Why you can’t afford to reduce your medical cover in retirement
Many retirees move to lower medical scheme options, or ditch their medical scheme cover and buy cheaper health insurance. Although gap-cover insurance is a good way to top up your medical scheme cover, health insurance is not a suitable replacement for be
Medical scheme contributions will always increase by more than the inflation rate, so you need to save before retirement to fund your postretirement contributions.
Hloni Mphahlele, a consulting manager at Alexander Forbes Health, says retirement is when you most need medical scheme cover, and it is not in your interests to downgrade your cover or replace it with health insurance.
Mphahlele says medical scheme contributions will always increase by more than inflation because:
◆ The medical scheme population is ageing and older members tend to claim more than younger members;
◆ Advances in medical technology and medication are increasing the cost of treatment; and
◆ There are no regulated tariffs for the services of scarce specialists, which allows them to keep increasing their fees.
Most employers no longer subsidise medical scheme contributions once employees retire, and National Health Insurance is unlikely to be in place soon, Mphahlele says.
Many retirees downgrade from comprehensive cover to a lower-cost option, or leave medical schemes entirely, because they struggle to afford the contributions, yet retirement is exactly when your healthcare needs are the highest, she says.
A comprehensive option with high day-to-day cover and cover for chronic medication will cost a couple about R5 000 to R7 800 a month.
Health insurance that pays a certain amount for each day you spend in hospital is not a suitable replacement for medical scheme membership, Mphahlele says.
If you have a health insurance policy, hospitals expect you to pay an upfront deposit of, for example, R50 000 before they will admit you, she says.
Hospital cash plans often do not pay out unless you have been in hospital for three days or more, Mphahlele says.
When you are in hospital, you not only incur the cost of being admitted to a theatre and/or a ward, but also the costs of the team of practitioners who treat you and any tests or medicines. These costs can quickly add up to more than the daily limit on an insurance policy, she says.
Although the providers of services to medical schemes, such as administrators, make a profit, a medical scheme itself is a not-forprofit entity; all the contributions collected must be used to pay your claims and the non- healthcare expenses related to meeting your claims, and to build up reserves, which stay within the scheme.
Insurers, by contrast, make a profit on insurance policies, including those that cover health events, Mphahlele says.
Another difference is that medical schemes have to charge you a community- rated contribution – that is, everyone who belongs to the same option must pay the same contribution regardless of their state of health or age. However, contributions can differ based on the number of dependants and the income level of the principal member.
The premiums on insurance policies are based on the risk you pose to the insurer in terms of your medical history, age and the frequency with which you claim.
Medical scheme cover stays in place as long as you pay your premiums, whereas insurance must be renewed annually, and some policies cannot be renewed after the age of 65.
Mphahlele says all of this means that insurance products are not a solution for your pre- or post- retirement medical needs.
However, gap cover is one health insurance product that is useful to take out in addition to medical scheme cover, she says.
Gap-cover policies cover you for the difference between what your medical scheme pays and what doctors charge you for in-hospital procedures, other major medical expenses and day-clinic procedures.
This difference can result in you incurring high costs, because there are no guideline tariffs for doctors and the rates at which schemes reimburse doctors vary across schemes and across the options within schemes, Mphahlele says.
Some gap-cover policies offer a lump sum for the initial diagnosis of, for example, cancer.
When you take out gap cover, there is a waiting period during which you are not covered. This is typically three months, but some policies have waiting periods of nine months for certain conditions, she says.
Any procedure that your medical scheme excludes from cover is automatically excluded from your gapcover policy.
Many gap-cover products have a limit on the age at which they allow you take out the cover, but if you buy cover before this age, you cannot subsequently be denied cover.
Mphahlele says if your employer offers a compulsory group gap-cover policy, it will probably be cheaper than the gap cover you buy as an individual, because the premiums are set in line with the average claims for the group.