demystifying medical aid and insurance

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DEMYSTIFYING MEDICAL AID & HEALTH INSURANCE

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Contents 1. INTRODUCTION

2. SO WHO NEEDS MEDICAL COVER?

3. WHY DELAY TACTICS DONT WORK

4. THE BENEFITS

5. SO HOW DOES A MEDICAL SCHEME WORK?

6. CHOICES, CHOICES

7. HOSPITAL CASH BACK PLAN

8. MEDICAL GAP COVER

9. WHY DO I NEED GAP COVER?

10. THE DIFFERENCE BETWEEN A MEDICAL AID AND A HEALTH

INSURANCE POLICY

11. OTHER STUFF YOU SHOULD KNOW ABOUT MEDICAL AID

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About the author

Iona Minton

I learned a long time ago that the process of getting rich and managing your money

has very little to do with knowledge. It does however, have everything to do with your

mind set. Sure, you need to know the basics about smart money management and

the various tools you can use to build your wealth- but all the tools and information in

the world will not help you if you dont get your thinking straight about money. Enter

any book store or log onto the internet and you will find plenty of articles on how to

get rich, quick, slow and even instantly. If getting rich was just about knowledge,

reasonably priced cars would no longer be in production and every seat on an

aircraft would have a bed and a personal butler. While reading my articles you will

learn all the things you wished you knew a lifetime ago. The real ah ha moments

will come when you understand the reasons why you dont save enough, acquire

debt to challenge the USA deficit, and do generally silly things with your cash. This

eBook is the first in a series of books that will help you navigate the world of money

and really own your financial future. I have over 3000 published articles on money

management, 2 best-selling books and many radio and TV shows under my belt. I

am also a Trustee at the Financial Services Board Consumer Education Foundation

so I know my stuff. Now you can know it too.

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Introduction

When we are starting out on a path to being a responsible adult with a real job, a real

boss and a salary that will cover more than just our entertainment bills, we are forced

to start thinking about big people stuff. This comes in the form of pension funds, UIF,

Life cover and Medical aids. All of these things that we see on our payslips are

perceived as evil. This is because they represent less money in our bank accounts. It

is an exercise in futility to try and list the merits of these financial Pac Mans of cash

flow but suffice it to say, one day you will be really glad you have them. While all

products in your financial arsenal are important, the focus of this e-book is Medical

Aids; Yawn. While this is not the sexiest topic on the planet you definitely need to know

this stuff, so grab a coffee or a beer and have a quick read.

So who needs medical cover? The short answer to this is everyone but when you are young, fit and healthy, a full

medical aid is as far from your mind as the prospect of Zimmer frames and hush

puppies. It is understandable that many people balk at paying out good cash to qualify

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for a free box of Disprin but a medical aid is not just about covering the odd sniffle and

scab.

The day may come that something really big goes wrong like a car accident or a

slipped disc in your back. These mishaps can cost thousands to fix and can wipe out

even the most carefully crafted financial plan. So you need a medical aid, the question

is which one? There are a whole bunch of different products on the market and it is no

wonder that we get confused. If you do not understand how these products work and

the relevance to you as an individual you may end up with a product that is not worth

a band aid.

Why delay tactics dont work

Before we delve into the products you need to know that medical aid companies are

well aware of the fact that if you are young and healthy, they will be collecting money

for jam because you will rarely claim. You know this too, so you may decide to wait

until your 30s or 40s before you sign up. This is an expensive mistake.

If you apply after the age of 35 you will be charged what the industry refers to as a

Late Joiner Fee. This translates to a loading on your monthly premium each month,

to make up for the fact that you have not contributed to the pool. Medical Schemes

need young, fit and healthy non-claimers to fund old, unhealthy and unfit claimers.

Now this may sound unfair but one day, (unless you have discovered an elixir that will

give you eternal youth) you will fall into the latter group.

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Late-joiner fees have been put in place to compensate for potentially increased claims

by people who join a medical aid scheme when theyre already older or infirm. These

penalties can range from 5% of contributions to 75%. The fees are imposed at the

discretion of the medical aid company and apply to all types of medical aid plans,

including hospital plans.

How late joiner fees are calculated

Late-joiner fees are calculated as a percentage of your medical aid contribution,

(excluding the savings component of the contribution if you have one).

The medical scheme will do the following calculation.

Age upon application minus 35 years + years of previous cover. This will give a total

of how many years you have been uncovered.

They will then apply the following fees to your premium:

If you have been uncovered for 0- 4 years they add 5% to your contribution, 5 14

years 25%, 5 24 years 50%, 25 years or more 75%. These figures speak for

themselves. So dont put it off.

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To make a medical aid payment less annoying the good news is that you can reduce

your premium by adopting certain behaviours. The way medical underwriting was done

in the past meant that the healthy people subsidised the sick. Everyone paid the same

premium regardless of his or her state of health. Today we are assessed as

individuals, which means we are rewarded if we look after ourselves. Excessive

smoking and drinking is going to cost you.

If you are young, healthy and have no dependants, you do not require a full medical

aid a simple hospital plan will be sufficient. It will cover costs related to any injury or

disease that would require hospitalisation.

For out of hospital expenses it would be wise to set up a medical savings plan. These

savings plans have replaced the traditional spending limits whereby if you have not

used your full limit you do not get that money back. This meant people would use up

the limit even if they did not need it. They would run out and buy glasses or get gold

hearts inlaid in their teeth.

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With current savings plans part of your premium gets diverted into a savings account.

The unused money accrues to you each year and the money can also be used to fund

your premiums. The other benefit is that it is tax deductible. You could also start a

normal savings account but you would not get the tax benefit and you may be tempted

to dip into it for that black number at Sashas.

A full medical aid is important as you get older or have dependants. Childrens runny

noses and scrapes can cause your bills to do some running of their own. A

comprehensive medical aid covers costs such as medicine, doctors visits, dental work

and optometry.

The benefits

The first and most important aspect of a medical scheme is that it pays for any medical

calamity or procedure. There are various plans that you can chose from and each

level of plan will give you more and more cover. Of course there is a cost to this. If you

want a bells and whistles plan that covers you for an ingrown hair, then it could cost

you over R5000 per month. If you take a basic hospital plan, its considerably cheaper

because it will only cover procedures and accidents that require hospitalisation. There

are many different plans offered by even more medical schemes companies. You will

have to put in some elbow grease to track down which one suits your needs.

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Just a little word of warning though. If you use a broker they may favour one over the

other. Make sure you are given a number of options to choose from.

If you are a member of a medical scheme, you will be able to get treatment right away.

If you have an accident you cant exactly wait until you have saved up enough money

so they can sew your finger back on. Medical emergencies need instant treatment and

if you are cash strapped without cover it can only end badly.

Being a member of a scheme generally means that you will get better treatment. The

last place you want to find yourself in is an overcrowded, under resourced hospital,

with brides of Chucky looking after you.

The downside is that it is expensive, even a basic plan can cost R700 per month and

if your cash flow is stretched then its a big chunk of money. If you are employed ask

your company about their group scheme, you may be able to get a subsidy. If you live

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in Farflungsville then a medical aid may not help you because there may not be access

to a private hospital. However it is still worth it for non-emergencies. Watch out for

hidden costs involved with schemes, the most common tear causing event is when

your scheme does not pay out the full amount of a procedure. So its important to

check the Latin bits.

Here are some of the major schemes in SA : Fedhealth, Momentum, Genesis,

Resolution Health, Sizwe Medical Fund, Discovery Health, Medihelp, Resolution

Health, Profmed, Bonitas and Oxygen. There are others but these are the larger ones.

So how does a medical aid scheme work?

A medical scheme is a non-profit organisation and it is required to be registered at the

Registrar of Medical Schemes. They are required to provide a minimum set of benefits

to its members (PMBS). PMBs were introduced into the Medical Schemes Act to

ensure that members of medical schemes would not run out of benefits for certain

conditions. These PMBs cover close to 300 conditions. You can ask your medical

scheme to provide you with a list.

There are two kinds of schemes open and closed. Anyone can join an open scheme,

but closed schemes are for companies that offer a medical aid to their staff, the

Government pension scheme called GEMS is an example of this.

Choices, choices

Choosing a medical aid can be a challenge as the marketing and information

documents they produce require a degree in linguistics, logistics management and

actuarial science to understand them. In a nutshell they all have baseline services that

they offer and then tweak to the clients they wish to attract. It all depends on your

specific needs and which company can offer you the best option to suit these needs.

A broker may be able to help you drill down to find the best option.

What a Medical scheme will not pay for.

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There are some medical procedures that will definitely not be covered under your

membership. So before you go on a HelloPeter rampage because they did not cover

your nose job, check the list.

Injuries sustained as a result of a weird occupations, those human cannon ball

people come to mind.

If you like to stock up on fast food and ice-cream treatment for your chubby

cheeks both medical and surgical will not be covered

Infertility.

You may think that your pectoral implants are a vital part of your wellness, but

medical schemes will be unconvinced.

Treatments have to be registered with the Medical and Dental Council, the SA

Nursing Council or the Homeopathic Association. So your crystal healer will

have to be paid by you.

If you insist on seeing a practitioner at 3 am you will pay for their overtime.

Sunglasses are fashion items, just saying.

You may feel inspired to be a guinea pig for experimental brain transplants and

other untried procedures but your alter ego will have to pay.

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Unregistered medication is a no-no, although red velvet cake should be

considered.

A telephone consultation with a doctor will not be covered-nice try though.

If your practitioner has a cancellation fee if you miss an appointment-you cant

claim it back

You are going on holiday or getting work overseas, happy happy joy joy but you

will have to pay for examinations needed for insurance.

A fund may refuse to pay if you insist on procedure that they deem

unnecessary.

If you rob a bank and get beaten up by the old lady in the queue, you are on

your own. In other words if you get injured while breaking the law, you will break

your bank as well.

While we could all use some R&R now and then a holiday for recuperative

purposes is not going to be covered.

This is by no means comprehensive, if in doubt give them a call.

Add-ons and options

Many South Africans cannot afford the high cost of Medical Aid, so some opt for the

other products on the market. While they may plug a few holes they are generally

inferior to a medical aid and should be considered as an add-on rather than a stand-

alone product.

A Medical Aid is governed by The Medical Schemes Act and the regulatory body is

the CMS (Council of Medical Schemes). This means that Medical Aid falls under a

different legislation than Medical Insurance (the other products on the market). Medical

Schemes need to adhere to all the provisions of the legislation and in particular they

have to provide cover for certain conditions and emergencies regardless of what type

of option you are on.

Medical Insurance falls under the Long Term Insurance act, and is enforced by the

FSB (Financial Services Board). In terms of payment a Medical Aid will pay a service

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provider directly, a Medical Insurance based product will pay the benefit to the

member. This is still no guarantee that the full account will be paid, as the benefit will

pay out in accordance to the stated benefit of the product. This also means that the

member has to settle his account directly with the service provider. It is very important

to study the terms and conditions of a policy.

Medical Insurance based products have a different set of underwriting criteria which

ranges from total exclusions for pre-existing conditions to loadings, to total rejection of

an application.

The acceptance to a medical scheme on the other hand is guaranteed but they can

impose a three month wait before you claim and or a 12 month exclusion for pre-

existing conditions.

While there is certainly place for both type of products in the market, it is important

that consumers do their homework before signing up with any Medical Insurance or

Medical Aid. Having all the facts at hand and asking the right questions will enable

potential members to be better positioned to find the right healthcare cover that suits

both their wallet and lifestyle.

Hospital cash back plan

Anyone who has been hospitalised knows that daily costs tick up at the rate of a taxi

meter. Fortunately the bulk of these costs can be controlled by having a medical aid.

The operative word is bulk because while a medical aid may take care of many of

the bills, we are often left with other associated costs that take a chunk out of our

wallets.

There are a number of costs that emerge during hospitalisation that we only become

aware of when we are sitting in the hospital bed eating overcooked vegetables and

dry chicken.

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So lets take a step back and look at an average scenario. You are driving home on a

stormy night and a tow truck breaking the land speed record cuts in front of you. You

brake but ABS is no match for a sodden road, you slide off the tarmac into a tree.

Sporting a broken leg and concussion you wake up in hospital with your family wringing

their hands at your bedside.

The relief of being alive (not that you would know any better if you were dead) is soon

tempered by the realisation that this is going to cost money. Sure you have a medical

aid, but you are self-employed, you have no disability cover and you have three kids

to feed.

One of the things they dont tell you about medical aids is that there are set fees that

they are prepared to pay for certain procedures and services, so if you get charged

more than these set rates, you will have to pay for the deficit.

Then there is the cost of your family coming to visit every day, which could add up to

an extra tank of petrol each week and at current prices thats not small change. Then

what about when you get home? Just try making yourself a sandwich and coffee when

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both of your hands are stuck to crutches. Even if you manage to do it by balancing on

one leg how are you going to carry the coffee back to the table? You will need help,

so your partner or a friend that owes you, will have to babysit for a while. If you have

used up all of your favour vouchers then you may have to pay for extra help. You may

also have to pay someone to help run your business or even drive you around, and

then there is your normal stream of monthly bills to take care of. Its not a pretty picture.

A Hospital cash back plan can take of these issues. These insurance policies can

cover you for out of pocket expenses that are not covered by your medical aid. While

its not a medical aid or a hospital plan, you can get up to R5000 per day for every day

you have been in hospital. This is as long as youve been admitted for 3 consecutive

nights, under the care of a registered specialist. You can claim from your 1st full night

up to and including your 90th consecutive night.

The good news is that you are free to spend this money how you wish so the funds

are not just earmarked for medicals bills.

The premiums are very reasonable and wont change for the first 12 months,

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regardless of whether you claim or not. Even if you have a full medical aid this kind of

policy will ensure that your budget does not get sideswiped by unplanned expenses.

While a Hospital Cash Back Plan can help when you are hospitalised, it is essential

that you have your other risk products in place, a cash back plan will not be much use

to your family if you die without life cover. Just read the rules carefully and be fully

aware of the exclusions.

Medical gap cover

Many people wrongly assume that if they have a Medical Aid they are covered for all

illnesses that require hospitalisation. They usually find out this nugget of information

when they are presented with an unpaid bill.

Medical schemes limit their cover to their Medical Scheme Tariff (MST) amounts. And

these often fall short of the full doctor and specialist charges.

One way to mitigate this is to consider a product called Gap Cover. There are many

companies that offer this product and their benefits differ, so take the time to compare

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offerings. Gap Cover is designed to cover medical scheme shortfalls that result from

in-hospital doctors charges and extends to medical scheme shortfalls on out-patient

procedures.

They can also include a personal accident benefit if you are disabled as a result of an

accident. It would also cover the cost of emergency services such as transportation,

counselling and life support equipment.

Why do I need gap cover?

When you need a major procedure, having to pay in extra cash is the rule rather than

the exception. The use of specialised equipment is often not covered and doctors can

hike up their fees well beyond what the medical aid pays out. For this reason, medical

gap cover can be a valuable addition to medical aid cover. But its important to be

aware that gap cover cannot replace your medical aid.

Day-to-day services such as doctor's visits, specialists visits, and glasses are not

covered. The kind of out of hospital procedures that are covered are surgical Biopsies,

vasectomies, cataract removal, tonsillectomies and grommets etc. Make sure you

consult the full list provided by the service provider.

As with all insurance policies there will be a list of exclusions and conditions. Read

them carefully and if in doubt, call the service provider for clarification and better still,

get all undertakings in writing. Cover is guaranteed and no applications are declined.

The difference between a medical aid and a health insurance policy

Unfortunately a good medical aid is out of reach for many South Africans. The

insurance industry has seen the need to create an insurance based product to try and

bridge the gap. Health Insurance is less expensive than a traditional medical aid

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because the cover is limited. If you cant afford a medical aid then Health Insurance is

a viable option.

Medical insurance plans fall under long term insurance in terms of financial services.

It is not regulated by the Medical Schemes Act. It is a stated benefits contract, so in

other words if a particular event happens you will get paid a fixed amount regardless

of the actual cost. The legislation that governs medical schemes dictates that certain

emergencies and conditions are covered in full by the medical schemes regardless of

the plan type you are on. They are called Prescribed Minimum Benefits (PMBs). This

legislation does not apply to Health Insurance policies so they may not cover all of the

costs. Still, if you cant afford a medical aid, a health insurance policy will take the sting

out of an expensive medical event.

A health Insurance policy is not a medical aid but rather a subscription to a network of

medical services such as doctor and dentist Networks. There is no claiming process

as with a medical aid. The member visits the medical services provider such as the

network GP or Dentist, obtains medication or other relevant treatments without having

to pay unless the treatments and or medications are excluded in the policy. Their

hospital plans are insurance policies that pay the stated benefits directly to the

member. The hospital will usually ask to be paid up front for treatment as there is a

risk that you will not hand the money over and go on holiday to recover. The policy

includes disability and dread disease cover as well as death benefits which medical

aid does not.

Here are the other differences in a Nutshell

Medical Aid

Medical Aid cover is based on tariff codes and procedures and they are regulated by

the Council for Medical Schemes. Schemes negotiate tariffs with hospitals; one

medical aid may pay R100 for a procedure and another R70. So it pays to shop around

for the best deal if you know you will require treatment for a specific ailment down the

road.

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Health Insurance

The pay-out is based on events and stated benefits. Health insurance is regulated by

the Financial Services Board. Medical Aids often have shortfalls because the

practitioners rarely keep to the suggested tariffs recommended by the South African

Medical Association.

Health Insurance may be used as gap cover in conjunction with your medical aid to

cover any shortfalls of your medical aid scheme.

Medical Aid schemes must by law cover PMBs (Prescribed Minimum Benefits)

Health Insurance offers stated benefits and a formulary that may or may not cover

PMBs (Prescribed Minimum Benefits) so it is vital that you read the policy carefully.

Medical Aid schemes have got specified and yearly limits for procedures and health

events do not need to be specifically stated.

Health Insurance covers health events at fixed or stated amounts which pays directly

to the member as opposed to the medical services provider

Medical Aid schemes are prohibited from including Personal Accident disability, death

or funeral cove as part of their offering.

Health Insurance includes Personal Accident risk cover such as disability and loss of

limbs and dread disease cover etc.

Health Insurance is allowed to include death and / or funeral cover.

Other stuff you should know about medical aid

Sometimes Medical Aid schemes hit the newspapers for being bad. All sorts of issues

arise ranging from non-payment of claims to governance. Here are some things to

look out for when making your choice.

One of the most important considerations is the payment of claim. Ask

around and you will quickly find out if the companies offering health care

stick to their promises and pay out promptly with no quibbles. A broker will

have the inside track on this so prod him or her for answers.

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There is a fixed rate that medical aids will pay out for certain procedures but

the health care professionals may charge above that rate and you will have

to pay the difference. Do your homework. If you know you will be requiring

a certain treatment shop around for the medical aid that has the best cover.

Find out what the overall annual limits are on all the different products that

may pertain to you.

Find out what has been the annual premium escalation on health-care

products in the last three years? Anything between 8% and 12% is

considered reasonable.

What is the fund rating of the medical aid you are joining and how does its

reserves work? Usually the members premiums go into a pot and claims

are taken out of this pot for the year. At the end of the year reserves are

reviewed and depending on how much is in reserve it will adjust the

premiums for the following year.

What additional benefits does the plan offer? For example does it provide a

24-hour toll-free emergency information help line? Does it have maternity or

preventative care advice?

Can you claim your premiums as a tax deduction?

Does the plan cover you for hazardous sports such as hang gliding or

skydiving?

Would you have access to international cover should you go overseas? If

yes, what are the limits?

Will the plan cover chronic medication for things such as Alzheimers

disease or rheumatoid arthritis?

Find out if annual threshold limits apply (a threshold limit ensures that you

have protection on out-of-hospital costs once a certain limit has been

reached.

What are the optometrist and dentistry annual limits, if any. These areas are

often the most claimed and most abused areas.

Should you be hospitalised, does the product provide cover from day one

(not ICU) and what is the policy on HIV/AIDS.

Make sure you know exactly what happens to your medical plan if you leave

your job. In some cases people who have had a pre-existing illness were

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not able to leave their jobs because no other medical plan would take them

on at an affordable premium.

Some tips to keep your medical bills manageable

Use generic medications when possible. The name brand medicines can

cost as much as three times more. However check first with your doctor to

ensure they are suitable.

Prevention is better than cure-get all bumps lumps and funny feelings

checked out.

Do not assume your hospital bill is correct a slip of the clerks finger can add

a zero where you dont want it. You may also find that mystery items have

crept into the bill. Hospitals are prone to charging for stuff you did not use-

check everything.

Use your pharmacist instead of your doctor for advice on day-to-day minor

illnesses and treatment.

Compare tariffs and prices charged by different doctors or pharmacies. A

little homework could yield big savings.

One little known fact is that health care providers such as surgeons and

anaesthetists are in fact negotiable. If you know that your procedure is not

fully covered by medical aid there is no harm in asking for some

compassion. The worst they can do is say no.

Finally, you should never choose a plan based on cost alone. As with most things

in life you get what you pay for.

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from error, the author does not assume any responsibility for errors, omissions, or

contrary interpretation of the subject matter contained herein.

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of legal, accounting, financial planning, tax or credit advice.

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