Many pre-retirees underestimate their post-retirement healthcare costs, often using their current health as a predictor for the future. However, many diseases and chronic conditions emerge with ageing, and good health before retirement doesn’t guarantee continued well-being as you age. For most, medical aid costs are a significant expense in their monthly budget. Opting for cheaper plans or dropping medical aid entirely as you near retirement can be risky. It may leave you relying on state healthcare services or facing late joiner penalties if you need to rejoin medical aid later. It’s essential to plan for potentially higher healthcare costs to ensure financial stability and access to necessary care in retirement.
Medical inflation consistently exceeds consumer inflation by 3% to 4% annually, and it’s critical to factor these inflationary rates into your long-term retirement plan. Healthcare costs that consistently outpace inflation can increasingly consume a larger portion of your income over time. For retirees living on a fixed income, this means healthcare expenses will gradually take up a bigger share of their budget each year. If your retirement income relies on a guaranteed life annuity fixed in line with inflation, you may face cash flow issues as healthcare costs rise. Conversely, if you are drawing from a living annuity, the escalating healthcare costs may force you to withdraw more than is sustainable, potentially causing liquidity problems. To mitigate these issues, incorporating a discretionary investment component into your retirement portfolio can be beneficial. By having a discretionary investment, you can access additional capital, providing a financial cushion and alleviating potential cash flow problems caused by rising healthcare costs.
Choosing the right medical scheme in South Africa can be challenging due to the wide range of options available. For network medical aid plans, an adult dependant might pay between R1,100 and R3,500 per month. Mid-range plans with good hospital coverage typically cost between R2,100 and R3,500 monthly. Top-tier, fully comprehensive plans can range from R6,500 to R10,000 per member each month, representing a significant expense. It is highly recommended to have a gap cover policy in addition to your medical aid, especially as you age. As hospitalisation rates increase with age, a comprehensive gap cover can provide essential financial support for covering doctor and specialist bills incurred during hospital stays.
Having said that, gap cover policies vary widely in benefits and pricing, making comparisons difficult. Generally, policies offering coverage up to 500% of the medical aid tariff cost between R400 and R850 per family, with additional benefits such as enhanced oncology and specialist radiology services available from different insurers. Be aware that most gap cover policies have a maximum entry age of 65, so it’s wise to secure coverage sooner rather than later, as there may be waiting periods upon application.
While all registered medical schemes are required to cover Prescribed Minimum Benefits (PMBs), it’s important not to assume that all treatments for listed conditions will be fully covered by your medical aid. PMBs encompass emergency medical conditions, 271 listed medical conditions, and 27 chronic conditions. However, the extent of coverage can vary significantly between medical aids, so it is crucial to understand exactly what treatment and care are included in your plan. For example, while treatable dementia is classified as a PMB, the coverage provided is limited. Medical aids are only required to cover the initial diagnosis and management of acute psychotic symptoms for one week, which does not address the extensive costs of long-term dementia care. Considering that an average dementia patient may live for around seven years post-diagnosis, the costs can be substantial, often running into millions of Rands. Therefore, being listed as a PMB does not guarantee comprehensive coverage for all aspects of a condition. It is essential to review your medical aid’s benefit limits, treatment programs, drug formularies, and co-payments to fully understand your coverage.
Medical aids function on a cross-subsidisation model, where the premiums of younger and healthier members help cover the costs for older and sicker members. This system means that if you join a medical scheme later in life after not being a member during your younger years, you may face penalties for anti-selecting against the scheme. Medical schemes are allowed to impose a late joiner penalty, which is an ongoing premium loading based on the risk portion of the contribution. This penalty is calculated according to the number of years you were without medical cover after age 35, on a sliding scale.
For instance, if you go without medical aid for just a couple of years, you could face an additional 5% on your premiums. Missing between 5 and 14 years can result in a 25% loading, while a lapse of 15 to 24 years could mean a 50% increase. If you have been without coverage for over 25 years, your penalty could be as high as 75% of your risk premium. Therefore, maintaining continuous medical aid membership is financially advantageous in the long run, even if it means opting for the least expensive plan. This approach helps avoid substantial penalties and ensures more manageable premiums over time.
Aging often brings a range of common diseases, such as cancer, dementia, Alzheimer’s, heart and vascular conditions, Parkinson’s, hearing loss, cataracts, osteoarthritis, diabetes, and depression. Many elderly individuals suffer from multiple conditions simultaneously. Medical appliances and devices can significantly increase healthcare costs, with coverage depending on the comprehensiveness of your plan. If you only have a hospital plan, expenses for medical devices like hearing aids, spectacles, wheelchairs, walking aids, and orthotics are likely to fall on you. These costs can substantially drive up your overall healthcare expenditure, so it’s important to consider them when planning your medical coverage.
One of the most significant expenses to consider in long-term healthcare planning is the cost of assisted living, frail care, or private nursing, which is typically not covered by medical aid. These types of care can be prohibitively expensive, often leading elderly individuals to rely on family members for support. This situation can impose substantial emotional and financial strain on the extended family, affecting everyone involved and potentially overwhelming them. Therefore, it’s crucial to include a ‘worst-case scenario’ in your retirement planning to ensure you have adequate funds reserved for full-time care if needed. Failing to plan for these expenses transfers the financial burden to your adult children and other family members, potentially compromising their own retirement savings. To safeguard against this, your retirement plan should account for both regular and unforeseen medical expenses, including the possibility of full-time care, while also considering the impact of medical inflation over time.
Have a wonderful day.
Sue
