Gap Cover Mega Claims: Unpacking the Drivers

Martin Rimmer

The rising values of gap claims are showing an alarming increase in the shortfalls between what medical schemes pay versus what healthcare providers charge for in-hospital procedures.

Recent claims data from Sirago Underwriting Managers, a gap insurance provider, reveals a sobering reality: just 20 mega claims paid in 2024 totalled almost R3 million for the gap portion alone – an average of R150k per claim. Without gap cover, medical scheme members would face these astronomical costs out of pocket. While gap claims once averaged between R6,000 and R12,000 pre-2020, claims exceeding R60,000 are now daily occurrences.

Gap insurance covers the difference that arises from the rate that healthcare specialists charge for in-hospital procedures versus what medical schemes pay, irrespective of whether the provider has signed tariff agreements with the schemes. Unlike the pharmaceutical industry, there is no pricing regulation on healthcare provider tariffs. In South Africa, we are also facing a dire shortage of healthcare professionals. In spite of this dynamic, specialists are free to charge any rate they prefer, often more than 300% to 500% higher than the rate paid by medical schemes. If the medical scheme option only pays out at 100% of tariff, then the member will be liable to pay the shortfall of the other 200% to 400% charged by the healthcare provider as an “out of pocket” expense which more often than not, runs into tens of thousands of Rands.

A breakdown of Sirago’s 20 mega gap claims paid in 2024 follows:

• Of these 20 mega gap claims, all shortfalls were in excess of R100 000, while three reached the maximum overall annual limit of R191 000 that a gap policy may cover, per beneficiary.
• In almost half of the claims, gap cover paid more than the medical scheme paid. In one particular instance, gap cover paid R126,771 while the medical scheme paid just R27,573 – just 18% of the entire treatment bill was paid by the medical scheme.
• Of the total healthcare cost across all 20 claims, gap covered 40% of the total cost, while medical schemes covered only 60% of the total costs for in-hospital treatment.

“While the treatments have remained consistent in terms of being the drivers of gap claims - cancer, circulatory and musculoskeletal conditions - what has changed significantly over the last five years is the treatment costs associated with these conditions, and the widening shortfalls not covered by medical schemes,” explains Martin Rimmer, CEO of Sirago Underwriting Managers.

“This is a multi-dimensional dilemma with doctors charging significantly more for similar treatment protocols and regimes than in the past, while medical schemes implement continual downward recalibration of benefits to contain contribution increases. The direct result of this is an increase in claims costs for the gap providers, as well as a financially debilitating out-of-pocket expense for medical scheme members without a gap cover policy in place,” he adds.

High demand for scarce specialist services, emigration and a shortage of medical graduates in employment are the most serious contributing factors in this healthcare cost spiral, with a skills shortage that is guaranteed to remain problematic for many years as the NHI Bill drives uncertainty, disinvestment, and an exodus of healthcare professionals.

Gaming the healthcare insurance system
Factors such as fraud, waste and abuse are also significant contributors to escalating private healthcare costs as the ‘fee-for-service model of payment’ encourages people to over-charge or over-service for profit. While suspected fraud and over-servicing is committed by a small number of healthcare providers, it is a major cost driver in terms of financial impact across the healthcare funding sector. Gap insurance is increasingly becoming a target for exploitation by unscrupulous healthcare providers.

In many cases, it comes down to a billing double standard. Some specialists are now routinely asking patients upfront whether they have gap insurance before determining what to charge. Some use questionable billing practices and suspicious use of ICD-10 codes based on a patient's insurance portfolio.

As Rimmer points out: "We are seeing claims from gap cover members who have undergone the exact same procedures, with the same surgeon, and the fees charged by the healthcare provider are radically different. In some cases, a specialist might charge 200% of the medical scheme tariff for one patient, while charging another patient 500% for the identical procedure. The only difference? Whether the patient has disclosed that they have gap insurance.”

This exploitation creates a troubling paradox: a gap policy averaging R450 per month may pay out R130,000 for a shortfall on an orthopedic surgery, while the medical scheme with a premium of R8,000 per month pays just R30,000. If this trend continues, gap insurance premiums will inevitably rise, making this crucial protection unaffordable for many South Africans. The financial burden will ultimately fall on patients, further straining an already stressed healthcare system.

Protecting Yourself
Awareness is always your first line of defence:

• While your medical scheme benefit information is key to your pre-authorisation for any hospital procedure, you are not obliged in any way to disclose whether you have gap cover to your healthcare provider.
• Be wary of healthcare providers who specifically ask about your gap insurance status.
• Question significant disparities between what your medical scheme pays and what your specialist charges.
• Discuss fees upfront with your specialist before procedures to ensure there are no surprises.

“As consumers, we must remain vigilant against exploitation that threatens to undermine an essential financial safety net in access to quality private healthcare,” concludes Rimmer.