When the gap becomes a chasm

Medical scheme cover can cost South Africans up to 20% of their monthly pay packets.  Given the disastrous state of the public healthcare system, it’s become as vital as food and education and a benefit that those who can afford it will understandably not live without.

The moot point for having the benefit of private healthcare is that it promises the very best quality of care when you really need it, which is not readily available in public facilities.  And one would expect that when you’re forking out as much as 20% of your salary for your cover that your medical costs will be fully covered.  But statistics show this is not always the case.  Even with comprehensive cover in place, consumers are often left with hefty shortfalls which need to be funded from their own pockets.  That’s if they don’t have the benefit of gap cover.  

Essentially, gap insurance covers the potential shortfall that arises from specialist charges for in-hospital procedures they often charge up to 400% of the benefits offered by your medical scheme. So if your medical scheme only pays out at 100% of tariff, you will then be liable for the shortfall of the other 300% out of your own pocket.
Michael Settas, managing director of Xelus Specialised Insurance Solutions explains:  “South Africa’s private healthcare sector is characterised by an under-supply of medical specialists contrasted against medical schemes that are struggling to keep these specialist costs under control.  The simple truth is that few medical schemes provide fully comprehensive cover for in-patient specialist care. This means that without supplementary cover members potentially face large shortfalls between their medical scheme benefits and the actual costs incurred for surgery or other in-hospital treatment.” 

These shortfalls occur in several ways including:

  • Surgeons and anaesthetists charge more than your medical scheme benefit;
  • Your medical scheme applies co-payments or deductibles on certain procedures;
  • Certain expensive in-hospital items have annual sub-limits, for example the prosthetic device used in a joint replacement. 
“Gap cover is designed as a cost-effective ancillary benefit to supplement medical scheme cover.  It is not a replacement to medical scheme and you can only take gap cover out if you have medical scheme cover in place,” explains Michael.

A life changing surgery  

Amanda Frankson, a retail store manager in KwaZulu almost collapsed when she was slapped with a bill of R107 000 after her daughter Celine went for a surgical procedure to correct a spinal condition known as kyphosis, which causes the top of the spine to curve excessively.

Amanda and her family are covered under the Discovery Coastal Saver plan which costs her R1 600 per month with an additional equal contribution from her employer.  

“I had already spent about R15 000 out of my own savings on various medical costs and tests and my parents helped pay for some of the x-rays that Celine needed. But as a parent I realised that the condition was having a serious impact on my child, not only physically but psychologically too, and I wanted nothing more than to give me child the help she needed to live a normal life.  I take home a modest salary and my husband does not have a regular income, so I was really particular about checking with the doctor and the medical aid whether the surgery for Celine would be covered as I could not afford any surprises,” explains Amanda. 

With the operation authorised by the medical scheme and no mention of any possible shortfall in costs from either the medical scheme or surgeon, Celine underwent surgery in November last year.  Despite the high risks associated with this operation, including a 50% chance of becoming wheelchair bound due to the close proximity of the operation to Celine’s spine, Amanda realised that this was her daughter’s best chance of a normal adult life.

Facing a R100k bill

In January, Amanda Frankson received the hospital bill.  Celine's seven-day hospital stay came to just under R200 000, which the medical scheme paid in full.  However, the surgeon's total fee came to R147 000, nearly four times Discovery's tariff for this procedure. Discovery paid R40 600 towards the surgeon’s fee, resulting in a shortfall of R107 000 which Amanda Frankson was personally liable for. 

“I was deeply shocked.  I certainly had no inkling that there would be any shortfall, let alone such a massive one.  I certainly did not have this kind of money to foot the specialist’s bill.  I had every expectation that the costs were to be covered under my medical scheme as no mention was made of this at all during the authorisation process with the medical aid when booking the surgery.  I was overcome with worry."   

“After frantically calling my HR department and asking them to look into it, the healthcare consultant tasked with looking after our company benefits got involved and informed me that I had gap cover in place with Xelus as part of our employee benefits.  The relief when the consultant from Xelus phoned me back to tell me that the shortfall would be fully covered under my gap cover policy was immense as I was having visions of losing everything if I could not settle this debt.  The reality is though, had my employer not specified this as a compulsory benefit, I probably would never have taken this cover out of my own accord.  I had no idea what gap cover was nor did I understand at the time the very real implications of why I actually needed it.  I took it for granted that if I had medical aid, all my bases would be fully covered,” explains Amanda.
Without the gap cover, Amanda would have faced a serious financial predicament and her experience demonstrates why having medical aid, even comprehensive cover, is not always enough when it comes to managing the costs of private healthcare. 

Why you cannot afford not to have gap cover in place

One of the factors that have created the necessity for gap cover is the absence of any price regulation meaning providers can charge any rate they wish, often many more times the medical scheme rates. This means that out-of-pocket medical expenses not covered by your medical scheme are rapidly becoming an unaffordable expense for Joe Average. 

Michael Settas of Xelus explains how this gap arises.  “Medical schemes have annual contracts with medical providers determining the price of services. Payment is direct, does not involve the member and is mainly for services such as hospitalisation, medication, radiology, pathology and then sometimes dentistry, optometry and primary care depending on the design of the medical scheme option. Where a medical scheme does not have a contract with a provider, it refunds the member an amount according to its own set of tariffs.”
“If this tariff is lower than the provider’s fee, then this creates a ‘gap’, or more technically, a tariff shortfall. Members are then liable for this tariff shortfall on an out-of-pocket basis,” he explains. 
Consumers are mainly at risk when it comes to in-hospital treatment or other serious treatment - shortfalls of R20-30k are now commonplace, whereas even a few years ago such high claims were rare exceptions.  However, Amanda Frankson’s own experience demonstrates that gaps of over R100 000 are now becoming a reality. Subsequent to Amanda’s case, we have received a second claim in excess of R100,000 - areas resulting in such big shortfalls usually include cancer and highly specialised areas such as  cardiac and orthopaedic surgery.”

“In real terms, the fees for medical specialists are essentially double what they were in 2000. Medical scheme tariffs have simply not been able to keep up which is undoubtedly why tariff shortfalls on high cost treatments are such a growing problem. High demand for specialist services, emigration and insufficient medical graduates are exacerbating factors in this unfortunate cost spiral. The existing average age of specialists in SA is 55 years – this means many of these practitioners will retire within the next decade, so this skill shortage is virtually guaranteed to remain problematic for many years.”

Although the Council for Medical Schemes (“CMS”) publically acknowledged this problem of high specialist costs (Circular 54/2011), it has unfortunately been complicated by their contradictory claims that comprehensive protection for medical scheme members is available via the statutory Prescribed Minimum Benefits (PMB). According to a CMS ruling in 2010, any PMB must be paid for at actual cost and not at scheme tariff. However, this apparently plausible solution is an overly simplistic view of reality. The main concern on the PMB ‘payment-at-cost’ ruling is that it only applies to a specialist who is contracted to a medical scheme (otherwise known as a Designated Service Provider or “DSP”).

“Since specialists are in such high demand, they have little incentive to negotiate with medical schemes and are better off charging higher private rates. So availability can be an issue when seeking a contracted specialist. It is also pertinent to note that almost every in-hospital procedure involves an attending anaesthetist so whilst members may be able to find a surgeon who is a DSP, frequently this is not the case with the attending anaesthetist.”

If a scheme does not have any contracted specialists, the payment-at-cost ruling automatically applies to PMB procedures. However, according to the CMS’ 2010 Annual Report only 51% of in-hospital procedures were a PMB. So, there’s no protection for the remaining 49% of procedures.

And finally, in more recent months disagreement has arisen between providers and medical schemes on the manner of contracting providers. In March 2013, the Health Professions Council (‘HPCSA’) issued a media statement, raising a concern that medical schemes were influencing doctors contracted under DSP arrangements to make clinical decisions aimed at cost-cutting that were not in the best interest of patients. Whilst we may not be certain of the details contained in these DSP contracts, these are serious allegations.

“Clearly all of these matters do not engender any confidence in members, simply leaving them stuck in the middle and in very uncertain and exposed circumstances.  Consumers simply want to know if they are fully covered should they end up needing expensive medical care.  Given the complexities outlined above, supplementary gap cover remains the only solution that offers consumers complete peace of mind,” concludes Michael.
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