The debate around Gap cover in South Africa seems to have finally reached a conclusion, with the new demarcation regulations having taken effect from 1 April 2017. At long last, it is now possible to explain exactly what Gap cover means to the consumer, and what limitations these policies have.
What is Gap cover?
One of the most frequently asked questions clients ask is why their medical aid did not cover the full cost of a hospitalisation event, if their option is advertised as paying 100% (or in some cases 200%) of the scheme rate in hospital, and is unlimited. The confusion arises because of the rate charged by Specialists, who often charge in excess of the scheme rate.
The purpose of Gap cover is to fund the difference between what your medical scheme pays for in-hospital specialist costs, and what the specialist actually charges.
It is important to remember that Gap cover only covers specialists when you are admitted to hospital. Out-of-hospital consultations are not covered, even though there usually is a shortfall in what medical aids covers, and specialists charge.
What has changed?
Historically, the medical scheme industry and government argued that Gap cover policies encourage medical scheme members to downgrade to cheaper options on their medical aid, and supplement shortfalls by taking out Gap cover. In an attempt to prevent this, regulations have now been passed and as of the 1st of April 2017, benefits on any new Gap cover policy taken out are limited to R150 000 per person per annum.
If you have an existing Gap cover policy, these benefit limits must take effect by 1 January 2018.
Do I need Gap cover?
Medical scheme membership in South Africa is getting more expensive every year. Gap cover, on the other hand, is relatively inexpensive. The reason for this is that medical schemes are more strictly regulated, and cannot pick and choose to cover only healthy members – whatever your age and health status, an open medical scheme must accept all applicants, and can only place limited waiting periods, exclusions or penalties on your membership.
Gap cover providers, on the other hand, are allowed to impose stricter exclusions on benefits, as well as charge higher premiums for older clients. Because of this, Gap cover policies are less expensive, and are still seen as good value for money for most South African families.
As medical schemes continuously try to contain expenses by limiting what they will refund on medical expenses, most people find that they need additional cover, especially for expensive in-hospital events. When advising clients on a medical aid option, I usually advise purchasing additional Gap cover, no matter what rate their medical scheme option reimburses at.
However, this does not mean that I would advise clients to take out, or downgrade, to a less expensive medical scheme option. The old maxim of “you get what you pay for” is very apt when deciding on a medical scheme option, or when deciding whether to take out Gap cover. If you downgrade your medical scheme option, or decide on a lower option when initially taking out medical aid cover, you might be sacrificing additional benefits not related to in-hospital expenses.
Speak to an advisor
There is no question about the value of Gap cover to the consumer, even if you take the new benefit limits into account. However, because every client has unique circumstances and requirements, obtaining advice from a qualified financial advisor is vital.