GAP Cover - Optional Extra or Vital Cover?

Is Gap Cover an optional extra or is it a necessary vital insurance cover in to-days soaring private medical expenses environment.

A joint explanatory press statement by the National Treasury and the Department of Health on draft health insurance products and Medical Schemes Demarcation Regulations on 16th April 2012 attempted again to point out the intentions of the Department of Health to regulate and ensure that health insurance products, including Gap Cover, do not infringe on the Medical Schemes Act 131 of 1998 which governs all medical schemes.

In this press statement, they talk of medical schemes being important for the enabling of access to private healthcare and together with risk pooling and cross- subsidisation, the young and healthy can support the old and sickly in this medical schemes environment.

They carry on to say that these self-same schemes are ‘not for profit’ organisations. While these ideals are excellent in principle, one only has to look at the larger administrators such as Discovery Health and Momentum Health to realize that while the schemes may be ‘non-profit’ entities, the administrators are certainly profit motivated in what is a strictly regulated and controlled environment.

However, while some of the administrators grow larger, many smaller schemes have to struggle and sometimes merge with larger schemes or else fail entirely. Clearly even a regulated environment does not necessarily benefit everyone. One of the insurance products targeted in the above demarcation issue is Gap Cover. Gap Cover has become an integral part of the developing healthcare industry since the Competitions Board outlawed medical aid scheme rates and the previous Medical Associations’ private rates. When these rates were removed, practitioners had no guideline for their charges and increased their rates astronomically.

The medical aids in the meantime, had to curb their costs and they began to reduce the rates at which they reimbursed Specialists for in-hospital procedures, from about 3 times the old ‘medical aid rate’ to twice the rate, or even only the ‘medical aid rate’ itself. This is illustrated by the fact that the Fedhealth Medical Scheme, which in 2010 had a reimbursement rate of about 3 times the old medical aid rate, has had to reduce this to only 100%. These reductions in reimbursement rates have left the members with the risk of large shortfalls on their medical accounts.

Gap Cover enables the member to reinsure this risk. Gap Cover in no way seeks to do the job of a medical scheme; it simply helps the consumer/member to cover a risk of unknown proportions the cost of which they may incur during a hospital event. A very interesting aspect of Gap Cover is why is it so inexpensive to insure this risk when medical aid schemes themselves charge so much for doing a similar job. Are they building in unseen costs, whereas the short term insurer or underwriter providing the Gap Cover merely pays the difference between the practitioner’s charge and the medical scheme reimbursement. Our next article will attempt to highlight certain specific examples.

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