LAURA DU PREEZ: Shhh, don't tell the doctor you have gap cover
Many gap cover policyholders are facing steep premium increases, despite new limits on payouts you can receive when your medical scheme benefits fail to match what doctors and other healthcare providers charge.
Increases of between 9% and 100% follow two years of high claims that gap cover providers attribute to increased awareness, particularly among doctors, that medical scheme members have this cover.
Many older policyholders, however, may face harsher increases as insurers implement new terms following the promulgation of demarcation regulations under the long- and short-term insurance acts. These regulations took effect on April 1 and allow for late-joiner penalties for those who take out gap cover late in life.
New gap cover policies had to comply with the demarcation regulations from April, but existing policies must comply when cover is renewed. In most cases, this is from January.
The regulations, aimed at ensuring that gap cover policies do not undermine cross-subsidisation in medical schemes, limit insurers to offering you benefits that do not exceed R150 000 per person per year.
The regulations also restrict the way that insurers can underwrite gap cover policies - denying them the ability to refuse you cover, to implement all but standard waiting periods or to price these policies individually based on your age or health. The only exception is that those taking out cover late in life can be made to pay more.
Among bigger providers, Stratum has put through an average increase for employer-based policyholder groups of 11%, Guardrisk's Admed of 9.4% and Turnberry 9%, reports Alexander Forbes Healthcare.
However, Victor Crouser, Alexander Forbes' healthcare coastal head, says that one employer group had a 100% increase in its gap cover premiums.
Mike Settas, director of Kaelo Xelus, says the average overall premium increase on Xelus policies for next year is 13%.
Peter Hyman, general sales and marketing manager at African Unity, which took over policies from PSG, says individual policyholders are facing increases of up to 20%. Employees who enjoy cover through their employers will pay 12.5% more next year.
If your employer offers a group gap-cover policy, the rate will generally be competitive and brokers' servicing groups have greater influence to get claims paid, Crouser says.
Individuals often wait until they know they need the cover before joining, which increases claims and premiums.
Tiago de Carvalho, the CEO of Ambledown Financial Services, which underwrites gap cover from Stratum, Cura and Ambledown itself, says Ambledown's claims increased by 38% last year; many other insurers had similar increases. He says specialists are driving claims by asking scheme members if they have gap cover.
Gap cover providers at risk
Joanne Gloag, executive for Admed, the policies offered by Guardrisk, says service providers are targeting their billing depending on whether or not you have gap cover. She says you are not obliged to tell your specialist that you have gap cover.
De Carvalho says some 300 out of every 1000 gap cover policyholders are admitted to hospital each year, which shows that there is some anti-selection going on.
Settas says the demarcation regulations are also exposing gap cover providers to the risk of high claims as they are obliged to offer cover to anyone who applies.
Underwriting is now limited - insurers cannot apply exclusions to you individually, only to the policyholder group.
The maximum waiting period that can be imposed is 12 months, and only then for a medical condition that existed in the 12 months prior to joining.
"Some gap insurers have been undercutting premiums to gain market share. This has resulted in underwriting losses for these insurers, some of whom have seen major financial losses ... Insurers in such a position will need to dramatically increase policyholder premiums to restore solvency levels or, far worse, may find themselves in a position where they may not be able to honour claims," Settas says.
Under the regulations, providers can charge you higher premiums than other policyholders if you first take out gap cover when you are over a certain age. No age has been specified, so each insurer is setting their own age bands, Settas says.
He says Xelus will apply a 70% loading to the premiums of policyholders who take out cover after the age of 60. Turnberry has a 40% loading on its premiums that cover a family or couple over 65. Admed has a loading of either 31% or 91% for people who take out cover after the age of 65 years, while Stratum has a loading of between 33% and 100% if you entered after the age of 65.
Some gap cover providers are applying new late-joiner penalties to new policyholders only, but others are adjusting existing policyholders' premiums depending on the age at which they first took out gap cover.
One 71-year-old Money reader says he was paying R225 a month on his Stratum gap cover policy and is being asked to pay R175 more a month from next year.
Insuring against the new R150 000 limited
Your gap cover policy will from next year only pay claims up to R150000 per person, where previously various limits up to R1-million applied.
Few claims exceed the R150000 limit and the cost of these, on average, amounts to only a few rands per policyholder, says Mike Settas, director of KaeloXelus.
As an individual policyholder, however, if you are one of the few unlucky ones you could be exposed to a shortfall amounting to many thousands of rands.
Settas says this "defies the intent of having a gap cover policy".
He says nothing in law prevents you from buying more than one gap cover policy, as long as you do not claim for the same benefits from both policies. KaeloXelus has created two additional booster policies that you can buy in addition to your gap cover policy, giving you cover up to R450000 a year - for an additional premium of R10 a month per policy.
Evaluate the benefits of your medical policy
The entry of more players into the market following certainty about the regulation of gap cover has increased competition among providers of these policies - but it has also introduced greater complexity.
Some of the key benefits you need to evaluate are:
The rate at which your policy pays for gaps in tariffs
Gap cover policies cover shortfalls in the tariff your scheme pays a doctor compared with what the doctor charges. They range from 200% to 700% of your scheme's reimbursement rates.
Tiago de Carvalho, the CEO of Ambledown Financial Services, says 60% of doctors charge an average of 4.8 times the scheme rate.
If your doctor charges 4.8 times the scheme rate, your scheme pays at 100% of the rate and your gap cover provider pays an additional two times the scheme rate, you could still be out of pocket to the tune of 1.8 times the scheme rate.
Joanne Gloag, executive for Admed, says Guardrisk decided in January to pay an additional two times the rate the client's scheme pays - so if your scheme pays 100% of its rate, your policy will pay an additional 200%, giving you cover of 300% of the scheme rate. If your scheme pays 200% of its rate, your Admed policy will pay another 400%, giving you cover up to 600%.
She says this is an attempt to stop doctors from charging as much as gap cover policies pay, for example, up to 500% of the scheme rates.
Gloag says 8% of policyholders have been left with shortfalls this year, but the move has reduced premium increases from 25% for 2017 to 9.4% for next year.
If your medical scheme has sub-limits, such as R40000 for a shoulder prosthesis, you could benefit from cover that enhances the sub-limit - for example, you may enjoy a further R20000 on any rand amount set as a sub-limit.
Cover for co-payments
More comprehensive gap cover policies offer cover for the co-payments that schemes typically apply to procedures such as spinal surgery, joint replacements, colonoscopies or MRI and CT scans.
Marco Fonto, MD of Stratum Benefits, says co-payments on big schemes like Discovery Health and Bonitas have increased steeply in the past three years.
Schemes are also increasingly setting up hospital and doctor networks that you must use to enjoy cover in full. Some gap cover policies will cover your co-payment when you choose not to use the provider specified by your scheme. Others, like Admed, do not.
Gloag says providing cover for these co-payments undermines schemes' attempts to contain costs and increases gap cover premiums. Admed will pay the shortfall arising when you use a network hospital and surgeon but another specialist, such as an anaesthetist, charges more than the scheme pays.
A number of procedures are now performed on an out-patient basis, in day hospitals or in doctors' rooms, and if not covered in full by your scheme you can still incur high costs. Gap cover providers typically list these procedures, such as coronary angioplasty, sinus surgery, tonsillectomy, kidney dialysis or gastroscopy. Compare the lists across providers or ask a financial adviser to check that the important procedures are covered.
Medical schemes are limiting cancer benefits in order to contain their costs.
South Africa's largest medical scheme, Discovery Health, for example, pays cancer claims in full to a maximum of either R200000 (the bulk of the scheme's members) or R400000. Thereafter benefits are unlimited but a 20% co-payment applies.
Many gap cover providers now offer a once-off dread disease benefit on diagnosis of cancer as a "rider benefit" on the policy. These benefits are not included in the R150000 benefit limit on the policy and amounts offered vary widely and payment may be subject to conditions.
Some providers exclude cover for any procedure or treatment that your scheme does not cover. Most gap policies exclude cover for claims that arise from the likes of self-inflicted injuries, suicide attempts, cosmetic surgery and taking narcotics.
Participating in hazardous sports, military or police duty, aviation other than as a passenger, or any race or speed test is also typically excluded. Depression, mental illness, dementia, home-based care and stress-related conditions may also be excluded.
Why you need that insurance
If you belong to a medical scheme you may well wonder why you need to buy gap cover insurance as well.
Schemes reimburse doctors and other healthcare providers at different rates. If the rate at which your scheme pays does not match the rate your provider charges, you will be liable for the difference - and this, in the case of expensive hospital procedures or cancer treatments, can be large.
Marco Fonto, MD of gap cover provider Stratum Benefits, says recent claims included:
About R94000 out of almost R157000 that a neurosurgeon, orthopaedic surgeon and anaesthetist charged for a member's spinal fusion operation;
About R8300 of a R12600 account from a gynaecologist and anaesthetist for a caesarean delivery; and
About R20000 for a member who had two lung infections, a knee procedure and a colonoscopy in one year.
Jill Larkin, the head of GTC Healthcare Consulting, says as a medical scheme member you may think you are covered because your scheme pays specialists who treat you in hospital at 100% of the scheme rate. But this rate does not mean the scheme will pay 100% of what the doctor charges.
Since 2006 there have been no guideline tariffs for doctors and other healthcare providers. Schemes draw up their own reimbursement rates, often based on the 2006 guideline tariffs adjusted for inflation, but doctors, especially specialists whose services are scarce and in demand, set their own rates that can be as much as five or six times what your scheme pays.