Budget carefully for medical aid

People saving towards retirement often overlook or downplay the impact that future healthcare needs have within their retirement planning framework.

Medical cover is likely to remain a significant part of a household’s expenses and affect the future cash flow of retirement savings.

Investors need to plan for the impact of medical inflation or the annual increase in premiums, which can average between 3% and 4% higher than the consumer price index.

Ad-hoc unforeseen medical expenses are commonplace and require consideration and inclusion in all professionally prepared retirement plans.

For retirees, this translates into the need for well-considered healthcare plans, which should be inclusive of gap cover policies that cater for in-hospital medical expenses not covered by the medical aid.

These two plans should be implemented as early as possible.

According to the Council for Medical Schemes, a Prescribed Minimum Benefit (PMB) is a set of defined benefits to ensure that all medical scheme members have access to certain minimum health services, regardless of the benefit option they have selected.

While your medical aid will cover most of these PMB costs under the current healthcare framework, this indicates the need to have and maintain optimal healthcare cover into retirement.

Every retirement plan should cater for regular and unforeseen medical expenses, which need factoring in at a higher rate to other inflationary assumptions, especially if someone is used to, and would prefer to maintain, private healthcare benefits.

The Medical Schemes Act prohibits medical aid companies from charging higher premiums for older members, unlike gap cover providers who may do this.

Medical aids may, however, charge “late joiner” penalties which can amount to as much as a 75% loading, on members over the age of 35, who have not had previous medical aid cover in South Africa.

We therefore encourage membership of both a medical aid and a gap policy as early as possible in an effort to curb unnecessary additional healthcare expenditure as far as possible.

Pensioners should take great care before considering downgrading or removing cover, as future unexpected expenses may have a negative impact on their retirement income should they be unprepared for them.

It is crucial, therefore, to include healthcare planning in your overall retirement planning discussions with a qualified and objective professional financial planner.