Make the most of a grudge purchase IF YOU belong to a medical aid the chances are that you have already received a letter from your scheme outlining its benefits schedule for next year. Somewhere in between the lists of preferred providers, loyalty partners and prescribed minimum benefits there is probably a less obvious section where they tell you by how much your monthly contribution will increase next year. Medical aid will always be a grudge purchase. We belong to a medical aid supposedly for the peace of mind that, should the unthinkable happen, it will be there to cover whatever medical intervention is necessary. The trouble is no matter which scheme we belong to or which option within that scheme we choose, it always seems like an exorbitant amount of money to spend on something that - for the most part - we seldom need. In an environment where consumers are already under pressure on all fronts, above-inflation increases make paying for medical aid an even more bitter pill to swallow. It certainly doesnt help matters when you read how the trustees of Bestmed were caught out spending hundreds of thousands of rand on Neil Diamond concert tickets, hunting trips and helicopter flights over Victoria Falls - all passed off as marketing expenses. Yet despite the considerable antipathy I have towards medical aids, I also know that as an industry they are on a hiding to nothing, and rising fees are a large part of this. According to data from the Council of Medical Schemes, annual fee increases by the countrys four largest open medical schemes over the past three years have averaged 9.5 percent. By comparison, over the same period consumer inflation has averaged 5.8 percent. Part of the problem, somewhat perversely, is that medical care is getting better. New technology has made diagnosis more accurate, but also more costly; the burden of disease has become higher, treatment has become more complex, and patients have better knowledge of the treatment options available. Although none of us would argue that these are bad things, there is no question that they have significantly increased the cost of healthcare. One of the consequences of rising medical and medical aid costs is that younger, healthier and often cash-strapped medical aid members have moved to pared-down options or have taken a gamble and come off a medical aid altogether. This demographic shift has created a big problem for the medical aids because traditionally younger, healthier members cross-subsidise older and less healthy members. This might sound like music to your ears if you are young and healthy and have opted for a less expensive option, but there is anecdotal evidence that some medical schemes increase their low-cost options to continue to cross-subsidise the higher-cost options, which have older, sicker members on board. The trouble is that belonging to a medical aid is not compulsory - unless medical aid membership is an express condition of your employment, people are under no obligation to join a scheme and can opt out of cover when they are healthy. Furthermore, changes made to the legislation governing South African medical schemes in 2001 mean they are forced to accept any applicant irrespective of their current state of health. In a country with an overburdened public health sector and a high prevalence of HIV/AIDS this seems like a decidedly sensible - if not necessarily fair - approach, but it has had a host of unintended consequences that could place the entire industry at risk. Many medical schemes are experiencing a marked and potentially unsustainable increase in their claims ratios. Although schemes are allowed to place a 12-month exclusion period on a pre-existing condition when a new member joins a scheme, as soon as this expires they are required to provide cover. For example, a person suffering from Crohns disease - a chronic disease of the bowel - could join a scheme, get no cover for the disease for the first year, but then be covered for the rest of their lives. Considering that the average monthly cost of a medical aid membership is in the region of R1 800 and the monthly cost of treatment for Crohns Disease is about R15 000, this can make life difficult for administrators. Another problem for the industry is that as schemes and their members get older, their claims profiles tend to change. This is clearly evident in the correlation between high claims ratios and high pensioner ratios. Changes to the Income Tax Act have also reduced the benefit of having your employer subsidise your medical aid contribution to virtually nothing. There is now very little benefit to being on the company medical aid, and many people would rather have the cash in hand. So where to from here? Depending on your proclivity for risk, you might look at this situation and decide to opt out altogether, but there is always a chance that you will be unlucky enough to need expensive medical care - no matter how young and healthy you are. If you are getting on in years you probably dont have an option unless you are prepared to take your chances with the public health system. My advice would be to do your research. Not all medical schemes are created equal. Have a look at the average age per beneficiary of the scheme you are on and see whether you are likely to be a contributor or a beneficiary. Have a look at its pensioner ratio and how much they pay their trustees. Consider who administers the scheme and what their track record is like. Speak to your friends, speak to your financial adviser - preferably of the independent variety - and remember that when the chips are down, you will probably wish you had spent the extra R200 a month on the better option. Bronwyn Nortje: Business Day
Posted on: Thu, 04 Dec 2014 09:48:03 +0000
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