Filling the holes

For many, gap cover has become a necessity as medical aid claims are hardly ever paid in full. Shortfalls have been as high as R100,000 for hospitalisation in recent years, affecting even those who are on comprehensive or executive plans.

The result has been a steady growth in the gap cover industry, which came about 20 years ago. It now claims to cover about 400,000 members. Most are in the upper LSMs and have comprehensive cover; those on basic options are typically low-income earners who take the cover on advice from employers, says Mike Settas, MD of Xelus, which covers about 30,000 families.

"We exist because of a market failure," says Settas. "Ideally, you shouldn't have to buy gap cover, but that's not the reality."

No regulation

One of the factors that have created the necessity for gap cover is the absence of tariff regulation or capping, meaning providers can charge more than medical scheme rates. To deal with this, schemes tend to shift the risk to members by creating gaps in the options they give, or charging for certain procedures against members' medical savings accounts or requesting them to use designated service providers (DSPs).

However, the use of DSPs doesn't solve the problem when it comes to specialists, who often charge more than 300% of typical medical aid rates.

The Council for Medical Schemes (CMS) compels schemes to pay in full for all conditions listed under the Prescribed Minimum Benefits. This requires members to use the scheme's DSPs. However, the limited number of specialists means few are willing to be contracted or charge according to scheme rates.

"Without gap cover, many families would have to sell their houses to pay the bill," says Tiago de Carvalho, founder of Ambledown, SA's biggest gap cover insurer, covering 220,000 families. "An unexpected shortfall of R25,000 is a lot of money for many families."

Rise in claims

Insurers say there has been a rise in the number of claims in recent years. Typically claims include shortfalls in consultation fees, in-hospital dentistry and childbirth.

The CMS, working with national treasury, the department of health and the Financial Services Board, has been looking for ways to close these gaps and possibly abolish hospital cash plans, which compete with medical aid options while offering limited cover. Hospital plans are also under pressure from high claims, including fraudulent ones.

Draft regulations aimed at demarcating between short-term health insurance products and medical aid were released in March last year, but were heavily criticised by insurers and lawyers to the extent that treasury undertook to release a revised version. It has yet to do so.

Increasing premiums

Meanwhile, consumers have had to deal with steeply rising gap cover premiums, which have been growing at medical inflation rates. These premiums range between R80 and R150 a month, mainly for tariff shortfalls.

"The underwriting of gap cover is coming under pressure," says Settas. "The prices are definitely going up. My sense is that they're going to be higher than medical inflation over the years if this rate of claims continues."

He says there's a need to look at the appropriateness of the care provided, as often patients are referred to expensive care when there are more affordable options.

Source: Financial Mail via I-Net Bridge