With healthcare costs growing at around 10% - levels well-beyond inflation - and with most medical schemes announcing annual plan increases of between 8-9% for 2020, South African medical scheme consumers are left with little choice but to buy down on their medical scheme benefit options in a bid to manage their high living costs. Exacerbating healthcare costs and utilisation of medical scheme benefits is the increasingly unhealthy lifestyles of South Africans leading to chronic diseases such as heart disease, diabetes, hypertension and even certain cancers.    

The buy-down in medical benefit options has a commensurate reduction in the benefits covered and limits offered, which many South Africans don’t realise until they’re faced with an unexpected and unaffordable bill for in-hospital treatment not covered under their benefit option. This has thrown the spotlight on the critical need for Gap Cover insurance to ensure that consumers are not slapped with onerous out of pocket expenses for in-hospital treatments as they contemplate migrating to more affordable, lower medical scheme benefit options.

“The reality is that medical scheme cover can cost 20% or more of monthly disposable household income.  If you consider the hyper-inflationary growth in healthcare costs, the annual medical scheme increases of 8-10%, and the fact that salary increases have declined to lows of 3-4% annually, if at all, it is clear that medical schemes costs are eating into a much greater share of monthly household income than ever before.  Given the disastrous state of the public healthcare system, private healthcare is an expensive but essential safety net that consumers who can afford it understandably do not want to live without,” explains Martin Rimmer, CEO of Sirago Underwriting Managers, a leading provider of Gap Cover Solutions, underwritten by GENRIC Insurance Company Limited.

“Cheaper medical scheme options provide less benefits and more restrictions related to accessing benefits.  Buying down could leave you exposed to onerous out of pocket expenses if you don’t have Gap Cover to protect you from shortfalls that exist between the agreed medical scheme rate and the rate that the healthcare provider charges.  In fact, even on comprehensive options, shortfalls still exist as a shortage of specialist skills and lack of supply side regulation on pricing means that healthcare providers determine their own fees, which typically falls well beyond medical schemes rates,” adds Rimmer. 

Gap insurance covers the difference that arises from the rate that specialists charge for in-hospital procedures – which are often as high as 300% to 500% higher than the rate paid by your medical scheme. For example, if your medical scheme option only pays out at 100% of tariff, you will then be liable to pay the shortfall of the other 200% to 400% charged by your healthcare provider as an “out of pocket” expense.  This difference could cost tens of thousands of Rands to a medical scheme member without Gap Cover.

These shortfalls occur in several ways including:

• Surgeons, anaesthetists and other specialists charge more than the contracted / agreed rate with your medical scheme for certain in-hospital procedures; 
• Your medical scheme applies co-payments or deductibles on certain in-hospital admissions and or procedures;
• Certain expensive in-hospital items and appliances have annual sub-limits, for example the internal prosthetic devices used in a joint replacement procedure. 

While consumers increasingly move to more affordable ‘core hospital plans’, adding gap insurance to cover any potential in-hospital tariff shortfalls is essential to protect you from big financial expenses related to shortfalls on in-hospital treatment, from the anaesthetist to the specialist surgeon.  It is important to point out that Gap Cover is designed to cover you for shortfalls on in-hospital treatment and procedures and does not cover day-to-day medical expenses for GP visits, dentistry, optometry and the like. 

“Most consumers don’t fully realise just how serious these shortfalls can be, and the financial repercussions are onerous, if not crippling.  Sirago is seeing an increase of beneficiaries reaching their overall annual claims limit within a 12-month period and has already experienced a single hospital event resulting in this limit being reached.  In one month, Sirago has processed multiple claims larger than R40 000 each to the value of R1 300 000 in tariff shortfalls not covered by Medical Schemes that clients would have had to pay from their own pockets, had they not had Gap insurance in place.  There are very few people who can manage this kind of financial impact without taking additional Gap Cover.  Given the financial exposure, not supplementing your medical scheme benefits with a Gap Cover policy could be a very costly mistake.

Gap Cover is an Affordable Essential

When you consider the potential financial quantum of a shortfall on your medical scheme benefits, and that a gap premium is around R370 per month (2020 Sirago Gap Plus) and each family member is covered for up to a maximum of R164 000 per annum, it is clearly evident that Gap Cover policies are a critical part of an individual or corporate employers strategy to insure against medical scheme shortfalls at a cost effective monthly premium. 

On a closing note, Rimmer advises consumers to always negotiate the pricing of any planned surgery with healthcare providers before and ask for a formal quote from all the medical role players.  That way there are no surprises or unexpected costs creeping in after the fact that you would find difficult to dispute, unless there were specific complications during the procedure.  Finally, be wary of doctors asking you upfront whether you have gap cover or not – overbilling based on a client’s insurance portfolio is a growing unethical practice by some unscrupulous medical specialists looking to capitalise on the patient’s insurance cover by overcharging, knowing that the patient has the insurance to cover the inflated price,” concludes Rimmer.

A major health event such as surgery in hospital is usually an unpredictable event and can strike a family at any time.  An accident, heart attack, spinal injuries, time spent in ICU and cancer - one of the current top high claims causes - can leave families financially destitute and in a crisis if they do not have the financial means to cover these shortfalls.  Consumers are mainly at risk when it comes to in-hospital treatment where shortfalls of R30 000 to R40 000 are the norm and no longer the exception.  The need for Gap Cover and Co-payment Cover as an insured solution is critical in the future of the average consumer’s personal healthcare planning in South Africa. 

Sirago is an authorised financial service provider (FSP 4710), a leading provider of Gap Cover Solutions underwritten by GENRIC Insurance Company Limited (FSP 43638), an Authorised Financial Services Provider and registered Short-Term insurer.

Note:  The content of this article does not constitute financial advice. For more information go to www.sirago.co.za (T’s & C’s apply).