By John Cranke, Financial Adviser, PSG Wealth Employee Benefits Midlands
With monthly costs mostly on the up, many households may look to cutting their medical cover to reduce expenses, with some re-routing monthly premiums into shorter-term savings for an emergency fund.
It might feel like you aren’t utilising what you are paying for if you aren’t often ill, but the monthly payments continue to add up nevertheless. While cancelling your cover might seem like a marvellous idea to free up some funds, there are far reaching financial consequences that you should be aware of before making such a drastic cut.
You’ll miss out on PMB cover that comes standard
A common complaint with members is their dissatisfaction around the level of day-to-day benefits (those that cover out-of-hospital events), but once you realise the extent of your cover by law, you will see how much you’re really getting.
All options on all medical schemes (across the spectrum from full medical aid to a basic hospital plan) are obliged to cover all beneficiaries in respect of Prescribed Minimum Benefits (PMBs), which include approximately 270 in-hospital procedures and treatments, along with 26 chronic illnesses. The PMBs apply in respect of conditions that, if left untreated, will result in death or detrimental quality of life. The day-to-day treatment falling outside of the management of a PMB condition differs between options within a particular scheme, where you can select how much cover you want to buy depending on your needs. A parent with a young child wanting dentistry benefits including braces, for example, will choose a more comprehensive day-to-day option than someone only wanting hospitalisation cover, but both will provide for PMBs.
You’ll likely not save enough by the time you need it
If you (or one of your beneficiaries) requires hospitalisation, the costs can be prohibitive. A good example of this would be having a baby. Treatment of childbirth related complications or premature birth regularly feature among the highest claims. Diverting your medical scheme premium to savings, even for an extended period, would not meet the costs of the treatment required – and in the case of childbirth, along with many other procedures you can plan for, it is highly unlikely you will have enough time to save sufficiently.
In a medical emergency, your scheme will authorise your admission to a private facility. However, if you aren’t a member of a medical scheme, you will have to provide financial guarantee to the hospital upfront, which is no mean feat if you are the one requiring medical assistance, and more so if your emergency happens after hours.
You’ll attract higher expenses in the end
Cancelling cover will generally require a month’s notice, however, options offering savings accounts that fund out-of-hospital benefits will claw back savings that have been spent “in advance”. Keep in mind that annual savings accounts are extended to members from 1 January, so if you have used the full savings by mid-year, as an example, and then cancel cover, the scheme will require you to refund the savings allocated for the balance of the year.
Further, in line with the Medical Schemes Act as of 1 April 2001, late joiner penalties apply if you are 35 years or older and become uncovered for longer than three months. Depending on the amount of years you cut cover in this age bracket, you will be charged higher rates to reinstate it for the duration of being a member of any medical scheme, which will attract higher premiums, ranging from 5% – 75% more.
Seek assistance before you need medical assistance
Contributing to a medical scheme can sometimes feel like an endless budgetary obligation where you might not see the immediate ‘value’ if you don’t need to claim often, but it can ultimately stand you in the best financial stead in the future, proving that your premiums easily outweigh the potential costs of not having cover. It’s best to chat to your financial adviser about your unique circumstances; taking the time to understand which option offers you the best, most affordable medical provision, aligned with your needs.