Should you downgrade your medical aid option?

In the face of rapidly rising medical inflation, many members of private medical schemes are switching to lower-cost benefit options.

While it may be tempting to downgrade your medical aid, it’s vital to first investigate the impact that a budget-friendly option could have on your cover.

Tip: Assess your financial situation before downgrading your medical benefit option. Use our budget calculator to help you plan.

Why downgrade?

The critical drivers of downgrading are affordability, and changing needs and circumstances, says Anton Schutte, a certified financial planner and wealth and risk planner at PWG Group.

Paul Cox, managing director at the Essential Group of Companies, adds that healthcare funding comprises up to 30% of many families' household expenditure.

This percentage is bound to increase when medical schemes put up their premiums in 2024; a figure that will fall somewhere between 7% and 16%, depending on the benefit option.

When premiums increase, scheme members almost always pay a lot more for fewer benefits, says Cox. “They also face higher out-of-pocket healthcare costs, which they need to self-fund,” he notes.

Christo Vermeulen, group healthcare actuary at Universal Healthcare, adds, “Medical inflation and increased contributions of around 3% to 4% above general inflation can result in annual downgrades (or ‘buy-downs’) to less comprehensive options.”

It’s too early to predict the extent of downgrade increases, as most members select their benefit options at the beginning of December, to come into effect in January 2024, he explains.

Schutte says, “Members are downgrading from comprehensive plans to core hospital cover only, choosing less comprehensive plan options, removing dependents to save money, or opting for health insurance instead.”

For some consumers, even a downgrade is too pricey – so membership cancellations have increased significantly since June 2023, he says.

Switching to health insurance

Vermeulen notes that some members are quitting medical schemes and switching to health insurance products, which are subject to fewer regulations. “Health insurance is typically more affordable since it’s risk-rated, a practice not allowed under medical scheme legislation,” he explains.

Health insurance is also popular among younger, less risk-averse members, who find it cheaper because premiums are determined by age.

It’s important to note, however, that health insurance doesn’t offer the benefit of medical tax credits. “These are exclusively available to medical scheme members earning above the tax threshold,” Vermeulen explains.

Schutte adds, “People don’t always know they’re unlikely to get the same or better benefits from health insurance, which can lead to substantial out-of-pocket medical expenses.”

“Hybrid” downgrade options

Cox says healthcare financial advisers usually recommend a “hybrid” or “mixed healthcare” funding model, combining a core hospital medical scheme benefit, gap cover, and a day-to-day health insurance plan.

“This offers members an affordable hybrid solution with access to quality private healthcare,” he says.

Schutte lists the following downgrade options:

• Switch to hospital cover only, and channel money to a credit/debit card for non-covered expenses.
• Combine gap cover with medical scheme membership for in- and out-of-hospital benefits.
• Combine a primary healthcare plan with lower or reduced cover, depending on the benefits offered and your specific needs.

Efficiency discounted options

Vermeulen suggests efficiency discounted options (EDOs) offered by some schemes as cost-effective alternatives. With these, contributions are discounted by 10% to 20% compared to standard options.

“They offer the same benefits [as standard benefit options] but require members to use only specific service providers and hospital groups with which medical schemes have negotiated lower tariffs,” he explains.

How can downgrading affect your cover?

Schutte and Vermeulen warn that downgrading can affect your cover by restricting network providers or healthcare facilities, and attracting less comprehensive benefit options, or higher co-payments.

You can expect higher out-of-pocket expenses if you use providers contracted out of your medical scheme. You’ll have to pay for services directly and claim from your scheme.

Your cover for chronic benefits, day-to-day cover, and specific procedures – such as neck and back surgery, and joint replacements – may also decrease.

While all benefit options are legally required to cover prescribed minimum benefits (PMBs), downgraded options may affect your non-PMB benefits, for example, non-emergency and out-of-hospital benefits, such as dental, optical, GP, and specialist consultations.

Think carefully before switching

Before downgrading your medical scheme benefits, weigh up the pros and cons, Vermeulen cautions. Consider the following:

• If you switch, will your designated service providers be near your home or workplace?
• How many out-of-hospital benefits will you forfeit?
• Are the lower premiums worth it, considering your expected higher out-of-pocket medical expenses or co-payments?
• How do expected out-of-pocket expenses and benefits on the new plan compare with your old option for any future operations or procedures?
• Will the benefits cover potentially lifesaving treatments, such as renal dialysis and oncology treatments, or medicines for chronic conditions?

“Make informed decisions,” advises Schutte. “Avoid downgrading if you’re older, have a diagnosed illness, use chronic medicine, or have a family with young children.”

Cox and Schutte conclude that it’s crucial to consult an accredited, skilled healthcare broker to assess your needs, budget, and circumstances before you downgrade.

Tip: Too indebted to afford medical cover? It may be wise to consolidate your debt.