Gap cover: A financial essential

The growing quantum of gap claims values are showing a marked increase in the shortfalls between what medical schemes pay versus what healthcare providers charge for in-hospital procedures. Recent ‘mega’ claims handled by Sirago Underwriting Managers, a gap insurance provider, have rattled the status quo, tallying almost R500 000 on just three claims for the gap portion alone. Without gap cover in place, a medical scheme member would be liable to pay for this shortfall from their own pocket.

Gap insurance covers the difference that arises from the rate that healthcare specialists charge for in-hospital procedures versus what medical schemes pay. Unlike the pharmaceutical industry, there is no pricing regulation on healthcare provider tariffs, and with South Africa facing a dire shortage of healthcare professionals, specialists are free to charge any rate, often more than 300% to 500% higher than the rate paid by medical schemes. If your medical scheme option only pays out at 100% of tariff, you will then be liable to pay the shortfall of the other 200% to 400% charged by your healthcare provider as an “out of pocket” expense which can easily run into tens of thousands of rands.

Sirago recently paid three large claims for cancer and musculoskeletal surgeries coming in at R153 000, R142 000 and R162 000 per claim – until recently, claims of this magnitude were the exception, but are now becoming more common.

A few short years ago, gap claims averaged around R6 000 to R12 000. Because of the significant increase in claims volumes, the average gap claim remains within that range, however, we are seeing claims of R40 000 for gap claims almost on a daily basis. It remains to be seen whether this jump is an anomaly attributed to the Covid-19 pandemic, and whether claims will revert back in the coming months.  These claims are for tariff shortfalls not covered by medical schemes that clients would have had to pay from their own pockets, had they not had gap insurance in place.  It is certainly not only members on lower benefit options that are facing these shortfalls – even on comprehensive, top of the range medical scheme benefit options, members are facing onerous tariff shortfalls for in-hospital procedures.

Medical schemes recently announced their tariffs and benefit changes for 2021, and members have until the beginning of December to make any changes to their medical scheme benefits for the following year. In the current environment where private healthcare costs are in an unsustainable upward spiral, gap cover is proving as essential as private medical scheme membership given the parlous state of the public healthcare sector.

When you consider the potential financial quantum of a shortfall on your medical scheme benefits, and that a gap cover premium is around R400 per month for a family (2021 Sirago Gap Plus), and each family member is covered for up to a maximum of R164 000 per annum (R174 000 from January 1, 2021), it is clear that gap cover is a non-negotiable part of your healthcare strategy, at a very affordable monthly premium. A single gap claim of R60 000 would be the equivalent of almost 13 years of premium payments at current premium rates.

An analysis of private healthcare costs from 2000 to 2012 show that in real terms, costs doubled. The cost trajectory tells us that by 2028, they will have doubled again. Medical schemes, which carry the bulk of these costs, rank within the top five highest household expenses for many South Africans.  Most notable is that while medical scheme contributions increase every year, the benefits are actually decreasing, while healthcare costs are increasing by much more than inflation. This places a double burden on consumers who not only will be forking out more for the same or less medical scheme benefits, but will also shell out for greater out-of-pocket healthcare expenditure than ever before.

At the same time, consumers remain under tremendous financial pressure and over the coming weeks may be looking at ways to save on healthcare costs by cutting back on their benefits.  There are many interconnected and complex variables to consider, so engage with a professional and accredited healthcare broker who can guide you through the process, and ensure that any changes you make won’t leave you or your family financially compromised in future. Given the current trajectory, medical scheme members cannot afford not to have supplementary gap cover to fill the holes in their medical scheme cover, especially the high-risk treatments such as surgery, confinement and oncology where the tariff shortfalls can easily  breach the R100 000 mark.

On a closing note I advise consumers to always negotiate the pricing of any planned surgery with healthcare providers before and ask for a formal quote from all the medical role players – from the surgeon to the anaesthetist.  That way there are no surprises or unexpected costs creeping in after the fact, unless there were specific complications during the procedure.

Finally, be wary of doctors asking you upfront whether you have gap cover or not – overbilling based on a client’s insurance portfolio is a growing unethical practice by some unscrupulous medical specialists looking to capitalise on the patient’s insurance cover by overcharging, knowing that the patient has the insurance to cover the inflated price. Given the fact that most elective surgeries were put on hold due to Covid-19, impacting the incomes of many healthcare providers, there are valid concerns from the insurance sector overcharging may heighten in the coming months.

Martin Rimmer, Sirago Underwriting Managers.