Is a personal loan a wise way to cover medical expenses?

Healthcare is becoming increasingly expensive in South Africa. Calculations by Discovery show that medical inflation will rise to 7.9% this year, which is significantly higher than the annual consumer price inflation rate of 6.5%.

This isn’t good news for anyone, including the approximately 8.9 million South Africans covered by a medical scheme – a little over 16% of the population. In addition to the progressive impact on scheme fees, it’s likely that co-payments for certain procedures will also increase.

How to manage medical costs 

We consider how medical scheme members can manage their medical costs, and, in the face of a shortfall or emergency, whether a personal loan is recommended.

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Where do patients experience financial pain?

Although many medical scheme plans cover basics like GP visits, routine blood tests and prescription drugs, patients can still expect to pay co-payments for some diagnostic tests.

“Co-payments occur when a medical scheme charges a ‘deposit’ for some common and expensive procedures – or, in the case of network health plans, to drive down costs by limiting members to treatment in specific facilities,” says Leon Vermeulen, a financial adviser with Discovery Financial Consultants. “Although these procedures are often necessary to make accurate diagnoses and prevent certain medical conditions, they can be overused.”

For medical scheme members who have medical savings accounts as part of their plans, co-payments can be settled for as long as the funds last – but these funds can run out early in the year if regular visits are made to healthcare providers.

Patients on traditional hospital plans may have to pay their medical bills in full, as these plans offer few benefits for diagnosing and treating medical conditions.

Is a medical loan a good idea?

Medical loans are usually taken out for procedures not covered by medical aid, or to cover an insurance shortfall. This may include dental or cosmetic procedures, as well as radiology, audiology, IVF treatment, medical equipment such as wheelchairs, rehabilitation, or extended hospital stays.

“Medical loans can range between R1,000 and R100,000, but the majority of loans range between R25,000 and R50,000, depending on the type of procedure financed,” explains Chane Olivier, sales consultant at MediFin.

Rates are tailored to a client’s credit profile, and how much they can afford monthly. Olivier says it makes more sense to take out a loan than swipe a credit card, as loan amounts could exceed credit card limits, and clients may need to use their credit card for other purposes.

Some credit providers offer medical loans at discounted interest rates over extended periods. For example, Capitec offers a loan for planned procedures, and medical aid co-payments and fees, with funds paid directly to the supplier.

Charl Nel, head of communications at Capitec, says loans are capped at R250,000 over a maximum term of 84 months at an interest rate from as low as prime. By contrast, a Capitec personal loan is offered at 10.25%.

“If, for instance, a client needs a medical loan for gap cover, and qualifies for R10,000 at an interest rate of 8.25% over a term of two years, they would pay around R577 a month,” he explains.

Medical loans provide patients with a degree of flexibility, however, careful consideration is still needed. Lesley O’Reilly, senior financial planner at Sanlam, advises against people taking out a loan for serious medical procedures. “Rather take out gap cover, which can protect you against excessive co-payments,” she says.

Vermeulen notes that a life-saving procedure would be an exception and would be worth the interest charged if a loan is taken. “If a procedure is elective or cosmetic, however, it may be better to save the funds, rather than paying high interest rates,” he says.  

Olivier notes that medical loans or increased personal savings can be a means for clients to downgrade their medical plans, thus shaving the monthly policy payment.

“Some find it better to convert from a comprehensive plan to a basic hospital plan, and then either save for elective medical procedures or take out loans,” she says.

Tips for paying less  

Vermeulen says that medical scheme members should always check co-payment charges before proceeding with diagnostic tests, or those that may fall outside standard testing. It’s worth comparing costs at different service providers, and/or attempting to negotiate.

Be aware that some medical aid savings plans allow you to pay cash directly to suppliers to benefit from immediate settlement rates. It's worth finding out whether this applies to your plan.

“Service providers are businesses and should be open to negotiation, like any other contractor, so it’s wise to shop around and negotiate the best deal before accepting treatment,” Vermeulen recommends.

“Many times, the divide between the member who is the purchaser and the scheme that acts as the payer leaves the member with the feeling that they are helpless and without influence, but this isn’t the case.”

Tip: Considering a loan to cover a medical shortfall? Check your credit score with JustMoney first.