How to choose a medical aid plan?

I don’t know about you, but my biggest fixed monthly overheads are my mortgage, vehicle repayment and then my medical aid contribution. For a lot of you out there it would be the same, except perhaps an additional cost which is your kid’s education. Nowadays that actually might rank as your second biggest monthly expense behind your bond.

So, with health insurance being as pricey as it is don’t you think you should be giving your medical aid purchasing decision as much thought as you did when deciding to buy your new car? I mean you didn’t buy your vehicle on a whim. You did a little research, looked at a few options, looked at more options, took it for a test drive and then finally made your decision. In this blog post I am going to give you some great pointers on choosing the medical aid plan that is right for you. Oh don’t worry it certainly isn’t going to take you as long to decide on a medical aid plan as it did to buy your vehicle.

Step one is to determine affordability. I don’t really care what anyone says, you might want the Rolls Royce Super-Dooper medical aid plan that covers everything, but if you can’t afford the premiums it isn’t an option. We all would like a snazzy spot at Camps Bay with a sea view, but do you have the R40 000 000 to buy the property? My guess is probably not. So you will agree with me then that all purchasing decisions are based first and foremost on affordability. Once you know what you can spend on a medical aid plan you eliminate a lot of work because your affordability will determine which plan types you can choose from.

The next step is completing a quick personal healthcare needs analysis. Why you ask? It’s simple. Without knowing what you need in terms of healthcare, how will you know what level of coverage you require? This is the easiest way to go about doing the quick needs analysis check. Just ask yourself a few questions and grab a pen and paper to make some notes. Work out how much you spent on day-to-day healthcare expenses over the last twelve months. What where those expenses for? GP visits, hospitalization, dentistry, Gynae visits, medication etc. If you already belong to a medical aid scheme, it’s even easier. Just ask them to send you a copy of your claims history for the last twelve months. If you have a family (spouse and kids) then group all the expenses together and look at it as a whole. Also analyze which of those expenses where once offs and which are likely to come up again and again. A casualty expense for a broken arm while mountain biking is in my opinion a once off expense. You don’t plan on breaking the arm again and again. I hope not. If you do, then sell the mountain bike and buy a Lazy Boy recliner. An annual trip to the GP for a check -up is a recurring expense though because each year it needs to be budgeted for. Keep this information handy because you will need it a little later.

This is why the healthcare analysis exercise is important. If you find that you haven’t claimed at all and are unlikely to claim unless a major medical emergency, like a vehicle accident presents itself, then you will require a low level of coverage. If however you find that you have incurred a mountain of medical expenses then you will require a higher level of cover. A strapping young twenty year old in perfect health who hasn’t seen a doctor since the day his mother gave birth to him is going to require a very different type of medical aid plan than a middle age bloke who is very sickly and on all types of medication and is at the doctor so often that he has a reserved parking bay in the parking lot. You get my point. The status of your health and how often you claim is the basis for choosing any medical aid plan.

Ok, now we know how much we can afford and if we are in excellent, good or bad shape (health wise). We also know how much we spent on medical expenses recently and how much we expect to spend going forward. So it’s time to start looking at medical aid plan options. This is the third step and it’s here that you need to look carefully at a few important things. Firstly you need to understand that medical aid plans are made up of two components. Medical expenses covered in- hospital (you need to be admitted) and expenses covered out- of hospital (day-to-day benefits). The major risk nowadays is being involved in a medical emergency and not having the money to pay the outrageous private hospital costs. They are run like business today and if you rock up at a private hospital you need to whip out your medical aid card or your platinum credit card. If you don’t have health insurance or piles of cold hard cash, you are not welcome. It is for this exact reason that the majority of your medical aid premium is used to cover in-hospital expenses because this is by far the most costly component of private healthcare. A smaller portion of your premium is used to fund smaller day-to-day or out-of -hospital expenses like GP visits or medication etc. We will get to that a little later though.

So private hospitalization cover is paramount and is the basis of any medical aid plan. But the levels of in-hospital coverage do differ from one plan to the next. What do you mean they differ? A medical aid tariff rate is put in place which simply means that there is a ceiling at which medical aids will pay for all procedures and treatments in hospital. If you take out a plan that covers you at 100% of medical aid rates, then the medical scheme will cover your expenses up to that limit. If your plan covers you at 300% of medical aid rates, then effectively you have 3 times as much cover. Let’s rather look at a quick example to make it clearer.

Assume for a second that you need an appendix operation at it costs R4000. Let’s assume again that the medical aid tariff rate for the procedure is R2000. That means the medical aid company will only pay up to R2000 for the procedure. You are sitting at home a few weeks later watching some Super 14 Rugby recovering from your appendix operation when you open your post and almost need to be rushed back to the emergency room for a heart attack. As you scan over the bill from the surgeon who operated on you, you realize that you owe him R2000! How did that happen? Let’s do the math. Your plan covers you at 100% of medical aid rates. The tariff rate for the procedure is R2000 but you specialist charged you R4000. That means that he is charging 200% of medical aid rates and you are therefore 50% underinsured and owe him the balance. Ouch. The medical aid in this instance pays up to the tariff rate and you are responsible for the rest. Yip it is a reality and that is why when choosing a medical aid plan you need to look carefully at the rate of cover offered.  I’m not saying opt for a plan that covers you for 300%. I haven’t seen a plan offer more coverage than that yet, 100% is fine on the condition that you check first that your provider or specialist is charging you medical aid rates, otherwise you might be in for a shock.

The next thing you need to consider is whether you want to go to any hospital provider or a networked hospital. To bring down the cost of private hospital expenses for its members, medical aid schemes have started to network themselves to specific providers (hospitals & clinics). If you choose a medical aid plan that has a network provider then you are obliged to use only that provider when looking for hospital treatment. If you prefer choice, then don’t go this route. Medical aids will offer you a discount for using a networked provider but if you decide not to use the provider once you have signed up, they will charge you a penalty fee. So what would be the basis for choosing a plan like this?

I will use myself as an example in this scenario. When deciding to upgrade my plan or remain on the same plan for 2010, I looked again at my options. I decided to opt for a network provider plan for the following reasons. One of the hospitals offered on the network plan is very close to where a stay. So if I needed to get down there in a hurry, it’s not a great trek across town. The second point is that I have actually undergone a procedure in that hospital a few years back and I was more than happy with the facility and the care I received. So I have opted to network myself into that hospital and get a discount on my premium from my medical aid company for doing that. I am also aware that if I was involved in an emergency, I would be taken to the nearest private facility before being transferred to my provider. Also Ok with me. Your decision to either chose a network hospital plan option or not should be based on this. How close is the provider and do I know the facility? Would you be happy to visit that facility and which doctors work out of that facility?

Earlier I spoke about the part of your medical aid contribution which funds your smaller day-to-day medical expenses. It’s now time to look at your healthcare analysis notes, so we can get an idea of what you spent on medical bills and are likely to spend moving forward. Because medical aids are trying to make members more responsible for their own day-to-day expenses they have created a medical savings account (MSA) facility within the plans. Now there are a few medical aids that don’t use this system but I will get to that in a moment. A percentage of your medical aid premium is used to fund this MSA account. Think of it as a cash account from which you pay your day-to-day benefits like GP visits and medication. The money is loaned to you upfront on the basis that you pay the premiums for the year. Let’s have a look at the calculation.

You join a medical aid plan that has a 25% premium allocation towards your MSA account. So if your total medical aid contribution was R1000 per month, R250 would be used to fund the MSA account. That means R250pm x 12 premium payments in a year is a total of R3000. That R3000 is what you use to pay all of your day-to-day expenses from for the year. You control how the money is spent. If you don’t spend the cash, then it simply rolls over for the following year with your new MSA allocation. So if you spent R3000 last year on GP visits and all types of other day-to-day medical expenses and you are likely to spend the same amount again next year, then you would look at a plan that offered a MSA facility of R3000. If you spent more than R3000, then you need to look at plan that offers more in terms of MSA monies or be prepared to self fund the additional expenses once you have exhausted your MSA account.

So if I exhaust my MSA account I need to pick up the costs for day-to-day expenses out of my own pocket? Yes that is correct, unless your medical aid plan has a safety net or threshold benefit built into it. All that means and it is a benefit that you pay for, is that should you exhaust your MSA account before the year is up, there is a self payment gap that needs to be paid before the medical aid picks up your day-to-day expenses for the remainder of the year. If you claim heavily on day-to-day expenses then this type of option is one you should look at. An example: John has an allocation of R8000 for the year in his MSA with a self payment gap of R2000 built into the plan. By August of that year join has run out of medical savings. John then pays for day-to-day expenses out of his own pocket until he has accumulated R2000 worth of additional expenses which he submits to the medical aid. He is now through the self payment gap and for the remainder of the year the medical aid will pick up the cost of Jon’s day-to-day expenses. It’s a safety net in case you run out of medical savings.

Earlier I mentioned that not all medical aid companies have an MSA facility for day-to-day expenses. That is correct. They do still however have a distinction between in-hospital and out-of-hospital benefits. Instead of an MSA account to fund your day to day expenses, they will offer you block benefits. All that means is that you don’t control the day-to-day money benefit, they do.  The medical aid company will give you an allowance for certain procedures or treatments. So you will have for example R5000 for GP visits each year, R3000 for dentistry, R6000 for specialist treatments. It works on a use it or lose it basis. If you don’t use the benefits they don’t get rolled over like a MSA account.

If you feel that you can self fund your day-to-day expenses yourself (pay it out of your own pocket) and only require cover for hospitalization then you need to look at a plan that only offers hospital cover. It’s going to be far cheaper and you can always upgrade your plan at the end of the year. This will be very much determined by your personal healthcare needs analysis.

The last step is choosing a medical aid company. They are plenty of options available to you but generally their plans are very much alike. I would suggest that over and above price look at membership trends. How many members a scheme is acquiring or loosing is a good indication of how healthy the fund is. You don’t really want to board a sinking ship. I would rather join a scheme with a growing or established membership base. Global credit ratings are also important along with solvency ratios (the levels of reserves the fund has in relation to its liabilities).

Let’s recap before I sign off.

• Determine your affordability
• Do your own healthcare needs analysis
• Decide on the level of hospital coverage you require
• Decide if you want a network hospital provider
• Work out how much money you will need for day-to-day benefits
• Look into the medical aid company

I would love to hear your comments on how you went about choosing your medical aid plan. Please feel free to comment below. In my next blog post I will be looking at top up medical aid cover. It’s a great product specific blog. I personally own this add-on health insurance product.

Bye for now

Brendan

Related posts:

1. Gap-Cover For Medical Aid Plans with Hospital Limits
2. How does a medical scheme work?
3. Time to top-up your medical aid !
4. Are You Willing To Risk Your Hospital Bills Not Being Paid In Full?
5. Healthcare in South Africa – The check up!

Tagged as: medical aid schemes