Understanding medical aids

 

Medical aids can be complex and the industry is a highly regulated one.  In general I find that most members just done understand what their medical aid covers. This document aims to clarify the primary issues that confront medical aid members looking to join or move schemes.  Toro Financial Planners specialises in setting up and managing personal and corporate medical aids and medical insurance products.

Joining a medical aid

It is important to know that no medical aid can refuse a person entry onto that scheme.  The only time that they may refuse to allow you to join is if you have withheld or misled them on the status of your health.  If they do uncover any deception, they are allowed to cancel your membership and refuse to pay for any treatment that may be necessary.  This will then raise questions and another scheme that you try and join will likely take a hard line on the terms of your membership.  The point is that one must disclose all that is necessary when joining a medical aid[1].

Only medical aids, governed by the Medical Schemes Act are obliged to accept all people who apply for membership. Membership of medical aids can only be declined if a member cannot afford the premium or if they have been found guilty of fraud.

A medical aid, although unable to refuse you entry, is allowed to ‘underwrite[2]’ anyone that is joining the scheme.  This may involve questionnaires, queries or a full medical report & relevant tests that go along with this.  Once they have undertaken this process they are entitled, under South African legislation, to impose 3 restrictions on your joining their medical aid:

1. A 3 month-general waiting period can be imposed, where the member will have no cover for the first three months of membership, except for life threatening conditions and the prescribed minimum benefits (a list of conditions and diagnoses all medical aids are obliged to cover by law); &/OR

2. A condition-specific 12-month waiting period can also be applied; &/OR

3. Late joiner penalties – otherwise known as LJPs; are only applied to members older than 35 years of age and only if you have not been a member of a medical aid over the age of 30.  Please see below for how these are calculated and what value they are worked out on.

Generally, if you are under the age of 40 and are completely healthy, you should not have any waiting periods or penalties enforced on your membership of a medical aid.  This is a rule of thumb and is not a definitive declaration on all medical aid schemes out there.  We have numerous arrangements with medical aid companies and often, because of the quality of our book, can get leniency when we bring on healthy members.  During the waiting periods you will be paying the full premium for your cover.  You do not get any discounts due to the level of cover you have on the plan.

It is also important to remember that the 12 month waiting period is only for the first 12 months of membership.  Thereafter the member has full cover for any condition that they had when joining the scheme.

Late Joiner Penalty’s

LJP’s are applied when one cannot prove previous memberships of a South African medical aid.  These are applied as follows:

The table below is looking at the number of years the member has been off a medical aid over the age of 30:

                                    Number of years:      % increase in premium:

1 – 4 years:                 5% loading

5 – 14 years:               25% loading

15 to 24 years:            50% loading

25 years +:                  75% loading

Example of how LJP’s work:

So for example, a person is currently 55 years old.  He, or she, was a member of a medical aid from 30 until the age of 45.  At 45, the person decided that they did not want to be on a medical aid anymore; as such cancelled their membership.

Then at the age or 55 the person decides to rejoin a medical aid (any medical aid).  The person was not a member of a medical aid for 10 years.

As such the new scheme is entitled to impose a LJP on the premium because they did not have cover for 10 years between the age of 45 & 55 yrs.  This fits into the band detailed above of 5 – 14 years & a 25 % loading will be ‘loaded’ on their premium.

 

So if the premium for his plan is R 1,000 – he will have to pay R 1,250 to be a member of the scheme.  Once again there are some factors to this and the calculation can be a bit more involved when there is a savings portion to the premium.  If you have been off for a long time please consult a financial advisor (or the medical aid) to work this out.

Changing your current plan (within a medical aid scheme)

You are only able to upgrade[3] your medical aid plan on the 1^st of January each year. If you don’t do change your plan, your medical aid plan will automatically default to the same plan you are on currently.  If you would like to upgrade your medical aid to a higher plan, please inform us or the medical aid directly. This process needs to be completed by the second week of December so it needs to be put into action early in December if not late November.

Some medical aids allow one to upgrade during the year if you encounter a life-changing event – such as, you fall pregnant or contract a life-threatening disease. [4]

Downgrading is usually allowed on a medical aid.  It is important to note that you may have to pay for this downgrade if you have used up savings that you had on the higher plan.

 Income based options

Some medical aid plans are split into bands that charge different premiums depending on what you earn.  If you belong to an income based option, please note that you need to submit proof of income at inception of the plan and then on a yearly basis. Proof is your IRP 5 (SARS) and your bank statements[5].  This must be done by mid-December.

Examples of income based options are - Discovery’s Keycare Range, Liberty Health’s Silver Range, Fedhealth’s Blue Door and Spectramed’s Azure & Cyan plans.

Medical aids we represent

Currently, I represent the following medical aid schemes:

Discovery Health, Fedhealth, Liberty Medical Scheme, Medihelp Medical Scheme, Medshield Medical Scheme, Momentum Health, Nimas Medical Scheme, Profmed Medical Scheme, Resolution Health, Spectramed Medical Scheme, Strata, Turnberry, Universal Health & OCSA

If you are interested in another scheme or would like our opinion on your current scheme, please get in touch with me.  Should you belong to a medical scheme that we represent and would like assistance with any issues you may be having, please let us know.

Medical Insurance

In the South African market it is also possible to purchase medical insurance. It is against the law to belong to more than one medical scheme at a time, but you can have medical insurance while being a member of any medical aid.

Medical insurance fills several gaps but the main one is the cover for procedures in-hospital.

Many plans that we represent, and others that we do not, only cover you ‘in-hospital’ at 100 % of medical aid rates (or 100 % of the Discovery Health rate, or the Medihelp rate etc...).  What this means is that they are covering standard, not private, rates[6].  The problem with this is that specialists and surgeons often charge for their services at a much higher rate – anything from 200 % to over 300 % depending on how much they think they are worth.  So if your medical aid only covers 100 % then you are liable for the balance that the provider charges.

Medical insurance can be purchased to ‘boost’ your in-hospital cover.  As an example – Stratum’s Gap 500 cover boosts your in-hospital cover by an amount of 500 %.  So if you buy top up cover and you have a 200% in-hospital reimbursement rate on your medical aid, you will then have the lesser of the actual cost or 700% cover (200 % from your medical aid, boosted by 500 % from Stratum).  You should then, never have to worry about what specialist you use or who is operating on you.

There are other medical insurance products besides just the ‘booster’ cover.  There is also a hospital cash benefit that can be purchased which will pay a fixed Rand amount per day spent in hospital.  One can also increase your overall annual limit, or shortfalls that may exist on certain benefits within your specific medical aid.  One can also get cover for any co-payments and a waiver product can also be purchased.

I, currently, have one of the most comprehensive products from a medical insurance company called Stratum added to my medical aid.  I find comfort in knowing that the shortfalls that exist on my medical aid plan are covered by this product. 

All medical aids have shortfalls and limitations to the cover they offer, no matter what or who it is, and with medical insurance, one can remove, or increase, these. If you are interested in looking into this please get in touch with us to discuss which company or plan is best for you[7].

Conclusion

It is extremely pertinent to have medical cover in place in today’s fast-paced world.  It may not be your fault that you get injured or ill, but it does become your problem when you have to pay for the bills for your recovery and treatment.  Due to our independent and unbiased approach, we are in the perfect position to advise on what plans and which medical cover is best for you to put in place. 

Please let me know if you have any questions or queries. For advice related queries, please contact me directly.

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[1] There are some caveats to this – the best is always to consult an advisor when joining a scheme.

[2] To ‘underwrite’ is a process that insurance companies (incl medical aids) do when taking on the risk of insuring a particular person’s health or life.  Through this process they are able to assess their risk of insuring a person and charge accordingly.  Medical companies cannot change the value charged due to underwriting – all they can do is impose waiting periods.

[3] Note that an upgrade is not necessarily just an increase in premium. Moving from an Essential Discovery Plan to a Classic Discovery Plan is seen as an upgrade, so a move from Essential Comprehensive to Classic Core is an upgrade. Even though the former costs about as twice as much, the latter has better in hospital cover.

[4] Fedhealth does allow upgrades in the middle of the year if you have a life changing event. These are classified as follows: 1) Diagnosis of a chronic or dread disease 2) Kidney failure 3) Marriage 4) Divorce 5) Pregnancy 6) Death of the Principal Member or 7) Retrenchment

[5] Bank statements are usually only requested at inception of the medical aid not on a yearly basis.

[6] - The definitions or description of what rate they cover is different depending on the medical aid, please consult your brochures.

[7]  - 3 month general and 12 month pre-existing waiting periods are also enforced in medical insurance products.  As before we can get some of these waived.

Exchange traded funds – what are these and should I be investing in them?

In a word or two – Yes, absolutely!  If you have not got these as part of your portfolio then you have not received appropriate advice or haven’t heard of them.

What is an ETF?
An Exchange traded fund, or ETF’s as they are also known, are a type of collective investment (CI’s for short - also known as unit trusts).  An ETF, like a CI, invests your money into different asset classes depending on the fund.   

What they are is a passive investment vehicle rather than an actively traded fund such as your Investec or Allan Gray funds – which are run by an investment manager or house view.  An ETF is a passive index tracking instrument and are designed to track their benchmark index as closely as possible.  There is no one person or house making a call, it is purely a computational decision based on facts and figures.

The funds are transparent – trade during normal working hours and are thus priced during the day’s trading (not at one point in the day as in conventional CI’s ).  One can also track your holdings daily to ascertain exactly what shares you own and are being tracked in the index. 

Where do you find them?
All the ETF’s are listed on the local Johannesburg Stock Exchange (JSE) and the prices can be seen either online or in the newspapers.  There are a number of ways one can access when wanting to invest in these instruments.  They can be accessed through the providers directly or through a good investment platform such as Momentum Wealth or Itransact.  The platform that we are beginning to utilise a lot of is Itransact.  This platform houses all the ETF’s available in the local market, including the Deutsche Bank x-trackers (offshore equity ETF’s). 

One can include ETF’s in any portfolio, no matter whether you are investing in discretionary or in your retirement investments (RA’s or pension funds).  The only thing that will limit your ability to access to ETF’s these is the platform that you are using or the advice you are receiving.

What are the minimums per investment?
On the Itransact platform the minimum debit order is R 450 and this can be split into a maximum of three funds.  If you go direct to Satrix their minimum is R 300.  I would advise to rather look at using Itransact where possible as the service from Satrix is slow and their call centre is inept.

If you would like to look at adding ETF’s to your Momentum platform investments, you will require quite large premiums or lump sums.  This is due to Momentum Wealth’s decision on how to offer these funds on their platform.  By far the most efficient and cost-effective way is either through Itransact or Satrix.

Risks & Rewards
Investing in an asset class such as equities is an aggressive move in a portfolio.  If you are looking for steady growth with little or no volatility then you should not be looking at this at all.  A conservative view, however, will see your investment growing at inflation and the whole reason to invest is to grow your capital so that it is worth more when you withdraw or need to utilise the capital to produce income.

Investing in shares is a calculated risk.  One knows the possible pitfalls (loss of capital) and you balance this with research and knowledge.  Purchasing an asset that one understands and has the capacity to grow is a good investment.  ETF’s are a great investment and should be a cornerstone of your portfolio.

America has reached a deal on their debt – so what?

So this weekend in the USA, Republicans and the Democrats finally came to an agreement on reducing their debt & avoiding default.  The question really begs, what does this mean for us and the world?  As a South African I tend to be a bit one-sided when it comes to the way I view things.  Nothing can affect us here in the south, we are impervious and independent to what is going on out there, especially that washed up western power.  That is, however, a very narrow and “head in the sand” approach that has gotten many other African states into a world of pain.

Why am I saying this?  Well it is because the world needs a strong USA.  We need their society to buy our cheap goods and consume our coal, gold and perishable produce.  A weak and defaulting US economy is no good for us.  This has been proven over the last few years.  India, China and other emerging economies still provided growth but traditional western economies (US, Europe) have struggled.  This has made world markets skittish and volatile.  Sure we have had some gains locally – see the 3 year return on the Satrix Divi & the 1 year return on offshore funds.  Now compare this to the 3 year return of the same offshore funds – still not quite recovered the losses from 2008.

The truth is this; the world needs a strong US economy.  This way we can produce more for them to consume.  This is evident in the way that the markets had begun to rebound on the news that they are considering the deal – people like good news. There is a small fact that it still has to be voted on in the House and the Senate. World markets were up in the morning but seem to have lost confidence in the deal during the day.  Uncertainty over whether it will be accepted or take longer than expected is weighing on investor confidence.

There is a load of detail and arguing that needs to be sorted out and this does present the uncertainty permeating the markets.  A positive is the fact that a deal has been struck, an agreement that something must be done to sort out the deficit and Americas chronic overspending. 
That is good for the global economy.

The migration of the world’s attention to the rising Eastern powers of India and China is a good thing as the US will stutter for a while still.  The risk of a default still looms large in the PIGS^# (specifically Greece) and also in the possible downgrading of the US debt.  Markets can be scary and not for the faint hearted, be brave, get some good advice, and take a stand as there is money to be made.

Everything will be ok.

# - PIGS – Portugal, Italy, Greece and Spain