Health insurance may be the most important type of insurance you can own. Without proper health insurance, an illness or accident can wipe you out financially and put you and your family in debt for years. So what is health insurance and how does it work?

Health insurance is a type of insurance that pays for medical expenses in exchange for premiums. The way it works is that you pay your monthly or annual premium and the insurance policy contracts healthcare providers and hospitals to provide benefits to its members at a discounted rate. This is how hospitals and healthcare providers get listed in your insurance provider booklet. They have agreed to provide you with healthcare at the specified cost. These costs include medical exams, drugs and treatments referred to as "covered services" in your insurance policy.

As with any type of insurance, there are exclusions and limitations. To know what these are, you have to read your policy to find out what is covered and what is not. If you elect to have a medical procedure done that is not covered by your insurance, you will have to pay for that service out of pocket.

The range of coverage for expenses varies depending on the type of plan, as will the restrictions. You can purchase the insurance directly from the insurance company through an agent or through an independent broker but most people get their insurance coverage through employer-sponsored programs. (For more on this, read How To Choose A Healthcare Plan.)

Additional Costs
Aside from premiums, there are other costs associated with your health insurance coverage. Let's explore what these are and how you would calculate them.

Premiums: This is the amount that you pay for coverage.

Deductible: The amount that you pay out of pocket. Like any other type of insurance, the deductible can range in amount depending on how much you would like to pay out of pocket. Generally, the higher the deductible, the lower the premiums.

Co-insurance: The percentage of covered expenses paid by the medical plan. The co-insurance amount is per family per calendar year. For example, in a co-insurance arrangement, there can be an 80/20 split between the insured and the insurance carrier in which the insured pays 20% of the cost of care up to the deductible, but below the out-of-pocket limit set forth by the policy. This is typically associated with coverage provided by a PPO.

Co-payment: Sometimes referred to "co-pay", this is a set cap amount that you will pay each time you receive medical services. This is typically associated with coverage through an HMO (which will also be discussed a little later). For example, every time you visit your doctor, you may have to pay $20 as a co-payment. These payments usually do not contribute toward out-of-pocket policy maximums. The co-payment and the coinsurance are not one in the same. (For related reading, see 20 Ways To Save On Medical Bills.)

Stop-Loss Limit: The cumulative dollar amount of covered expenses in excess of the deductible after which the coinsurance payment stops and the insurer pays 100% of covered expenses. The purpose of to the stop-loss limit is to limit the out-of-pocket costs for the insured individual. The "out-of-pocket max" is the maximum out-of-pocket expense you will incur before your insurance carrier pays 100% of covered services. At this point, all you will have to pay is your premiums.

What's important to remember for out-of-pocket expenses is that not all expenses go toward meeting the out-of-pocket max. Co-payments and premiums do not apply to the out-of-pocket expense maximum. Your deductible and coinsurance do apply toward this amount. It's worth noting that this may not be a standard feature with every policy.

Let's look at an example to clarify what is meant.

Let's say your health insurance plan has the following features:

• Deductible: R5000
• Coinsurance: 80/20 (you pay the 20%)
• Out of Pocket Max: R50,000

Now, let's say that you go to the hospital and incur $7,500 worth of medical expenses. How much do you have to pay? Let's do the math.

Let's start by subtracting your deductible from the total expense amount:

Remember that you have to pay the deductible before the insurance kicks in.

Now you have to pay 20% of the R70,000, which would be:

All in all, you will have to pay R19,000 out of pocket (R5000 deductible + R14,000 of coinsurance).

You will have to continue paying out of pocket until your total out-of-pocket expenses reach the R50,000 max set in your policy. At that point, you will no longer pay the coinsurance or deductible. Yhis can be avoided by things like GAP Cover.

With out-of-pocket expenses, co-payments, coinsurance and premiums why get insurance at all? The answer is simple: while these costs certainly do put a pinch in your wallet, their costs are not nearly as painful as those from a long-term illness or emergency.

In today’s fast-paced world it would be ignorant for one to think they did not need medical aid. Daily we read about serious accidents on our roads and people being injured due to crime.

Unfortunately, State facilities are under-staffed and overworked. One would not necessarily receive the optimal treatment there, especially if the condition wasn’t considered life-threatening.

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Types of Plans

Firstly there is a choice between medical aid and medical insurance. These two products are completely different. Medical aid is governed by the Council for Medical Schemes while medical insurance is governed by the Long and Short-Term Insurance Act.

A few differences between a medical aid and medical insurance are:

Once the choice between medical aid and medical insurance has been made there are further choices to be made.

If a medical aid is decided on, the following points need to be considered:

1. How much can I afford?

2. What type of cover do I need?

• I am healthy and single so I only need cover for in-hospital expenses (major medical expenses). I should be able to cover the cost of any day-to-day benefits like doctors, optometrists etc., that I may incur.
• My partner and I both are young and healthy, we need some day-to-day benefits to cover the cost of doctors, dentists etc. and we need comprehensive hospital cover. A savings plan with comprehensive hospital cover would be suitable for our needs.
• We are a young family and need day-to-day benefits and comprehensive hospital cover, a plan with a threshold would be ideal.
• We are older and have chronic conditions now. We need a comprehensive plan that gives maximum day-to-day benefits, unlimited hospital cover and good chronic benefits.

What you should know?

1. Late Joiner Penalties

If you have not been a member of a South African medical aid continuously from the age of 35 a medical aid scheme may impose a late joiner penalty on you or your dependants. Once this penalty has been imposed and you change schemes the penalty will not fall away. The penalty band from age 35 is as follows:

2. Waiting Periods and Exclusions

In order for medical schemes to impose waiting periods and exclusions on members they take previous and continuous, membership into account. The table below indicates what waiting periods and exclusions may be imposed.

3. Prescribed Minimum Benefits

The Minister of Health has stipulated that every registered medical scheme must cover their members for certain conditions referred to as Prescribed Minimum Benefits or PMB’s. There are approximately 270 conditions and their suggested treatment set out in Annexure A of the Regulations. Over and above the 270 Prescribed Minimum Benefits there are also 26 chronic conditions that medical schemes must provide treatment for.

Prescribed Minimum Benefits must be obtained from a service provide stipulated by the scheme otherwise a co-payment of 25% or the difference in cost must be paid by the member. However, if the service is involuntarily obtained by a provider other than the designated service provider (DSP) the co-payment will not apply. These conditions are:- The service was not offered by the designated service provider; or it could not be offered without unreasonable delay; Immediate treatment was required under circumstances or at a location where the member was unable to receive treatment from a designated service provider; There was no designated service provider within a reasonable distance to the member’s home or place of work.

4. Children and Babies

Babies should be registered within 30 days of birth. However, no conditions may be imposed on any child on a specific scheme if they were born while the main member was on the scheme and the main member does not have broken membership from the date of the birth of the child to the date the application was made.

5. Dependants

The Act briefly defines dependants as a spouse, partner, dependant child or other members of the member’s immediate family who the member cares for and supports. Also, any other person who under the rules of a medical scheme, is recognized as a dependant of the member and is eligible for benefits under the rules of a medical scheme.

6. Comprehensive Cover versus Hospital Cover

Comprehensive cover offers extensive hospital cover as well as day-to-day benefits (e.g. doctors, dentists, specialists etc.) Hospital cover only offers cover for a procedure or condition that requires a person to be hospitalised, any out of hospital expenses such as glasses, dentists etc. are not covered. We would always recommend a member take comprehensive cover if at all possible.

7. Savings

Previously a member could select the amount of savings they wanted to contribute, up to 25% of the contribution. A couple of years ago legislation changed and now the amount allocated to savings on each scheme is pre-determined. It is still capped at a maximum of 25% of the total gross contribution.

If a member leaves a scheme to join another scheme which has a medical savings benefit the funds must be transferred to that scheme. If the fund does not have a savings benefit or the member is not joining a medical scheme their funds can be paid out. According to the Income Tax Act as the member received a deduction in respect of contributions money reimbursed would constitute a recoupment of deducted contributions.

Money in the savings portion may only be used to pay for health services and may not be used for any costs relating to Prescribed Minimum Benefits (PMB’s).

8. Thresholds

Most queries directed to medical schemes and brokers are regarding thresholds and self-payment gaps.

On certain schemes a threshold requires members to pay for certain day-to-day benefits (doctors, dentists etc.), out of their own pockets, once the savings portion is exhausted, until a certain limit known as a threshold is reached. Thereafter the scheme will continue to cover the costs of the medical services received at the schemes predetermined rate. It is important to remember that not all schemes have an above threshold benefit. On some schemes once the personal medical savings account is depleted all day-to-day costs will be for the members account.

There are certain factors which many members are not aware of that increase the self-payment gap and even in some cases make the above threshold benefit almost impossible to reach, some of these factors are:

• Over the counter medication. One may purchase medication over the counter without a doctor’s prescription, this will be paid for provided there is medical savings available, however, this purchase will not accrue to the threshold leaving a potential self-payment gap before the above threshold benefit is reached.

E.g. A member has a savings account of R400 and they purchase over the counter medication to the value of R400, the pharmacy receives payment from the medical scheme of R400 and the member has no savings left. The member then goes to the doctor who charges R500, as the member has no savings left the they will have to pay the first R500 of the account and the balance of the bill will come out of the above threshold benefit.

If the same member purchased over the counter medication for R200, and the medication was paid from the savings account and the scheme had a self-payment gap of R500 before the above threshold benefit was reached, the member then went to a doctor who charged R300 the full amount of R300 would come out of the member’s pocket as well as the additional R200 to make up the R500 self-payment gap before the member was above threshold.

• If a claim is reimbursed at private rates as opposed to medical aid rates, the provider (doctor, dentist etc.) will be paid at the private rate but only the medical aid rate will accrue to the threshold. E.g. A doctor charges R300, the medical aid rate is R200, the doctor will be paid R300 but only R200 will accrue towards the threshold leaving a potential self-payment gap of approximately R100.

9. Pre-Authorisation

All medical schemes require members to phone and get pre-authorisation before being admitted to hospital for any procedure.

In the case of an emergency a member would need to make sure they have pre-authorisation the first working day after being admitted to hospital. Failing to pre-authorise could result in a claim being refused and / or paid at a lower rate.

10. Tax Deductions

Tax payers 65 and older may claim all qualifying expenditure.

Taxpayers under 65 are not taxed on, or may deduct, monthly contributions to medical schemes up to R570 for each of the first two dependants on their medical scheme and R345 for each In addition they can claim a deduction for medical scheme contributions above the capped amount and any other medical expenses limited to the amount which exceeds 7.5% of taxable income.

Taxpayers under 65 may claim all qualifying medical expenses, where the taxpayer or the taxpayer’s spouse or child is a handicapped person.

Some of the companies we can help you with are:

Discovery
Momentum Health
Profmed
Bonitas
Liberty Health
Oxygen
Resolution
Fedhealth
Medscheme

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