Medical Aid Membership

In South Africa, Get Your Medical Cover Early

April 4 -5, 2009. Medical aid membership should be an important part of everyone’s financial planning. This is even more important now that the changes to the Road Accident Fund Act were implemented on August 1 last year. Where previously you could be treated at a private hospital and look to recover those costs from the Road Accident Fund, now you must go to a public hospital, or settle the difference yourself for private hospital care. These costs can be significant, and make medical aid cover vital for those wishing to utilize private hospital facilities and expertise.

If you do not have medical aid cover, an operation or a stay at a private hospital can have severe financial consequences. Unfortunately, the medical aid landscape in South Africa is confusing and making the right choices can be difficult. According to the 2007 Council for Medical Schemes’ annual report, there are only 7.5 million South Africans who are covered by medical schemes.

Our government spends about 10% of its budget on health, and is targeting a level of 15% by 2010.

South Africa, like many other countries, faces the challenge of an aging population with increased vulnerability to chronic illnesses. Young people, who are relatively healthy, find it unappealing to contribute to schemes that will only benefit them in years to come. Our social inequalities and exodus of skilled medical staff make the challenge even more intimidating. Government legislation has been criticized as being impractical and counter-productive. The public sector hospitals are not comparable with the private sector hospitals, which is not good for competition and costs.

How does one go about making informed medical aid decisions in such a confusing environment?

There are some basics that you should be aware of. “Late joiner” penalties may be imposed on new members, and their dependents. The starting age for penalties is 35 years old. The penalty is based on the number of years after age 30 that an applicant was without medical aid cover (refer to the table). It is therefore important for young people to join a medical aid, even if it is a basic “hospital plan” at first. Once you are a scheme member, you are allowed to upgrade your plan once a year at a prescribed time. This aims to stop people from transferring to a more comprehensive plan, with better cover, just before a big operation, for example. You are allowed to downgrade your plan at any stage of the year.

Be aware that there are also “waiting periods” that aim to prevent people from joining medical schemes as they become ill. A waiting period is a period during which contributions are payable without the member being entitled to benefits. There is a general waiting period of up to 3 months and condition-specific waiting periods of up to 12 months. Again, the advice would be to join a medical scheme before you become aware of any medical problems.

How to Select A Medical Aid

In terms of selecting a medical aid, you should ensure that it is solvent and take note of recent membership trends. This information is available in the public domain. If you have a specific medical condition or concern, then it may be worth investigating which scheme would best suit your needs.

From a long-term financial planning point of view, it would be prudent to assume that you will have to provide for your own medical costs in retirement. It is very unlikely that the public sector will improve significantly over time. Medical products will still need to be imported and there will be a shortage of skilled medical personnel. This will mean that medical inflation is likely to remain high.

It is crucial to take advantage of tax-deductible savings plans while you are still young and working. A retirement fund, such as a retirement annuity, allows you to reduce your current tax bill immediately and accumulate savings tax-free over time within the fund. When you draw an annuity income from the fund, it is taxable but bear in mind that all medical expenses are deductible for taxpayers over the age of 65. Medical deductions are therefore likely to neutralize a significant portion of the taxable annuity income. There are very few retirees that have a tax problem – it is far more common to have a capital problem. An important point to note is that it the payer of the medical expense that receives the tax deduction. The payer may well be different to the recipient of the medical care.

Tax deductions for under 65’s are less generous, but do at least offer some relief. The minimum tax-deductible amount is currently R570 per month for both the principal member and the first dependent. Thereafter, each additional dependent (normally a child) allows the principal member to deduct a further R340 per month. If you incur significant medical expenses, they will be deductible above a certain ceiling amount.

If you are unsure about the impact of medical aid costs on your long-term financial plan, then my advice is to engage an independent, fee-based certified financial planner who is focused on your best interests and can provide impartial advice. If you do not have a certified financial planner, visit the website of the Financial Planning Institute on www.fpi.co.za to select one.

Netto-Jonker, CFP, is founder of Netto Financial Services and was financial planner of the year in 2001. Her business partner Ian Beere, CA(SA) CFP was the financial planner of the year in 2007.