Is the future of Gap Cover under threat?

5 July 2018

Since the demand for specialist medical services in 2000, Gap Cover has proven its worth and has provided clients with valuable cover in a country where the price of private healthcare is extremely high.

FAnews spoke to Joanne Gloag, Executive: Admed a division of Guardrisk, to find out a bit more about the possible future of Gap Cover in an industry that is now regulated by demarcation and will see the implementation of the National Health Insurance (NHI) in the future.

How has Gap Cover benefited the public before demarcation?

In the early 2000’s, the health industry experienced a significant increase in the demand for specialist medical services and supply at this time gradually reduced.

This resulted in the cost of these services increasing at a pace faster than inflation. Further, due to legislated open enrolment, open medical schemes were required to fund ever-increasing medical service costs while not being able to protect their reserves through declining cover for, or loading the premiums of, unhealthy lives.

To mitigate this increasing exposure, medical schemes began to cap or reduce their benefits, as well as introduce co-payments on certain procedures and in the use of non-contracted service providers.

Members began to purchase Gap Cover, which afforded them protection against these unexpected medical expenses, averaging at just under R6 000 per claim, but in some cases costing up to R100 000 for a single claim event.

This average claim cost relative to an average annual premium spend of around R220 per month reflects the benefit that members have enjoyed through their Gap Cover.

Does the public still find value in Gap Cover after demarcation has taken effect?

Demarcation has had very little effect on the value of Gap Cover to consumers thus far.
While in theory, the implementation of the R150 000 cap placed a limitation on the amount that an insured can claim each year from their Gap Cover, in practice very few shortfall claims in previous years have amounted to R150 000. Admed only once paid a claim of over R150 000 before demarcation came into effect.

However, this does not necessarily mean that demarcation will have no effect in the years to come. The increase in demand for and reduction in supply of specialist medical services along with advances in medical technology are creating higher-than-anticipated medical inflation. We are now beginning to see shortfalls that are exceeding the R150 000 cap.

That being said, the average premium for a Gap Cover policy ranges from R100 to R350 per month and as this cover extends to multiple insured lives (total annual benefits of R600 000 for a family of four), policyholders still have much to benefit from their Gap Cover despite the limitations enforced through demarcation.

How will the NHI affect Gap Cover?

The NHI will undoubtedly affect Gap Cover. However, the extent of the impact remains unclear as many of the proposals presented in the NHI framework (although conceivable in theory) have not been fully mapped out practically.

The largest concern remains the funding model of NHI as it is still fairly unknown exactly how, and by who, NHI will be paid for.

Furthermore, the proposal to introduce uniform tariffs for services appears to be fairly one-sided, without sufficient consideration having been given to the impact of uniform tariffs on medical service providers. Before the NHI can be fully implemented, a balance will need to be achieved between paying highly demanded specialists sufficiently to keep them in service and being able to sustain these costs over the longer term and within the constraints of the NHI fund.

This implies that until such time as a balance has been achieved, and NHI is fully implemented, Gap Cover will remain a valuable cover for members.

Do you feel that there is a space for Gap Cover in an NHI run world?

Yes, even in an NHI run world, there will always be space for Gap Cover.
The purpose of Gap Cover insurance is that it supplementary cover that assists the cover offered by medical schemes in an ever-changing health industry where both service providers and medical schemes continuously evolve.

This means that Gap Cover providers need to be able to adapt to changing circumstances on an ongoing basis and much like we have evolved before and after demarcation, so we will continue to do so by offering value to our clients through our benefit design.

The final word 

While there is debate in the industry about the future of Gap Cover one thing must be remembered. The road towards this point when it comes to the NHI has been a long one. And the biggest challenge (the NHI funding model) needs to be addressed. This is the time for calm heads looking at the timeline for the implementation of NHI.

Editor’s Thoughts:

In the meantime, Gap Cover has an important role to play in the industry. This role looks to be secure for the near future. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts