It’s that time of the year when you can change the plan you’re on with your medical aid. Just a quick heads up… changing your medical aid to another medical aid is not for the faint-hearted, and frankly, you have to be mighty miffed at them to do that. You could end up with general and condition-specific exclusions that will leave you financially vulnerable. With the threat of NHI looming ever larger, don’t just default to doing nothing – perhaps there are some changes you can make in anticipation of the future, should it ever actually materialise. (If you want to read more about the NHI, you can read here. I also went into it in more depth in my weekly (free) newsletter last week, which you can find here.) Medical aids in RSA are built on a core ‘hospital benefit’ product, in or out of network, and then the out-of-hospital and daily benefits are built around it, usually with limits, becoming ever more expensive. Don’t confuse this with the short-term product that pays per event, often, confusingly, called a Hospital Plan (which may still be allowed once the NHI is implemented). With a few exceptions (like dialysis), the potentially bankrupting expenses come from hospital events. There are some safeguards in place. Firstly, you are protected by PMB – Prescribed minimum benefits that medical aids have to provide ‘free’. These include any emergency medical condition, a limited set of 271 medical conditions (defined in the Diagnosis Treatment Pairs), and 26 chronic conditions (defined in the Chronic Disease List). You can change the plan you’re on without penalty every year at around this time of the year – so it isn’t forever. If you find it doesn’t suit you, change again next year. The changing landscape around medical risks makes it even more important for your Financial Planner to cover all your risks and wealth holistically. Not every Financial Planner or advisor is going to be accredited with the CMS, but they should be able to give you advice around medical aid. If you silo your advisors by speciality (risk, wealth, medical, short term), you may need to DIY this, as you are the only one who knows your full picture. A good place to start is to download a copy of all your claims from the medical aid website for a year or two and do an audit. When combined with Gap cover (at around 1/10th – 1/8th of the cost), you can often save yourself a few thousand rand.  To add insult to injury, this year, it is looking increasingly likely that the medical aid tax credit will bite the dust soon. This is only R364 a month (main member), but it’s a R38bn tax giveaway that the Treasury has its eyes on. Contributions to Med Aids are circa R270bn, which is the other honey pot the govt wants to appropriate. Added to the projected R300bn spent on Health by the govt next year, this makes the potential budget over R600bn (8,5% of GDP – not far off the average 10% spent by Canada, who have far deeper pockets and unemployment at 7,1%). It is probably time to at least think about making your own provisions for funding private health care, and day-to-day and out-of-hospital expenses are a good place to start. Even if the NHI is junked down the line or is introduced in a much watered-down version (my belief), then at least you have this large budget item on your expenses under control. Bottom line, as the NHI law stands now (and yes, it is law since Cyril decided to sign it last year), private practice will be a thing of the past and at best you’ll be subjected to a postcode lottery (as they are in the UK). This is one aspect of the NHI that I really dislike; it’s taken me long enough to find my health care providers whom I trust without having some bureaucrat deciding that for me. I am lucky enough to live in an affluent postcode, but what if I am on holiday out in the bush, and what about farmers and people who just choose to live in more rural areas? If push comes to shove in the long term, there is the old-fashioned route of getting an international medical aid coverage – but these can be eye-wateringly expensive (tens of thousands of Rand per person a month) and are not going to be much use in an emergency, accident, heart attack, stroke, where time is of the essence. If anyone has a creative solution for this, please let me know, except perhaps keep yourself healthy and safe? I am just hoping the NHI just slowly whithers and dies (perhaps with the help of a less ideologically hellbound majority party), because for many Saffers, they will just choose to take their valuable skills and capital and trek (perhaps follow the stampede of medical professionals who will inevitably leave rather than accept remuneration 1/10th of what they currently receive.)  For non-time-sensitive emergencies (cancer treatment, for example), should the NHI be implemented as is, it’s just a matter of finding funding if you want to get private care, for which, as the law stands, you’d have to go outside of the country. (Ironically, you can still receive good private care in a number of sub-Saharan countries, but India and the UAE are cheaper alternatives than the West.) So how do you ‘fund’ that event? One way is that you could take out dread disease cover under the ‘Life’ policy you probably already have (use a top-of-the-range plan – and no, they are not all created equal), this would afford you the option of using the cash payout to get treatment outside of RSA. Until recently this aspect of ‘Life’ cover (which also includes disability and income protection) has been an expensive ‘nice to have’, but perhaps it can create that liquidity you might need if NHI rolls out in full. Adding this option onto your policy is going to be a balancing act – you don’t want to waste a fortune on dread disease premiums you may never need, but you also don’t want to leave it too late and be ‘uninsurable’ (having had an ’event’ that increases your risk of needing the cover). There are a couple of insurers out there who are more flexible, and let you move premiums out of disability, income protection, or life cover into dread disease without medical ‘underwriting’ – an independent financial advisor (as opposed to a ‘tied agent’) will know which providers these are. Perhaps it’s time to look at being more self-funding and diverting the savings into your own slush fund? If you have one adult participant in your med aid who is a ‘heavy user’ of the med aid – maybe it’s time for them to have their own, especially if the med aid tax credit bites the dust, giving you no advantage? I have been predicting the end of the med aid tax credit for a few years now – it was just too juicy a low-hanging fruit for the ever-avaricious Treasury to ignore. If you’re over 65, you also get additional tax breaks – and nobody is saying how these will be treated. Here is an extract below from the SARS tax booklet they put out every year (available on the Treasury website, but happy to send you one if you want it).   Why not build up your own medical emergency fund – maybe even offshore? It’s going to take a while to do this, if you’re doing it from scratch, but if you never need it, it’s just another nest egg. To do this, I recommend you use an institution that runs like a bank account, and you can invest from (we at Rexsolom use Switzerland as the destination for this and a number of other reasons). If you just invest it in an RSA FSP ‘offshore’ investment, you’re looking at more time to divest from the investment – and then you don’t have an offshore bank account to put it in. Keep it simple and liquid. IMHO, steer clear of fancy trusts, quasi trusts, endowments etc – they just don’t have the liquidity you need in an emergency (and have nasty expenses that erode the return). The med aid increases for next year have come out and they average at 7,6%, down on previous years, but so is inflation. The real rate of increase is still at least 4% above CPI. We all know that medical aid increases have outpaced inflation by at least 4-5% for decades, which is why most of us have gradually had to downgrade our medical aids over the last 25 years from fully comprehensive to, usually, a hospital plan with little or no day-to-day coverage. It’s not been that bad, right? A top-tier med plan from one of the insurers in 2005 was circa R650 per person per month. It’s now circa R9,500. What would an inflated R650 be worth today? R1,720. This is a huge problem once you’re on a fixed income, one of the reasons most financial planners will project medical aid expenses into the future separately from other expenses. In summary, then, the sooner you understand your medical expenses need, now and in the future, the more flexibility you’ll have in retirement, and should the NHI be implemented as is. A combination of Medical Aid and Gap cover is becoming a no-brainer, but your own slush fund, perhaps even offshore, is another option. |
| Articles and Blogs: Abdication or diversification? NEW Carbo-loading your retirement NEW Spoiled for choice Who needs a plan anyway 8 questions you need to ask about retirement What to do when interest rates drop How to survive volatility in your investments What to do when interest rates drop Difficult Financial Conversations Financial Implications of Longevity Kick Start your own Retirement Plan You matter more than your kids – in retirement To catch a falling knife Income at retirement 2025 Budget Apportioning blame for your financial state Tempering fear and greed New Year’s resolutions over? Try a Wealth Bingo Card instead. Wills and Estate Planning (comprehensive 3 in one post) Pre-retirement – The make-or-break moments Some unconventional thoughts on wealth and risk management Wealth creation is a balancing act over time Wealth traps waiting for unsuspecting entrepreneurs Two Pot pension system demystified Cobie Legrange and Dawn Ridler, Rexsolom Invest, Licensed FSP 45521. Email: cobie@rexsolom.co.za, dawn@rexsolom.co.za Website: rexsolom.co.za, wealthecology.co.za |