What can be done about future medical costs?
The government appears to be hell-bent on implementing the NHI, despite the complete failure of all the pilot projects and no detailed or realistic budget on how this is going to be funded. Yes… no budget! Minister Mkhize has given a laughable thumb-suck of an additional cost of R30Bn (over and above the R222Bn at present,) most other estimates (of which there is a number) are north of an additional R300Bn. R20Bn of that R30Bn of which will come from the soon-to-be cancelled medical tax credit, and all that will do is bring the current, world-class private medical service down to the level of what the government currently provides. The NHI was first touted in 2003, and with a number of failed projects under their belt, most of us were hoping that someone in the ruling party would see sense and understand that we cannot afford a first-world healthcare system funded by a very small taxpayer base when we don’t even have anything like a first-world education system. How on earth can Ramaphosa launch yet another State Owned Enterprise with other critical SOEs like Eskom, in complete disarray and no resolution in sight? The shortfall is going to come from tax of course, but most taxpayers are not going to be able to afford yet more tax and their medical aid. It looks like medical aids are going to be allowed to offer ‘top-up’ services only for conditions not offered by the NHS. Who knows what that means.
What can you do to mitigate the effects (and you’ll need to do most of these well in advance of the proposed changes)
- Take out good dread disease cover (from a life company). Not all cover is equal, and when it comes to ‘dread disease’ there is actually the greatest disparity across the various providers, and their benefits change all the time. This will give you a decent lump sum so that you can get private (or even international) treatment. If the NHI comes into effect, you’re not going to be able to choose your surgeon or hospital. Here are some tips:
- Use an Independent Financial Advisor so you can get a range of quotes from different providers. Be specific as to your requirements and be aware some brokers may try and sell you an inferior product (because they don’t know better or because they can make the premium look cheaper with some fancy footwork). Rather take out less cover with a premium product than more cover for basic cover.
Your biggest medical risk? The NHI (National Health Insurance)
As if it wasn’t enough that Medical Aid premiums have been consistently increasing well above inflation for years, the National Health Insurance (NHI) government proposals that have been on the backburner for years are now a hot topic. Why now? For a start it is a popular move that will play well to the voting public (with elections less than 2 years away), secondly there is a perception that, with the billions being thrown at SAA or SABC, there is spare cash floating around (especially if they start tapping into the PIC – government pensions.) Of course, the NHI also has its eyes on the R20bn in medical aid tax credits given to us taxpayers, and it is quite possible that this is going to disappear – as soon as the next budget in February 2018. This R20bn is actually a drop in the ocean – in 2010 the cost of the NHI was estimated at R450bn pa (for cover equivalent to the Government Employees Medical aid known as GEMS). It may take another year or two before the NHI becomes compulsory, and it will likely start as a ‘lite’ version but it makes sense to start anticipating it now and aligning your costs accordingly.
Why are Medical Aid Brokers so thin on the ground?
Medical aid premiums, as a percentage of your disposable income, has been growing every year – not even salaries have been keeping up with the double digit growth. I have come across very few people who are still on the same level of plan they were a decade ago, and more often than not that downgrading has happened several times. For many of my clients medical aid premiums are easily more than their life cover or short-term insurance – often combined. With that sort of ‘investment,’ you’d think financial advisors would be crawling over you to get the commission on the deal, but it just isn’t so. Most people have no idea who their medical aid broker is and all queries are channelled through to the call-centre.
Why is this? It boils down to remuneration (like most things). Like life insurance, the allowable commission on medical aid is capped at 3%. Where it goes pear-shaped is that this is capped at R69 (in other words as soon as the premium goes over R2300 pm, no additional commission is paid). This cap has been growing at 2.3% per annum, when medical aid premiums have been growing in the double digits. In other words, unless your broker has a substantial book of corporate clients, he or she is probably looking after your medical aid as a service – it certainly isn’t going to make them rich, in fact it probably won’t even cover the cost of looking after it for you. The major motivating factor for them looking after your medical aid is to keep out other brokers who might make a play for the rest of your (much more profitable) risk and investment portfolio.
Is it a train smash that you get ‘low or no’ advice on medical aid? I know from experience that trying to get on top of all the small print on just one medical aid is a nightmare, and it changes every year. It is almost impossible to know just what sort of cover is available for every condition, and anyway there ‘appears to be’ a large element of subjectivity involved. Claims or authorisations have been refused because the medical aid considers the member ‘too old’, the premature baby ‘too small’ or the liver transplant recipient ‘an alcoholic’. Trying to decipher the real changes in a medical aid plan every year needs Sherlock Holmes, and the average member hasn’t got a hope!
Longevity isn’t everything it’s cracked up to be
The plus side of better healthcare is that we are all living longer, often despite ourselves. Cancers are being detected earlier and survival rates increasing dramatically. Heart attacks are being prevented by surgery. Communicable diseases are being eradicated (despite the anti-vax lobby). In the western world, people are living longer and if trends continue people living into their nineties will become the norm.
Living longer, without changes to the normal age of retirement of say 65, comes with a huge risk of running out of money long before you die. At the moment, if you start work at age 25, and retire at age 65 (40 years), the retirement savings from those 40 years will probably fund 15 ( to 80) years of retirement at 100% of your salary, and to 95 at 75% of your salary, which is reasonable as your costs at retirement usually decrease.
Unfortunately very few people will preserve those retirement savings from the age of 25 through to retirement. In South Africa, only 5% of employees that change jobs will preserve their retirement savings. Why? We are eternal optimists. We genuinely believe that we will be able to make it up in later years. Tell ourselves that we will put it in our bond and bring down our bond repayments, only to forget about it when we move house and take a new bond. Suddenly it becomes the ‘profit’ on your house, and is usually chewed up in the substantial costs of moving home (transfer fees, commission, bond registration etc). (Read more about how we sabotage our wealth by frequently moving house HERE).
Medical aid premiums – out of control – what to do
It’s coming to the time of the year where you should be reviewing your medical aid plans with a view to changing from the first of January. The inflation increases of this core part of many of our budgets continues to spiral out of control. Every time an increase comes through that is above inflation, then the problem compounds into the future. Every year thousands of South Africans ‘buy down’ on their schemes – the costs are just unaffordable and unsustainable. So how do you decide what plan to take, and what provider to use?
Medical aids are hamstrung by regulations, and cannot refuse membership to anyone, no matter their health – this is quite different to the ‘life’ industry. The only penalties they can impose is a 3 month claim restriction, 12 month condition specific exclusion and late joiner penalties. In my experience they will use these restrictions almost without exception, making changing providers a nightmare for an individual who is not on a compulsory group scheme. You have to pretty fed-up with your current provider to go down this route – I know, I did it.