(c) South Africa Institute of Chartered Accountants. Contact SAICA for permission to reproduce this article., Budgeting, Health


By Gizelle Willows

Why comprehensive medical cover may be overkill.

While we’re on the topic of reducing ‘unnecessary’ expenditure, I thought I’d tackle the concept of medical cover.

Before I begin, let me state that medical expenditure is very personal. If you suffer from a chronic illness or have a large family to consider, then you’ll know what’s best for you, regardless of the cost.

This article is intended for those who have what I like to call ‘day-to-day’ medical expenditure – in other words visits to the GP, a specialist or two, and prescribed medicine. Furthermore, the security of knowing that there’ll be no questions asked if you ever require hospitalisation: your medical plan will cover it.

For the most part, a good hospital plan will serve you fine. That’s your biggest worry generally: “What if I’m in a car accident, have a heart-attack, etc.”

So then why are so many of us taking ‘comprehensive’ cover?

Because it covers those day-to-day medical expenses?

Well, it doesn’t really. You’re just paying for those expenses through a different vehicle (your medical aid). The funds usually come out of a medical savings account or similar, but these medical savings are simply an accumulation of your premiums. And once you’ve used up your medical savings, you have to contribute from your own pocket anyway.

Generally, if you compare the annual premium of a comprehensive plan to a hospital plan, you’ll note that the difference is more than what goes into your medical savings account. Interesting …

You’d probably be better off just taking a decent hospital plan and saving the difference to create your own medical savings fund (in the manner I mentioned last month where you earn the interest or return on your investment).

Your only downfall is that if you start in January and have to see a specialist in February, you probably wouldn’t have built up enough savings. But – if you can manage your cash flow – this will translate to a timing issue. And you might be surprised when you reach the end of the year and have money left over that you can carry over to the following year (which wouldn’t be allowed with your medical aid).

If you’re starting to build up the counter-argument that a comprehensive medical plan pays 200% of specialist fees, and the hospital plan only pays 100%, it doesn’t really hold. When I visit the doctor or specialist and mention I’m on a hospital plan, they usually volunteer a cheaper rate for me. If they don’t offer this, I’m usually able to negotiate a better rate, so my actual medical expenditure, coming out of my self-created medical savings, is always less than what would have come out of my medical aid savings account.

Go do the sums.

Gizelle Willows CA(SA), MCom (Finance), is a Lecturer in Financial Reporting at the University of Cape Town.

This article was originally published in Accountancy SA.