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Retirement and your medical scheme cover

Apr 21 2016 12:57
Susan Erasmus

Cape Town - Retired people tend to be the highest claimers on medical schemes for the simple reason that they are the most likely age group to have medical issues.

While it is the prudent thing to do to continue your medical scheme membership after retirement, financial pressures make this impossible for many people. Fewer than 10% of people can maintain their lifestyle post-retirement and medical scheme membership is often one of the casualties of a post-retirement drop in income.

Many pensioners, even some former medical scheme members, have no choice but to rely on state healthcare services as they are unable to afford the contributions for medical scheme membership. Others buy down to more affordable hospital plans.

Fin24 asked an expert, Sonelle Kingsley, an actuarial specialist with Alexander Forbes, a few pertinent questions on medical schemes and retirement. Here is an edited version of her answers.

Q: Do many people cancel their scheme membership on retirement?

A: In our experience, members often reconsider their medical scheme membership after retirement with affordability being the main reason.

The cost pressure increases every year since medical scheme contribution hikes generally exceed CPI by at least two percentage points. We expect that this trend will continue as the development of new medical technologies and the high demand for medical services drive up the cost of healthcare.

Therefore, we expect that retirees will continue to either discontinue their membership after retirement or buy down to less comprehensive and less expensive benefit options.

Q: Why are fewer and fewer employers subsidising employees’/retirees’ medical scheme contributions?

A: The current salary practice of employers is to fund a total cost to company package with mandatory scheme membership not a prerequisite. Medical schemes are seen as a grudge purchase, especially for the younger generation. It is expensive and they think they don’t need it.

Post-retirement subsidies have to carry on being funded until the member dies, or the subsidy terminates. People live longer, so the liability to the employer increases every year. 

Employers are at risk because they don’t know how high CPI inflation and healthcare cost inflation will be. They could also have an increased risk because of future new legislation and changes to tax legislation. Continuing to administer a post-employment healthcare subsidy is a burden to the employer and they run the risk that eligibility criteria and rules are not strictly or consistently enforced.

Alexander Forbes has in recent years seen an increase in the number of employers reducing, capping or eliminating subsidies due to these risks.

Q: How do requirements from one’s medical scheme differ post-retirement?

A: After retirement members generally require more comprehensive health care benefits. However, due to affordability constraints many pensioners cannot afford to buy this higher level of cover.

If a pensioner continues with his membership with no break in cover at retirement, the medical scheme will not place additional restrictions on the member. However, schemes may impose late joiner penalties, waiting periods and exclusion if a pensioner joins for the first time.

Late joiner penalties can be substantial (up to 75% of the contribution) if you have never been a member of a medical scheme.

Q: What would you recommend to pensioners on a reduced income when it comes to medical cover?

A: Employers often offer pensioners a lump sum or fixed annuity in lieu of future medical scheme subsidies. It is usually to the benefit of the pensioner to retain his post-retirement medical subsidy.

Selecting the right benefit option is important to ensure that a pensioner’s healthcare needs are covered while maintaining affordability of contributions. An accredited broker will be able assist the pensioner with an options choice by taking their needs versus funds available into consideration.

Q: What can people do to make provision for their post-retirement medical costs?

A: In the absence of a post-retirement subsidy the member should ensure they make additional contributions towards their post-retirement savings. Pensioners should invest in a savings vehicle where the payments to the pensioner increase by at least CPI+2% per annum to match healthcare cost inflation.

Q: Many pensioners rely on state hospitals for their medical care. Is this such a bad thing?

A: State care may be sufficient for many pensioners. However, many may require immediate and/or specialised levels of care not readily available at state facilities.

The South African population is ageing and when one considers the limited number of hospital beds available to a growing number of people, state healthcare facilities are being put under extreme pressure. This will affect service delivery as well as the availability of medical treatment, especially for the older people who need it most.

Q: What is the difference in claim patterns on medical schemes between retirees and younger, working members?

A: The requirement for medical care is fairly low at younger ages, with an increase during child-bearing age due to the expensive nature of pre-natal and infant care.

Claim patterns gradually increase as a member approaches retirement due to a rise in the demand for specialised care such as oncology and chronic medication.

* Have you been on the receiving end of an unforeseen medical expense? Add your voice to the retirement debate.

retirement  |  medical aid  |  money
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