co.za

South African Savings Institute #WaysToSave https://waystosave.co.za/

OMBUDSMAN & REGULATORS BANKING Ombudsman for Banking Services ShareCall: 0860 800 900 or phone: 011 712 1800 Email: info@obssa.co.za www.obssa.co.za

CONSUMER ISSUES National Consumer Commission Toll-free: 0860 003 600 or phone: 012 428 7000 Email: complaints@thencc.org.za www.thencc.gov.za

Consumer Goods and Services Ombud ShareCall: 0860 000 272 Email: info@cgso.org.za www.cgso.org.za

CREDIT AND DEBT Credit Ombud MaxiCall: 0861 662 837 or phone: 011 781 6431 Email: ombud@creditombud.org.za www.creditombud.org.za

National Credit Regulator ShareCall: 0860 627 627 or phone: 011 554 2600 Email: complaints@ncr.org.za www.ncr.org.za FINANCIAL ADVICE Ombud for Financial Services Providers phone: 012 470 9080 or 012 762 5000 Email: info@faisombud.co.za www.faisombud.co.za

INVESTMENTS Financial Sector Conduct Authority ShareCall 0800 110 443 or 0800 202 087 Email: info@fsca.co.za www.fsca.co.za

LIFE INSURANCE Ombudsman for Long-term Insurance ShareCall 0860 103 236 or phone: 021 657 5000 Email: info@ombud.co.za www.ombud.co.za

MEDICAL SCHEMES Council for Medical Schemes MaxiCall: 0861 123 267 Email: complaints@medicalschemes.com www.medicalschemes.com

RETIREMENT FUNDS Pension Funds Adjudicator ShareCall: 0860 662 837 or phone: 012 346 1738 Email: enquiries@pfa.org.za www.pfa.org.za

SHORT-TERM INSURANCE Ombudsman for Short-term Insurance ShareCall 0860 726 890 or phone: 011 726 8900 Email: info@osti.co.za www.osti.co.za TAX Tax Ombud ShareCall: 0800 662 837 or phone: 012 431 9105 Email: complaints@taxombud.gov.za www.taxombud.gov.za

PROFESSIONAL ORGANISATIONS Fiduciary Institute of Southern Africa (FISA) phone: 082 449 2569 Email: secretariat@fisa.net.za www.fisa.net.za

Financial Planning Institute of South Africa (FPI) Phone: 011 470 6000 Email: info@fpi.co.za www.fpi.co.za

South African Institute of Tax Professionals (SAIT) Phone: 012 941 0400 Email: info@thesait.org.za www.thesait.org.za

FINANCIAL DATA

◆ For the latest financial market indicators, go to https://www.iol.co.za/business-report/ market-indicators

◆ For the latest quarterly unit trust performance, go to https://www.iol.co.za/ personal-finance/collective-investments

To look up performance of a particular unit trust fund go to https://www.iol.co.za/ personal-finance/fund-look-up