It’s on the cards

2011-01-20 00:00

“OH SIR, I’M SORRY – your medical aid’s savings plan is used up. You’ll have to pay for the flu medicine yourself,” the new pharmacist at my local chemist told me hesitantly. “Relax, my girl. We don’t have a medical savings plan, only a hospital plan, which also makes provision for chronic medication.” I was able to set her mind at rest while giving her an ordinary debit card for the approximately R600 of medication an untimely dose of flu cost me mid-summer.

A week or two later I was talking to my auditor about exactly how much medical expenditure I can deduct from my income tax this year, since it’s my first year of being older than 65. Suddenly he realised he also still had the standard kind of medical aid, where you contribute monthly for your hospital insurance and medical savings plan, and had never thought about what a medical savings plan really is.

We’re both with Discovery, by far South Africa’s largest medical aid administrator. We’re both very happy with the service and I have the further pleasure of knowing we bought quite a large number of its shares a few years ago at less than R10 each. The current price of R40/share is a nice bright green spot on my portfolio.

The auditor, Gerhard, and I quickly analysed his medical aid contributions, as well as working out what my tax position would be now I’ll never see 64 again. Gerhard assured me he has R20 000 or a bit more conveniently available somewhere. His contribution to the medical savings fund – note: not the hospital plan – is around R36 000/year for a family of four, which will pay for the usual pills, specs, doctors, dentists, blood tests and specialists. Discovery does that for him – but with his money, hence the name “savings plan”.

A quick look at Discovery’s latest annual report shows not everything you pay in on the savings plan is made available to pay for doctors and medicine. After all, Discovery has administration and marketing costs.

Gerhard and I began making plans to get a dedicated debit card at the bank to pay our ordinary medical costs. That’s everything except hospital. Kick off with a R20 000 or so deposit and pay in R3 000/month, whether you’ve had medical expenses or not.

At year-end the balance on the debit shouldn’t be worse than the balance on your savings plan with Discovery. In fact, there should be more money over. After all, there aren’t any admin or marketing costs – or profit – to be deducted.

The statements for the debit card together will also serve as the records of what your medical expenses were for the year. Taxpayers aged over 65 can deduct all their medical expenses. So rather than a box full of all your receipts, the card will serve as a record and that will presumably be sufficient evidence to keep the taxman happy.

Insurance against the unknown is absolutely essential – and that’s why a hospital plan isn’t negotiable. But if you’re a disciplined kind of person – especially if you’re self-employed – an ordinary debit card you pay into every month won’t only give you more peace of mind than Discovery’s medical savings plan, or any other one, but in addition you get everything back you used for pills and so on.

Just to put our theory to the final test, we compared it with insurance on our cars. By chance, we both use OUTsurance. Our cars are insured against third-party, fire and theft: that means even if you happen to touch someone else’s car if something goes wrong at a stop sign or if you reverse without looking and have forgotten there’s a gate back there. That’s insurance. But neither of us pay OUTsurance a monthly amount to create a savings fund for running expenses, such as fuel, new tyres or mechanical repairs. So why should we do so with Discovery – just so that we can pay R600 for flu medicine?

Your own medical debit card sounds so obvious there must be a catch somewhere. Here’s hoping Discovery or one of the other medical aids will tell us more next week about the benefits of their savings plan compared with an ordinary debit card.