Demystifying Medical Aid and Insurance

M
DEMYSTIFYING
MEDICAL AID &
HEALTH INSURANCE
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Contents

1. INTRODUCTION
2. SO WHO NEEDS MEDICAL COVER?
3. WHY DELAY TACTICS DONT WORK
4. THE BENEFITS
5. SO HOW DOES A MEDICAL SCHEME WORK?
6. CHOICES, CHOICES
7. HOSPITAL CASH BACK PLAN
8. MEDICAL GAP COVER
9. WHY DO I NEED GAP COVER?
10. THE DIFFERENCE BETWEEN A MEDICAL AID AND A HEALTH
INSURANCE POLICY
11. OTHER STUFF YOU SHOULD KNOW ABOUT MEDICAL AID

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About the author

Iona Minton
I learned a long time ago that the process of getting rich and managing your money
has very little to do with knowledge. It does however, have everything to do with your
mind set. Sure, you need to know the basics about smart money management and
the various tools you can use to build your wealth- but all the tools and information in
the world will not help you if you dont get your thinking straight about money. Enter
any book store or log onto the internet and you will find plenty of articles on how to
get rich, quick, slow and even instantly. If getting rich was just about knowledge,
reasonably priced cars would no longer be in production and every seat on an
aircraft would have a bed and a personal butler. While reading my articles you will
learn all the things you wished you knew a lifetime ago. The real ah ha moments
will come when you understand the reasons why you dont save enough, acquire
debt to challenge the USA deficit, and do generally silly things with your cash. This
eBook is the first in a series of books that will help you navigate the world of money
and really own your financial future. I have over 3000 published articles on money
management, 2 best-selling books and many radio and TV shows under my belt. I
am also a Trustee at the Financial Services Board Consumer Education Foundation
so I know my stuff. Now you can know it too.

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Introduction

When we are starting out on a path to being a responsible adult with a real job, a real
boss and a salary that will cover more than just our entertainment bills, we are forced
to start thinking about big people stuff. This comes in the form of pension funds, UIF,
Life cover and Medical aids. All of these things that we see on our payslips are
perceived as evil. This is because they represent less money in our bank accounts. It
is an exercise in futility to try and list the merits of these financial Pac Mans of cash
flow but suffice it to say, one day you will be really glad you have them. While all
products in your financial arsenal are important, the focus of this e-book is Medical
Aids; Yawn. While this is not the sexiest topic on the planet you definitely need to know
this stuff, so grab a coffee or a beer and have a quick read.

So who needs medical cover?

The short answer to this is everyone but when you are young, fit and healthy, a full
medical aid is as far from your mind as the prospect of Zimmer frames and hush
puppies. It is understandable that many people balk at paying out good cash to qualify
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for a free box of Disprin but a medical aid is not just about covering the odd sniffle and
scab.

The day may come that something really big goes wrong like a car accident or a
slipped disc in your back. These mishaps can cost thousands to fix and can wipe out
even the most carefully crafted financial plan. So you need a medical aid, the question
is which one? There are a whole bunch of different products on the market and it is no
wonder that we get confused. If you do not understand how these products work and
the relevance to you as an individual you may end up with a product that is not worth
a band aid.

Why delay tactics dont work

Before we delve into the products you need to know that medical aid companies are
well aware of the fact that if you are young and healthy, they will be collecting money
for jam because you will rarely claim. You know this too, so you may decide to wait
until your 30s or 40s before you sign up. This is an expensive mistake.
If you apply after the age of 35 you will be charged what the industry refers to as a
Late Joiner Fee. This translates to a loading on your monthly premium each month,
to make up for the fact that you have not contributed to the pool. Medical Schemes
need young, fit and healthy non-claimers to fund old, unhealthy and unfit claimers.
Now this may sound unfair but one day, (unless you have discovered an elixir that will
give you eternal youth) you will fall into the latter group.

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Late-joiner fees have been put in place to compensate for potentially increased claims
by people who join a medical aid scheme when theyre already older or infirm. These
penalties can range from 5% of contributions to 75%. The fees are imposed at the
discretion of the medical aid company and apply to all types of medical aid plans,
including hospital plans.

How late joiner fees are calculated

Late-joiner fees are calculated as a percentage of your medical aid contribution,
(excluding the savings component of the contribution if you have one).
The medical scheme will do the following calculation.
Age upon application minus 35 years + years of previous cover. This will give a total
of how many years you have been uncovered.
They will then apply the following fees to your premium:
If you have been uncovered for 0- 4 years they add 5% to your contribution, 5 14
years 25%, 5 24 years 50%, 25 years or more 75%. These figures speak for
themselves. So dont put it off.

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To make a medical aid payment less annoying the good news is that you can reduce
your premium by adopting certain behaviours. The way medical underwriting was done
in the past meant that the healthy people subsidised the sick. Everyone paid the same
premium regardless of his or her state of health. Today we are assessed as
individuals, which means we are rewarded if we look after ourselves. Excessive
smoking and drinking is going to cost you.

If you are young, healthy and have no dependants, you do not require a full medical
aid a simple hospital plan will be sufficient. It will cover costs related to any injury or
disease that would require hospitalisation.

For out of hospital expenses it would be wise to set up a medical savings plan. These
savings plans have replaced the traditional spending limits whereby if you have not
used your full limit you do not get that money back. This meant people would use up
the limit even if they did not need it. They would run out and buy glasses or get gold
hearts inlaid in their teeth.

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With current savings plans part of your premium gets diverted into a savings account.
The unused money accrues to you each year and the money can also be used to fund
your premiums. The other benefit is that it is tax deductible. You could also start a
normal savings account but you would not get the tax benefit and you may be tempted
to dip into it for that black number at Sashas.

A full medical aid is important as you get older or have dependants. Childrens runny
noses and scrapes can cause your bills to do some running of their own. A
comprehensive medical aid covers costs such as medicine, doctors visits, dental work
and optometry.

The benefits

The first and most important aspect of a medical scheme is that it pays for any medical
calamity or procedure. There are various plans that you can chose from and each
level of plan will give you more and more cover. Of course there is a cost to this. If you
want a bells and whistles plan that covers you for an ingrown hair, then it could cost
you over R5000 per month. If you take a basic hospital plan, its considerably cheaper
because it will only cover procedures and accidents that require hospitalisation. There
are many different plans offered by even more medical schemes companies. You will
have to put in some elbow grease to track down which one suits your needs.

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Just a little word of warning though. If you use a broker they may favour one over the
other. Make sure you are given a number of options to choose from.

If you are a member of a medical scheme, you will be able to get treatment right away.
If you have an accident you cant exactly wait until you have saved up enough money
so they can sew your finger back on. Medical emergencies need instant treatment and
if you are cash strapped without cover it can only end badly.

Being a member of a scheme generally means that you will get better treatment. The
last place you want to find yourself in is an overcrowded, under resourced hospital,
with brides of Chucky looking after you.

The downside is that it is expensive, even a basic plan can cost R700 per month and
if your cash flow is stretched then its a big chunk of money. If you are employed ask
your company about their group scheme, you may be able to get a subsidy. If you live
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in Farflungsville then a medical aid may not help you because there may not be access
to a private hospital. However it is still worth it for non-emergencies. Watch out for
hidden costs involved with schemes, the most common tear causing event is when
your scheme does not pay out the full amount of a procedure. So its important to
check the Latin bits.

Here are some of the major schemes in SA : Fedhealth, Momentum, Genesis,
Resolution Health, Sizwe Medical Fund, Discovery Health, Medihelp, Resolution
Health, Profmed, Bonitas and Oxygen. There are others but these are the larger ones.

So how does a medical aid scheme
work?

A medical scheme is a non-profit organisation and it is required to be registered at the
Registrar of Medical Schemes. They are required to provide a minimum set of benefits
to its members (PMBS). PMBs were introduced into the Medical Schemes Act to
ensure that members of medical schemes would not run out of benefits for certain
conditions. These PMBs cover close to 300 conditions. You can ask your medical
scheme to provide you with a list.
There are two kinds of schemes open and closed. Anyone can join an open scheme,
but closed schemes are for companies that offer a medical aid to their staff, the
Government pension scheme called GEMS is an example of this.

Choices, choices

Choosing a medical aid can be a challenge as the marketing and information
documents they produce require a degree in linguistics, logistics management and
actuarial science to understand them. In a nutshell they all have baseline services that
they offer and then tweak to the clients they wish to attract. It all depends on your
specific needs and which company can offer you the best option to suit these needs.
A broker may be able to help you drill down to find the best option.
What a Medical scheme will not pay for.
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There are some medical procedures that will definitely not be covered under your
membership. So before you go on a HelloPeter rampage because they did not cover
your nose job, check the list.

Injuries sustained as a result of a weird occupations, those human cannon ball
people come to mind.
If you like to stock up on fast food and ice-cream treatment for your chubby
cheeks both medical and surgical will not be covered
Infertility.
You may think that your pectoral implants are a vital part of your wellness, but
medical schemes will be unconvinced.
Treatments have to be registered with the Medical and Dental Council, the SA
Nursing Council or the Homeopathic Association. So your crystal healer will
have to be paid by you.
If you insist on seeing a practitioner at 3 am you will pay for their overtime.
Sunglasses are fashion items, just saying.

You may feel inspired to be a guinea pig for experimental brain transplants and
other untried procedures but your alter ego will have to pay.
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Unregistered medication is a no-no, although red velvet cake should be
considered.
A telephone consultation with a doctor will not be covered-nice try though.
If your practitioner has a cancellation fee if you miss an appointment-you cant
claim it back
You are going on holiday or getting work overseas, happy happy joy joy but you
will have to pay for examinations needed for insurance.
A fund may refuse to pay if you insist on procedure that they deem
unnecessary.
If you rob a bank and get beaten up by the old lady in the queue, you are on
your own. In other words if you get injured while breaking the law, you will break
your bank as well.
While we could all use some R&R now and then a holiday for recuperative
purposes is not going to be covered.

This is by no means comprehensive, if in doubt give them a call.

Add-ons and options

Many South Africans cannot afford the high cost of Medical Aid, so some opt for the
other products on the market. While they may plug a few holes they are generally
inferior to a medical aid and should be considered as an add-on rather than a stand-
alone product.

A Medical Aid is governed by The Medical Schemes Act and the regulatory body is
the CMS (Council of Medical Schemes). This means that Medical Aid falls under a
different legislation than Medical Insurance (the other products on the market). Medical
Schemes need to adhere to all the provisions of the legislation and in particular they
have to provide cover for certain conditions and emergencies regardless of what type
of option you are on.

Medical Insurance falls under the Long Term Insurance act, and is enforced by the
FSB (Financial Services Board). In terms of payment a Medical Aid will pay a service
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provider directly, a Medical Insurance based product will pay the benefit to the
member. This is still no guarantee that the full account will be paid, as the benefit will
pay out in accordance to the stated benefit of the product. This also means that the
member has to settle his account directly with the service provider. It is very important
to study the terms and conditions of a policy.

Medical Insurance based products have a different set of underwriting criteria which
ranges from total exclusions for pre-existing conditions to loadings, to total rejection of
an application.

The acceptance to a medical scheme on the other hand is guaranteed but they can
impose a three month wait before you claim and or a 12 month exclusion for pre-
existing conditions.

While there is certainly place for both type of products in the market, it is important
that consumers do their homework before signing up with any Medical Insurance or
Medical Aid. Having all the facts at hand and asking the right questions will enable
potential members to be better positioned to find the right healthcare cover that suits
both their wallet and lifestyle.

Hospital cash back plan

Anyone who has been hospitalised knows that daily costs tick up at the rate of a taxi
meter. Fortunately the bulk of these costs can be controlled by having a medical aid.
The operative word is bulk because while a medical aid may take care of many of
the bills, we are often left with other associated costs that take a chunk out of our
wallets.

There are a number of costs that emerge during hospitalisation that we only become
aware of when we are sitting in the hospital bed eating overcooked vegetables and
dry chicken.

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So lets take a step back and look at an average scenario. You are driving home on a
stormy night and a tow truck breaking the land speed record cuts in front of you. You
brake but ABS is no match for a sodden road, you slide off the tarmac into a tree.
Sporting a broken leg and concussion you wake up in hospital with your family wringing
their hands at your bedside.

The relief of being alive (not that you would know any better if you were dead) is soon
tempered by the realisation that this is going to cost money. Sure you have a medical
aid, but you are self-employed, you have no disability cover and you have three kids
to feed.

One of the things they dont tell you about medical aids is that there are set fees that
they are prepared to pay for certain procedures and services, so if you get charged
more than these set rates, you will have to pay for the deficit.

Then there is the cost of your family coming to visit every day, which could add up to
an extra tank of petrol each week and at current prices thats not small change. Then
what about when you get home? Just try making yourself a sandwich and coffee when
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both of your hands are stuck to crutches. Even if you manage to do it by balancing on
one leg how are you going to carry the coffee back to the table? You will need help,
so your partner or a friend that owes you, will have to babysit for a while. If you have
used up all of your favour vouchers then you may have to pay for extra help. You may
also have to pay someone to help run your business or even drive you around, and
then there is your normal stream of monthly bills to take care of. Its not a pretty picture.
A Hospital cash back plan can take of these issues. These insurance policies can
cover you for out of pocket expenses that are not covered by your medical aid. While
its not a medical aid or a hospital plan, you can get up to R5000 per day for every day
you have been in hospital. This is as long as youve been admitted for 3 consecutive
nights, under the care of a registered specialist. You can claim from your 1st full night
up to and including your 90th consecutive night.

The good news is that you are free to spend this money how you wish so the funds
are not just earmarked for medicals bills.

The premiums are very reasonable and wont change for the first 12 months,
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regardless of whether you claim or not. Even if you have a full medical aid this kind of
policy will ensure that your budget does not get sideswiped by unplanned expenses.
While a Hospital Cash Back Plan can help when you are hospitalised, it is essential
that you have your other risk products in place, a cash back plan will not be much use
to your family if you die without life cover. Just read the rules carefully and be fully
aware of the exclusions.

Medical gap cover

Many people wrongly assume that if they have a Medical Aid they are covered for all
illnesses that require hospitalisation. They usually find out this nugget of information
when they are presented with an unpaid bill.

Medical schemes limit their cover to their Medical Scheme Tariff (MST) amounts. And
these often fall short of the full doctor and specialist charges.

One way to mitigate this is to consider a product called Gap Cover. There are many
companies that offer this product and their benefits differ, so take the time to compare
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offerings. Gap Cover is designed to cover medical scheme shortfalls that result from
in-hospital doctors charges and extends to medical scheme shortfalls on out-patient
procedures.

They can also include a personal accident benefit if you are disabled as a result of an
accident. It would also cover the cost of emergency services such as transportation,
counselling and life support equipment.

Why do I need gap cover?

When you need a major procedure, having to pay in extra cash is the rule rather than
the exception. The use of specialised equipment is often not covered and doctors can
hike up their fees well beyond what the medical aid pays out. For this reason, medical
gap cover can be a valuable addition to medical aid cover. But its important to be
aware that gap cover cannot replace your medical aid.

Day-to-day services such as doctor's visits, specialists visits, and glasses are not
covered. The kind of out of hospital procedures that are covered are surgical Biopsies,
vasectomies, cataract removal, tonsillectomies and grommets etc. Make sure you
consult the full list provided by the service provider.

As with all insurance policies there will be a list of exclusions and conditions. Read
them carefully and if in doubt, call the service provider for clarification and better still,
get all undertakings in writing. Cover is guaranteed and no applications are declined.

The difference between a medical
aid and a health insurance policy

Unfortunately a good medical aid is out of reach for many South Africans. The
insurance industry has seen the need to create an insurance based product to try and
bridge the gap. Health Insurance is less expensive than a traditional medical aid
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because the cover is limited. If you cant afford a medical aid then Health Insurance is
a viable option.

Medical insurance plans fall under long term insurance in terms of financial services.
It is not regulated by the Medical Schemes Act. It is a stated benefits contract, so in
other words if a particular event happens you will get paid a fixed amount regardless
of the actual cost. The legislation that governs medical schemes dictates that certain
emergencies and conditions are covered in full by the medical schemes regardless of
the plan type you are on. They are called Prescribed Minimum Benefits (PMBs). This
legislation does not apply to Health Insurance policies so they may not cover all of the
costs. Still, if you cant afford a medical aid, a health insurance policy will take the sting
out of an expensive medical event.

A health Insurance policy is not a medical aid but rather a subscription to a network of
medical services such as doctor and dentist Networks. There is no claiming process
as with a medical aid. The member visits the medical services provider such as the
network GP or Dentist, obtains medication or other relevant treatments without having
to pay unless the treatments and or medications are excluded in the policy. Their
hospital plans are insurance policies that pay the stated benefits directly to the
member. The hospital will usually ask to be paid up front for treatment as there is a
risk that you will not hand the money over and go on holiday to recover. The policy
includes disability and dread disease cover as well as death benefits which medical
aid does not.

Here are the other differences in a Nutshell

Medical Aid
Medical Aid cover is based on tariff codes and procedures and they are regulated by
the Council for Medical Schemes. Schemes negotiate tariffs with hospitals; one
medical aid may pay R100 for a procedure and another R70. So it pays to shop around
for the best deal if you know you will require treatment for a specific ailment down the
road.

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Health Insurance
The pay-out is based on events and stated benefits. Health insurance is regulated by
the Financial Services Board. Medical Aids often have shortfalls because the
practitioners rarely keep to the suggested tariffs recommended by the South African
Medical Association.

Health Insurance may be used as gap cover in conjunction with your medical aid to
cover any shortfalls of your medical aid scheme.

Medical Aid schemes must by law cover PMBs (Prescribed Minimum Benefits)
Health Insurance offers stated benefits and a formulary that may or may not cover
PMBs (Prescribed Minimum Benefits) so it is vital that you read the policy carefully.
Medical Aid schemes have got specified and yearly limits for procedures and health
events do not need to be specifically stated.
Health Insurance covers health events at fixed or stated amounts which pays directly
to the member as opposed to the medical services provider
Medical Aid schemes are prohibited from including Personal Accident disability, death
or funeral cove as part of their offering.
Health Insurance includes Personal Accident risk cover such as disability and loss of
limbs and dread disease cover etc.
Health Insurance is allowed to include death and / or funeral cover.

Other stuff you should know about
medical aid

Sometimes Medical Aid schemes hit the newspapers for being bad. All sorts of issues
arise ranging from non-payment of claims to governance. Here are some things to
look out for when making your choice.
One of the most important considerations is the payment of claim. Ask
around and you will quickly find out if the companies offering health care
stick to their promises and pay out promptly with no quibbles. A broker will
have the inside track on this so prod him or her for answers.
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There is a fixed rate that medical aids will pay out for certain procedures but
the health care professionals may charge above that rate and you will have
to pay the difference. Do your homework. If you know you will be requiring
a certain treatment shop around for the medical aid that has the best cover.
Find out what the overall annual limits are on all the different products that
may pertain to you.
Find out what has been the annual premium escalation on health-care
products in the last three years? Anything between 8% and 12% is
considered reasonable.
What is the fund rating of the medical aid you are joining and how does its
reserves work? Usually the members premiums go into a pot and claims
are taken out of this pot for the year. At the end of the year reserves are
reviewed and depending on how much is in reserve it will adjust the
premiums for the following year.
What additional benefits does the plan offer? For example does it provide a
24-hour toll-free emergency information help line? Does it have maternity or
preventative care advice?
Can you claim your premiums as a tax deduction?
Does the plan cover you for hazardous sports such as hang gliding or
skydiving?
Would you have access to international cover should you go overseas? If
yes, what are the limits?
Will the plan cover chronic medication for things such as Alzheimers
disease or rheumatoid arthritis?
Find out if annual threshold limits apply (a threshold limit ensures that you
have protection on out-of-hospital costs once a certain limit has been
reached.
What are the optometrist and dentistry annual limits, if any. These areas are
often the most claimed and most abused areas.
Should you be hospitalised, does the product provide cover from day one
(not ICU) and what is the policy on HIV/AIDS.
Make sure you know exactly what happens to your medical plan if you leave
your job. In some cases people who have had a pre-existing illness were
20


not able to leave their jobs because no other medical plan would take them
on at an affordable premium.

Some tips to keep your medical bills manageable

Use generic medications when possible. The name brand medicines can
cost as much as three times more. However check first with your doctor to
ensure they are suitable.
Prevention is better than cure-get all bumps lumps and funny feelings
checked out.
Do not assume your hospital bill is correct a slip of the clerks finger can add
a zero where you dont want it. You may also find that mystery items have
crept into the bill. Hospitals are prone to charging for stuff you did not use-
check everything.
Use your pharmacist instead of your doctor for advice on day-to-day minor
illnesses and treatment.
Compare tariffs and prices charged by different doctors or pharmacies. A
little homework could yield big savings.
One little known fact is that health care providers such as surgeons and
anaesthetists are in fact negotiable. If you know that your procedure is not
fully covered by medical aid there is no harm in asking for some
compassion. The worst they can do is say no.

Finally, you should never choose a plan based on cost alone. As with most things
in life you get what you pay for.

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