I realise that this may be foreign to most Americans (and citizens of countries that possess National Health Systems), but here in South Africa almost everyone pays for private medical health coverage. It’s just the social norm – and in this, we beat the Americans hands down. Broad coverage of the young and healthy means low premiums for everyone, with fun extras like low gym subscriptions and discounts on air tickets.
We also have a curious obsession with medical savings accounts.
This – this makes no sense. Because when a medical health provider says “And you’ll get all the benefits of a medical savings account to cover your day-to-day benefits, until such time as the savings run out,” all they’re doing is offering you a second bank account.
It’s still your money. You’ve just locked it up so that you can only spend it on medical visits. Which seems crazy to me.
Why Offer Medical Savings Then?
Well apart from the fact that people seem to like medical savings, it’s also a way to sneak in the odd bit of extra insurance. That is: it’s rare that you can just “add medical savings” to your hospital plan.
Discovery Health, forgive me, but I’m going to use you as an example. Here are two plans:
- Essential Core; and
- Essential Saver.
Here are the premiums for the main member:
- Essential Core – R1,263 per month (or R15,156 per year)
- Essential Saver – R1,570 per month (or R18,840 per year)
And in return for that extra R3,684, the Essential Saver plan will give you:
- A Medical Savings Account of R2,820;
- An Insured Network Benefit (which gives you 2 visits to a GP in Discovery’s network); and
- A Trauma Recovery Extender Benefit.
Here’s the problem with that:
- You already have a GP, so you’re unlikely to go to a different one (even if you have to pay more to go to him/her); and
- It’s unlikely that you would qualify for a Trauma Recovery Extender Benefit. Mostly because it requires you to have spent more than 5 days in ICU with some fairly specific injuries – which Discovery Health would be loath to authorise to begin with. And even if you did qualify, at that point you should be moving yourself onto a more expensive plan, which would cover more treatment anyway.
So the net impact is that you’re paying R3,684 to get R2,820 worth of your own savings, and some other insurance that most people wouldn’t normally use. And we could look at other plans that do the same thing. On the Coastal program, you’d be paying R5,628 for R4,668 of your own savings, plus that extra insurance.
If you’re really attached to medical savings, then the best way of doing things (at least, on Discovery Health) is the Classic program, where you’d pay R6,060 for R5,928 of savings and then the extra coverage (probably because the Classic program is quite popular, which lowers premiums all round).
Otherwise, it’s a bit of a scam really. If you forced me to find a positive, I’d acknowledge that you get access to the full medical savings allowance from Day 1, where self-insuring would mean building things up over time. But I’d bet good money (literally – I bet my own) that it’s cheaper to self-insure on the day-to-day benefits, and pay the interest charges on a credit card for any overlaps that might occur.
The Economic Argument
Here’s the moral philosophy question: why do we need insurance?
We need it because there are individually-improbable life events that would be financially devastating for any one person. However, if the community clubs together and saves collectively against the day that a community member experiences said life event, then it’s cheaper for everyone and there is general peace of mind.
In case you’re interested, I’ve already written a post on this: Insuring Yourself Against Aliens.
To summarise it, insurance makes sense for everyone when
- the cost is high to the individual;
- the likelihood of the event occurring for the particular individual is quite low; but
- the event occurs regularly in the community as a whole.
So fire insurance makes sense (houses are costly to replace, the likelihood of it happening to you is low, but house fires in general happen quite regularly), but alien abduction insurance does not.
And day-to-day medical costs make about as much sense as alien abduction insurance. Only in this case, it’s because everyone gets sick enough to go to a doctor, and it happens regularly.
In fact, it’s worse than a zero-benefit scheme – it’s a system that’s open to abuse; because if there was communal coverage, you’d get the hypochondriacs flocking to their GP on a daily basis, and the friendless making visits to their therapist just for the company.
All that is exactly why insurance companies don’t cover you for day-to-day benefits – they make sure that you have skin in the game by introducing medical savings and self-payment gaps. They only want to cover those situations where a person has excessive out-of-hospital costs, for things like chronic conditions, etc.
My Sum Conclusion
Get the insurance that you need. Like the Classic Comprehensive with zero Medical Savings. And then toss in some Medical Gap cover for anything exceeds the limits prescribed by your Medical Health Provider.
And stop getting distracted by the loyalty programs.