A Sunday newspaper recently reported that by the middle of the year more than 40 to 50 percent of members of middle-of-the range medical schemes and 70 percent of members of low-cost schemes had run out of cover for day-to-day, or out-of-hospital, medical expenses.
Members are often quick to blame their medical schemes when they find themselves without cover for visits to a general practitioner (GP), dentist or optometrist, as well as to pay for medicines.
But you would be better served by knowing whether you have chosen a suitable option, how your benefits work and how to make them last longer.
The reason benefits are exhausted prematurely is often a depleted medical savings account, because more than half of all scheme members use these accounts to pay their day-to-day, or out-of-hospital, medical bills.
Self-funded benefits
You should understand the difference between self-funded medical benefits and insured medical benefits.
The portion of your contributions that is not channelled into your medical savings account is known as your risk contribution, and it funds your insured benefits.
Your risk contributions are pooled with those of other members of the scheme. They are used to pay your claims and those of other members, regardless of how much you have contributed when you claim.
Your medical savings account, however, provides cover only to the extent that you have contributed to it. Contributions to this account are for your use only, and what you do not use in one year carries over to the next.
Some medical scheme options offer insured benefits that cover hospitalisation and major medical expenses, and you self-fund all your day-to-day medical expenses through a medical savings account.
Other options offer insured hospital and day-to-day benefits, and you contribute to a medical savings account to supplement or extend these benefits.
You should identify which benefits are insured and which are covered by the savings account. You should try to ensure that you have the least possible risk of having to pay for high-cost out-of-hospital treatments, procedures or appliances from a savings account. Ideally, you should have to use your savings account only for those medical expenses over which you have some discretion (you have a choice to incur the expenses or not).
High-cost medical expenses that must be paid from a savings account may, however, be less of a concern if you have above-threshold cover (see below).
If the scheme benefits are well structured, there can be advantages to using a medical savings account, because if you are prudent, you can build up funds for years when your expenses are high.
You have the ability to save on your medical costs by choosing your provider, negotiating the tariffs you will pay, choosing the setting in which services will be provided, seeking alternative treatments and using generic medicines.
Contribution limit
The amount that can be contributed to a medical savings account is limited by law and is based on the contribution for the option. Your scheme cannot set the contribution to your medical savings account at more than 25 percent of your total contributions, and it may even set the savings account contribution at a lower level to make your option more affordable.
The Medical Schemes Act limits the amount that can be contributed to a medical savings account to avoid depleting the risk pool or cross-subsidisation within schemes. The intention is to prevent older, sicker people from having to pay more for healthcare cover by making them self-fund a large portion of their benefits.
The limit on how much can be contributed to a savings account means that cheaper options tend to have lower savings account contributions.
Watch out for options that are cheaper because essential benefits have been omitted and members are expected to pay for these benefits from a limited savings account or from their own pockets.
Also beware of options that appear cheaper because they set contributions to a medical savings account at much less than 25 percent of contributions.
Rules on expenses and rates paid
Most schemes allow you to use your medical savings account funds on any medical expenses but some have rules or choices you can make to help you preserve your funds for necessary medical expenses.
A scheme may, for example, limit to a rand amount payments for medicines you buy without a prescription. Or a scheme may limit payments to healthcare providers to a particular rate, such as the guideline tariff rate (the Reference Price List, or RPL, tariff) or a multiple of it.
If your scheme makes payments from your medical savings account only at RPL rates and you visit a doctor who charges a higher rate, you will have to pay the difference from your own pocket.
Thresholds or safety nets
The disadvantage of a medical savings account is the risk of running out of funds. You can, at additional cost, minimise this risk by choosing an option with above-threshold or safety benefits. These insured benefits ensure that if you exhaust your savings account, you are not left without essential cover.
You reach the threshold when you have spent the amount you will contribute to your savings account for the year on certain claims as determined by the rules of the scheme. For example, the scheme may allow you to pay for over-the-counter medicines from your savings account, but these claims may not be included for the purposes of determining whether you have reached the threshold. Similarly, for the purposes of determining the threshold, there may be a limit on what you can spend on spectacles or the rate paid to doctors.
In other words, you may exhaust your savings because claims or portions of them that do not count towards the threshold have been paid.
Some schemes have threshold, or safety net, benefits that apply as soon as you reach the threshold. Many pay these benefits only at a level above the threshold - that is, after you have paid some claims yourself (except those for the prescribed minimum benefits). This payment gap is referred to as a self-payment gap.
Check the rules of your scheme to determine what threshold or above-thres-hold benefits will be paid - not all day-to-day claims will be met - and at what rate healthcare providers will be reimbursed.
Interest earned on savings
Most schemes do not pay interest on credit balances in medical savings accounts, but a few do pay interest at rates below the prime rate or money market rates.
The main reason schemes offer low interest rates is that from the beginning of the year they give you interest-free access to what you will contribute annually to a medical savings account. But check the rules, because some schemes do charge interest for this credit.
In some schemes, you get access to the full amount you will contribute in a year at the start of the year. This can be helpful if you incur a lot of medical expenses when you have just started contributing to a savings account. But other schemes offer access to lesser amounts.
If you leave the scheme
When you leave a scheme and join another scheme with a medical savings account, the balance in your existing account can be transferred to your new savings account.
If you join an option that has no savings account, either within your existing medical scheme or with a new scheme, or you opt out of medical schemes altogether, the balance in your medical savings account must be paid to you.
However, before paying you out or transferring savings account funds, schemes usually wait up to four months to see if there are outstanding claims that need to be paid from your savings account.
If you owe a scheme money when you leave it, the scheme can use the balance in your savings account to offset that debt.
A recent High Court case confirmed that in the event of the scheme being liquidated, your savings account funds will be regarded as trust property and returned to you. The money should not be used to pay the scheme's creditors.
Alternative savings mechanisms
Some schemes offer banking products linked to the scheme that you can use to supplement your medical savings account.
These accounts may offer access to credit or overdraft facilities and have their own charges. Money paid into these accounts must be funded by separate debit orders. Payments you or your employer make to these accounts are not regarded as medical scheme contributions for tax purposes, although the medical expenses paid may qualify as tax-deductible expenses.
Will your savings cover your day-to-day expenses?
If you self-fund your day-to-day healthcare needs through a medical savings account, you must consider how much you will contribute in a year and compare this to the potential cost of the benefits you must fund from the account.
For example, if you contribute R120 a month to your savings account, you will accumulate R1 440 over the year. In this case, you cannot expect your savings account to cover many day-to-day medical bills.
A visit to the dentist for an uncomplicated filling is likely to cost at least R350. An eye test and a very basic set of single-focus glasses with the most basic frame will cost at least R545. A visit to your GP will set you back R215, and a standard antibiotic will cost at least R100.
It is easy to see how quickly this R1 440 can be depleted.
Take a look at what you spent on optometry, dentistry, GP visits, prescription medicines, pathology tests and X-rays over the past three years and then work out the annual average. Pay particular attention to your chronic medication expenses. If you have a chronic condition - such as diabetes, hypertension or asthma - that is a prescribed minimum benefit (PMB), your scheme must pay from your insured benefit the cost of this medicine and any consultations or tests you require to treat the condition.
Your scheme can, however, insist that you buy the medication from a certain provider, and it may also cover you only for certain listed medicines (unless you have sound medical reasons for needing a medicine that is not listed by your scheme).
Payments for PMBs cannot be made from your medical savings account.
If your chronic condition is not a PMB and the scheme offers no other insured chronic medicine cover, you must include your chronic medication costs in your calculation when you work out what costs you will need to fund from your savings account.
Once you have an idea of your average day-to-day medical costs, assess whether the level at which you are contributing to your medical savings account is sufficient.
Remember that you should also have room in your savings account or in your own budget for some out-of-the-ordinary medical expenses that you may have to cover. For example, complications after the flu, such as a lung infection that requires X-rays and visits to a specialist.
Also check whether radiology benefits for MRI and CT scans, wheelchairs and artificial limbs, which can cost thousands of rands, must be paid from your savings account.
If you join a scheme option with insufficient cover for your day-to-day needs because the medical savings account contributions are too low, you must accept that you will have to pay for some of your medical expenses yourself. You may be able to take this risk if you are healthy and have enough discretionary money to tap into when you need it.
Will a medical savings account work for you?
Here are some things you should consider if you are weighing up the advantages of using a medical scheme option with a medical savings account versus using one that offers mostly only hospital and major medical cover and setting aside your own savings for medical expenses:
- Will any subsidy of medical scheme contributions you receive from an employer extend to the contributions you make to a medical savings account, or does your subsidy cover only your risk contributions or a part of them?
- If you do not use a medical savings account, are you making use of the full tax deduction for your risk contributions?
- What rate of interest will you earn on your savings?
- Will you have interest-free access upfront to the savings you will contribute for the year?
- Are you disciplined enough to set aside regular amounts for medical expenses, and will you be tempted to dip into these savings for other things?
- Are there any other important benefit differences between the options? If a scheme offers an option focused on hospital cover and another with hospital cover and a savings account, there should also be other differences in the benefits.