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

Weekend Argus (Saturday Edition) - - PERSONALFINANCE -

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.

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