If there is one thing that Covid lockdowns taught us, it’s the need for financial resilience. As many of us found, the unexpected can occur, and having a cushion of savings to fall back on is critical. “South Africans just don’t save enough, and it’s therefore doubly important that their savings are not depleted unnecessarily by entirely predictable ‘extra’ costs, such as medical costs not covered by medical aid,” says Michael Emery, Marketing Executive at Ambledown Financial Services.
Just to give a benchmark, South Africa’s savings rate is 0.5%, as compared to our peers such as Brazil (16.9%), South Korea (13.7%) and India (10.8%). A common budgeting strategy made popular by Elizabeth Warren in the book ‘All your worth: The ultimate lifetime money plan’ is the 50/30/20 rule, which proposes that 50% of one’s income is spent on paying the bills, 30% on discretionary expenditure and 20% on savings
“I doubt most South Africans come even close,” says Rob Immelman, CEO at MEMP Group. While pandemic lockdowns may be seen as true black-swan events, Immelman says that unexpected medical expenses are one of the more common reasons people find themselves needing cash fast – and yet few people have sufficient savings for these. “You need a plan,” he adds.
Michael Stow, Principal at HOLD Consulting, agrees. “For many, household income – even well-heeled professionals – barely covers expenses, with little or none left over for saving for retirement and leisure, let alone unexpected health costs,” he says. “It’s human nature to focus on the present and let the future take care of itself, but life is rarely what we want it to be.”
He adds that health costs often exceed medical aid rates, with the balance falling to the member to pay. No surprise then that the demand for gap cover has risen – and the size of payouts has increased. According to an article in the Financial Mail, gap cover can now total more than half some patients’ medical aid payouts, the result of high medical inflation.
Peter Hallendorff, Director of Healthcare Solutions, says that clients are very exposed to uncovered costs, especially when they are admitted to a hospital due to an unexpected event. “In such instances, they have no control over what the on-duty provider will stipulate and are not in a position to negotiate,” he says. “The other area that’s so important is when there is a co-payment for an in-hospital event.”
In a bid to reduce costs and so limit increases, medical schemes have increased the number of procedures requiring co-payments and reduced the limits on expensive items like prostheses. At the same time, many medical scheme members have downgraded their medical aid cover to reduce monthly expenses.
Hallendorff recalls a member who was diagnosed with spinal stenosis and needed spinal surgery. The difference between the orthopaedic surgeon’s invoice and what the medical scheme covered was R124 000. The member then needed a second procedure due to complications that arose from the first and the shortfall on the surgeon’s second invoice was over R72 000. Fortunately, the member had gap cover that could settle both amounts not covered by the medical scheme.
In another example, Hallendorff says a member’s gap cover policy paid a dread disease lump sum payment of R50 000 to the member after they were diagnosed with cancer. He says the member was relieved because part of their treatment included therapy that was not covered by the medical scheme. They could fund that therapy with the gap cover payment.
Stow says, “Less expensive medical schemes may cover fewer high-cost procedures, exacerbating the challenge. The brutal truth is that the amount one can pay determines the quality of care one receives.”
All three men argue that gap cover has a growing role to play in helping financially pressed medical scheme members ensure they and their dependents continue to receive a high quality of care.
Immelman recounts the story of a client who was put into an induced coma for 11 days, requiring specialist treatment. The shortfall between what his team of anaesthetists charged and the medical scheme paid was in excess of R150 000. His gap cover paid in full.
Another case involved a rugby injury, which required intensive treatment over a three-year period, during which time the gap cover paid out R300 000.
“Gap cover is an absolute must to ensure your family will continue to receive appropriate care, while protecting your savings pot,” says Immelman. “People need to be aware, though, that gap cover is only available to medical scheme members.”
Stow believes that innovation is critical in ensuring that gap cover providers come up with products that provide genuine safety nets when families run out of medical savings or do not have the wherewithal to pay for things such as glasses, tests, wheelchairs, hearing aids and specialised, life-saving medicines.
“National Savings Month is not only a great time to commit to saving regularly – it’s also a perfect opportunity to develop a strategy to protect your savings against unexpected medical costs,” says Emery. “Building a relationship with a reputable broker is critical in developing the right gap cover strategy.”
Ambledown Financial Services is an authorised Financial Services Provider No.10287.Gap cover is not a medical scheme and the cover is not the same
