Are you thinking about taking out a “hospital insurance” policy of sorts? Perhaps your medical aid contributions are getting a little heavy, and you are considering canceling your membership to free up some spare cash every month? Might be a plan, but before you pick up the phone and skop your medical aid into touch, you might want to consider the major difference between a hospital insurance policy and the medical aid plan you are currently on.
How does that adage go again? – “You get what you pay for.” Health insurance is way cheaper than a medical aid membership – FACT. If you are price sensitive, then naturally you might gravitate towards a cheaper health insurance product if it was offered to you. That much is obvious, especially when times are tough.
But what exactly are you giving up for a reduction in your healthcare premiums?
The only way an insurance company can offer a rate that is at least 50% less than a medical aid, is by offering fewer benefits (or benefits that are less comprehensive). Now that might be fine and dandy if you are fit and healthy and prepared to run the risk of “less comprehensive cover”, but you need to be careful that you don’t get caught out at claim stage wishing you had stayed with your existing medical aid scheme.
Here is an example to better illustrate the point:
Rachel is on an entry-level medical aid plan and pays R1 000 a month. She hardly ever claims and is feeling a little resentful about coughing up a grand every month for medical cover she almost never uses. An advert on the TV catches her attention. It’s for a hospital cash-back plan that pays up to R1 000 for every day you are in, hospital and the premiums are only R150 a month. Rachel figures it makes sense to ditch her medical aid and put the R850 per month saving straight back into her pocket.
If Rachel never lands up in a hospital she will score.
Her decision to take out a cheaper insurance product rather than sticking with her seemingly expensive medical aid plan will be vindicated, and her savings over a period of 10 years could be more than R100K.
But (and insurance is always about the “buts”, right?), another scenario could play out that sees Rachel declaring bankruptcy in less than a year.
What if Rachel landed up in a hospital for an extended period?
Let’s assume for a second, she was involved in a serious car accident and ended up spending 6 months in a hospital. A quick calculation at R5 000 a day for private hospital cover over 180 days would put the bill at a whopping R90 000. The reality is that the hospital cash-back plan would kick in and cover the first R1,000 of the daily hospital stay costs, but who is going to pick up the remaining R4 000 per day?
Medical aid is designed to cover all the costs of an in-hospital stay (at the agreed tariff rate). Health insurance is designed to cover a portion of your in-hospital costs (as per your policy schedule).
That is the major difference between a health insurance product and a medical aid plan.
The rule of thumb is that if you can afford to be a member of a medical aid scheme, you should belong to a scheme.
If affordability is an issue, then health insurance products are an alternative. The biggest question you need to ask yourself is:
- What do my hospital benefits look like?
Let’s get real for a second here. Most of us can afford to pick up a GP consultation bill or a routine dentist visit occasionally. Very few of us can afford R1 000 000 for a 6-month stint in a private hospital. What then?
Will R1 000 a day for hospital cover be enough? Probably not.
Don’t get us wrong. Health insurance has its place. Millions of South Africans can’t afford medical aid and having some level of cover is better than having no cover at all.
If you have a medical aid plan, stick with that. If you don’t think you are getting the most competitive premium, shop around. It’s not a good idea to try and compare one insurance product based on price.
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