Consumers face hurdle on affordable medical cover

2012-03-10 10:39

Several years ago, my mother had to undergo an

urgent and serious operation.

The operation required two specialists and the

risks to her health were high.

While her medical scheme provided authorisation

and covered the hospital bill, my mother did not interrogate the surgeons as to

their fees and whether they were in line with her medical scheme’s price


Let’s be honest, who would?

Firstly, she believed that in

authorising the operation her medical scheme would cover the bill in full. She

did not understand that this only provided for the hospital costs and did not

include the specialists’ fees.

Secondly, this was a very high-risk operation so

she went with the specialists that were recommended and who worked at the same


It was only after the operation she discovered there was a

short-fall of R8?000 for the specialists’ bill. That amount equals her monthly

pension and she was in no way financially prepared for the expense.

Her medical

scheme told her that the specialists she used charged well in excess of the

rates they were prepared to cover.

This exact scenario is what medical insurance products such as “gap

cover” insure you for.

It pays for the shortfall between what your scheme pays a doctor

for a procedure and what the doctor actually charges.

Unfortunately, my mother did not have medical insurance, but

millions of South Africans use medical insurance to protect against unexpected

medical bills.

And yet last week draft regulations under the Long-Term and

Short-Term Insurance acts published in the Government Gazette proposed to outlaw

medical insurance.

This will negatively affect the many consumers who cannot afford

the steep monthly contributions to medical schemes and who top up their cover

using health insurance products as these are less expensive.

For example, a family of four that wants the top-end cover on the

Discovery Executive Plan, which will pay out specialists at 300%, will cost in

the region of R8?000 per month.

There are very few South Africans who can afford

these premiums and subsequently most medical scheme members will find they face

a shortfall when they are hospitalised unless they are able to find a network


However, not all specialists belong to networks and there is no

legal requirement for them to join these networks.

Michael Settas, managing director of health insurance company

Xelus, says for example that the typical shortfall between what a medical scheme

pays and what the doctor charges for a Caesarean section birth is between R5?000

and R8?000.

Gap cover for around R100 a month is able to fill this

shortfall. So why would government want to remove a product that saves us


It all comes back to cross-subsidisation between the young and

health, and the elderly and ill members, as well as the cost of Prescribed

Minimum Benefits (PMBs), which government requires medical schemes to provide

unlimited cover for at whatever cost.

As schemes cannot charge unhealthy people higher premiums nor can

they limit the costs of illnesses that fall under PMBs, this has driven up the

costs of medical schemes. Medical insurance, on the other hand, has no such

requirement as it falls outside of the Medical Schemes Act.

The Council for Medical Schemes argues that schemes’ risk pools are

undermined when healthier members join cheaper options, which typically pay

lower rates to specialists, and insure themselves against the costs of using a

higher-charging specialist through a gap cover policy.

According to National Treasury, if healthier and younger members

opt out of schemes, this will increase the costs for the older and less healthy,

who remain dependent on medical schemes.

“Pooling healthier and sicker individuals facilitates a form of

cross-subsidisation, whereby sicker people do not pay contributions according to

their health status. This improves the affordability of medical schemes,” the

Treasury says.

The solution the National Treasury and the Council for Medical

Schemes envisage is that by removing gap cover, members will take out more

expensive medical scheme cover. Yet this is completely out of line with


The reason consumers are buying cheaper cover is that higher cover

is simply unaffordable. If medical insurance is removed, rather than buying more

expensive cover, people will simply opt for less cover.

Settas says that in the early 1980s medical aid costs were in the

region of 3% of a person’s salary. Today, for some consumers it can be as high

as 20%.

Cost pressures are the primary reason people are downgrading cover

and the only way to deal with rising costs is to look at the supply side of the

medical industry and bring more pressure to bear on the costs of medical care

rather than preventing consumers from finding affordable ways to provide

protection against unexpected and financially debilitating medical costs.

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