During the past few weeks all the major medical aid administrators have been announcing their new rates for 2015. We will again see increases above salary inflation at around 10% to as high as 30%. It is becoming increasingly less affordable and we will again see many people downscaling on their medical aid cover in 2015; and, worse some cancelling much other necessary insurance to make sure they can hang onto their medical aids.
I attended a few of the launches and the most enlightening insight was gathered at the Momentum event. Their research revealed that so great is the fear of medical disaster that as many as 40% of all members were over insured, meaning that they were paying for covers they never use. The greatest portion of the high costs are generated by the out of hospital expenses and soon the most, perhaps only, affordable option will be to insure the in hospital insurance covers and taking full responsibility for the out of hospital expenses.
I thought that it will be an opportune time to take a fresh look at medical covers and to ensure that you maintain sufficient levels of cover at affordable levels. Consider the following:
- Understand your use of medical funding by obtaining a spend report from your provider
- Analyse the expenses and add up all the out of hospital expenses
- Investigate whether any of the expenses can be excluded next year
- Compare the use of funds with the amount of contributions made in the last year
- If you claim more on medical expenses than you did on contributions you are possibly on the correct option; and, you may even consider an upgrade
- If your contributions were less than the benefits claimed you are in a good position to consider a downgrade or to totally restructure your covers
- Look at other alternatives to fill any voids with GAP cover, plans that provide top ups on any shortfalls and generally less expensive than the cost of the upgrade options.
Pay special attention to children that are turning 21 during 2015, even if they are students. They will have to pay full adult rates after their birthday and may possibly be better suited to a lower and less expensive option and can be taken off your fund. I have on occasion split families onto two separate and different medical plans to reduce contributions and improve affordability.
This is a good time to review your entire financial provisions portfolio and to ensure that all other financial needs remain sufficiently covered and to not allow medical expenses to cause you to reduce or remove other insurances and investments. Make sure they cover you after the increases in salaries; and, change of circumstances in your life; and, still able to increase all savings and investments.
Medical expenses are also becoming an ever larger portion of your retained income after tax when SARS constantly kerb and shorten any tax relief and employers are reducing their subsidy for staff. This increases the unaffordability and prevents us from making proper provision for our future through savings.
To make sense it is important to retain the correct proportion between all the various insurance classes. The first and most important is to build savings to a 15% level of income and to retain it there. Assets insurance (cars and household) come at fairly fixed rates and can make up another 5-8%. Then comes life, disability and dread diseases cover that will make up another 5-10%. If we allow medical aid contributions to reach over 20% (as many are starting to experience) we can end up spending as much as 50% of total income on the various insurances, far too large a proportion if we need to buy homes, cars, food and education. Do not allow your medical fears cause you to not make other provisions. I personally cut down to a hospital plan a few years ago and take care of other medical expenses through savings and credit cards if and when required. This caused a far greater awareness and a willingness to negotiate on costs and keeps my contributions below expenses year after year – affordable.