Broadening Your Employee Benefits Portfolio with Gap Cover

31 October 2013 Gavin Griffin, Aon Hewitt, Michael Settas, Xelus
Gavin Griffin, Business Unit Head of Aon Hewitt’s Healthcare division.

Gavin Griffin, Business Unit Head of Aon Hewitt’s Healthcare division.

Michael Settas, managing director of Xelus.

Michael Settas, managing director of Xelus.

Help employees manage out of pocket costs in a health crisis and boost employee engagement with enhanced benefit packages.

The current state of public healthcare facilities in South Africa and growing pressure on consumer wallets has reinforced the fact that employee benefits, especially private healthcare insurance, remain an invaluable part of the total compensation package. Today’s employee benefits landscape includes offerings to fill gaps in health care coverage since an employer’s medical scheme offering may not always be sufficient. The need to incorporate medical gap cover has increased exponentially in recent years as medical specialist fees far outpace medical aid tariffs.

This is according to Gavin Griffin, Business Unit Head of Aon Hewitt’s Healthcare division. "Although the core employee benefits such as private medical cover remain an essential part of the overall compensation package, there has been a strong drive towards improving efficiency and measuring the benefit richness of medical scheme offerings against the actual premiums charged. Supplementary products are also being offered to offset employee out-of-pocket medical costs and provide greater financial peace of mind in a health crisis. Medical gap policies are proving to be an invaluable safety net where an employer has moved to a high deductible medical plan, or where the employee has opted to move to a lower benefit option in order to better manage their costs.

"It is essential that employees are thoroughly guided by a professional broker as to what gap cover is and what it is not. Gap cover should not be viewed as replacing medical scheme cover, but complementing certain shortfalls that may occur. This is especially important when an employee is opting to downgrade their medical scheme cover and takes out supplemental gap cover. Potentially, any reduction in their medical scheme benefits as a result of the downgrade may not necessarily be covered by the gap cover policy. An employee electing to enroll in a medical gap policy must be covered under the employer’s underlying medical aid plan,” explains Gavin.

Essentially, gap insurance covers the potential shortfall that arises from specialist charges for in-hospital procedures - specialists often charge up to 400% of the benefits offered by medical aid. So if the company medical scheme only pays out at 100% of tariff, the employee will then be liable for the shortfall of the other 300% out of their own pocket. This can amount to thousands of Rands and leave the employee in a serious financial predicament. Even where employers are offering comprehensive medical aid cover for their employees, they could still be left with hefty shortfalls.

"For many employees, their first exposure to the concept of financial planning will happen in the workplace through the support and guidance from their HR counselors and employee benefits programmes. In this scenario, the employer is the door opener for many employees to a professional advisor or broker to take them through the steps of planning their future financial security. Even for the more financially savvy and well-educated, private medical scheme cover is complex and benefit designs are difficult to understand. Deciphering the industry jargon without the help of a professional broker can be daunting. Often people only find out about the shortfalls in their cover when it’s too late,” adds Gavin.

Michael Settas, managing director of Xelus, a gap cover provider, supports this view. "Medical aid cover can cost South Africans up to 20% of their monthly pay packets, even with a 50% monthly contribution from the employer. The point of having private health cover is that it promises the very best quality of care when you really need it, which is not readily available in public facilities. Employees often assume that their medical costs will be fully covered if they are on medical aid. But statistics show this is seldom the case.

"The reasons for this lie in the fact that South Africa’s private healthcare sector is characterised by an under-supply of medical specialists contrasted against medical schemes that are struggling to keep these specialist costs under control. The simple truth is that few medical schemes provide fully comprehensive cover for in-patient specialist care. This means that without supplementary cover, members potentially face large shortfalls between their medical scheme benefits and the actual costs incurred for surgery or other in-hospital treatment,” explains Michael.

These shortfalls occur in several ways including:

• Surgeons and anesthetists charge more than your medical scheme benefit;

• Medical schemes apply co-payments or deductibles on certain procedures;

• Certain expensive in-hospital items have annual sub-limits, for example the prosthetic device used in a joint replacement.

"Gap cover is designed as an affordable, cost-effective ancillary benefit to supplement medical scheme cover. The benefit of taking gap cover out with the company is that the rates are often significantly cheaper on a group scheme basis than what they could secure on their own - monthly gap premiums are very affordable and can range anywhere from R90 to R150 depending upon the underlying risk of the group,” explains Michael.

Xelus deals with hundreds of gap claims, with a large percentage of these coming from employees on a group scheme offered by their employer. "Most people are in a state of panic when they phone us, facing bills of a few thousand Rand that they have not expected, let alone budgeted for. Our most recent record claim topped R100 000 for spinal surgery for the child of an employee who earned a five digit annual salary. Had it not been for the fact that her employer had made gap cover compulsory across the group, she would have had no other means of covering this shortfall for her child’s life-changing surgery.

Members are mainly at risk when it comes to in-hospital treatment or other serious treatment. Shortfalls of R20-30k are now commonplace, whereas even a few years ago such high claims were rare exceptions.

"In these situations, the employer comes out as a real life saver and the loyalty derived from employees who view the employer as a champion of their financial security is immeasurable. The reality is that had the company not specified gap cover as a compulsory benefit, their employees would never have taken it out of their own accord. Most consumers have no idea what gap cover is nor do they understand the very real financial implications of why they actually need it,” adds Michael.

In real terms, the fees for medical specialists are almost double what they were in 2000. Medical scheme tariffs have simply not been able to keep up which is undoubtedly why tariff shortfalls on high cost treatments are such a growing problem. High demand for specialist services, emigration and insufficient medical graduates are exacerbating factors in this unfortunate cost spiral. And since specialists are in such high demand, they have little incentive to negotiate with medical schemes in terms of ‘contracting in’ and charging medical aid tariffs, and are better off charging higher private rates.

Also in more recent months disagreement has arisen between providers and medical schemes on the manner of contracting providers. In March 2013, the Health Professions Council (‘HPCSA’) issued a media statement, raising a concern that medical schemes were influencing doctors contracted under designated service provider (DSP) arrangements to make clinical decisions aimed at cost-cutting that were not in the best interest of patients.

"Whilst we may not be certain of the details contained in these contracting arrangements, these are very serious allegations. Clearly all of these matters do not engender any confidence in members, simply leaving them stuck in the middle and in very uncertain and exposed circumstances. Consumers simply want to know if they are fully covered should they end up needing expensive medical care. Given the complexities outlined above, supplementary gap cover remains the only solution that employers can offer their employees for complete peace of mind,” adds Michael.

Gavin Griffin of Aon Hewitt adds: "Given the fact that many South Africans have high levels of debt and credit-worthiness issues, it's now a moot point whether employers can sustain the pace of increased workplace demands without more support for financially strapped employees. The question that HR professionals have to ask is whether the staff is thriving under the demands of today's fast paced changing business environment, or whether they are they struggling to cope against a backdrop of increased personal financial pressure where they may not be in proper control of their finances, debt and savings. Given this scenario, it’s obvious that being able to offer more benefits and greater safety nets for employees on the road towards greater peace of mind and productivity is a win-win for all concerned.

"By adding supplementary products such as gap cover to the host of other employee benefits such as retirement and healthcare, employers get to help remove or at least mitigate employees’ anxieties about protecting their families in a health crisis, and at much lower premiums and better benefits than they could obtain on their own,” concludes Gavin.

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