Hospital Plans vs Hospital Insurance: Knowing the difference

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In times of economic pressure we all relook our monthly expenses to see where we can save on costs but having access to quality healthcare remains a priority – even more so during a global pandemic. 

Hospital insurance may be cheaper than medical aid hospital plans but is definitely not the same product. We asked the Principal Officer of Bonitas Medical Fund, Lee Callakoppen, to help us understand the two different products offerings.

Regulation

‘Firstly, before I take you through the benefits and possible shortfalls of hospital plans as opposed to hospital insurance, it is important to point out that hospital plans are part of the offerings provided by medical aids. This means the product is regulated and overseen by the Council of Medical Schemes and in accordance with the Medical Schemes Act 131 of 1998. Hospital insurance (or medical insurance) is part of the umbrella term, health insurance and includes hospital insurance, hospital cash back plan and gap cover. Hospital insurance is not part of a medical aid but is governed by the Financial Services Board (FSB) and the Long-term and Short-term Insurance Act,’ explains Callakoppen.

Medical Aid Hospital Plans  

  • A hospital plan provides you with basic, yet important medical cover. The product differs from scheme to scheme but in essence this plan is offered by a not-for profit medical scheme and will cover you in hospital for emergency and planned procedures
  • In the case of Bonitas – you also get access to some additional benefits for wellness and preventative care
  • The hospital plan ensures that when you are admitted into hospital for a procedure or due to an accident or illness, your expenses are covered – within the limits set by your particular plan
  • There are 27 chronic conditions that all medical aid plans must cover, so the hospital plan also covers these which are known as Prescribed Minimum Benefits (PMBs) 
  • This type of plan does not cover you for other day-to-day medical costs like visits to the doctor, specialist or medicine 
  • It is tax deductible

Hospital Insurance

  • Hospital insurance is not a medical aid, it pays you for the time you spent in hospital but not for the treatment you receive
  • It provides cash benefits depending on the number of days you are in hospital due to illness or an accident 
  • The insurer pays the money directly to you, you are able to use the money however you please – to pay for daily household costs or the hospital, doctor and specialist bills 
  • This often seems more attractive than a hospital plan and has a cheaper monthly premium however, the daily amount you receive is often way below the medical expenses incurred while in hospital
  • It is governed by the Short or Long-term Insurance Acts
  • Does not cover Prescribed Minimum Benefits (PMBs)
  • May include Personal Accident risk cover such as disability and loss of limbs, inability to work, salary protection, death and/or funeral covers
  • Is not tax deductible

The limitations of hospital insurance 

  • It is a set amount which might not cover your hospital or medical bills, leaving you financially short and, in some cases, has a waiting period 
  • New regulations state that pay-outs are limited per insured life, per hospital stay with an annual limit
  • Typically people buy the policy that pays less than R1 000 per day
  • If you have one of the top plans, the daily pay-out during your stay in hospital may sound like a lot of money however, it usually falls short of actual costs charged by hospitals, doctors and specialists 
  • For example, a caesarean birth costs around R30 000. This can be much more if complications occur.

Remember that hospital insurance companies are ‘for profit’ unlike medical schemes who are ‘not for profit’.  The recommendation by most financial advisors is that a hospital insurance product should be used in conjunction with medical aid, or hospital plan, as income replacement rather than medical aid cover.

And what is GAP cover, how does it work? Callakoppen provides an update.

Minding the gap

  • At times there may be a shortfall between what the medical scheme pays and what the hospital or specialist charges. You are responsible for paying the difference
  • There is an insurance policy called gap cover which you can take out to pay for this shortfall
  • The amount you receive depends on your policy but there is an overall annual limit 
  • Some gap cover policies have a waiting period for certain conditions
  • Most people usually take gap cover together with a medical aid hospital plan 
  • It is important to know that gap cover, like hospital insurance, is an insurance ‘policy’ and is registered as Short-Term insurance policies
  • Gap cover premiums are not tax deductable

‘There has been a growth in health insurance products over the past few years and they appear to provide medical cover, but actually don’t,’ says Callakoppen.  If you choose to take out health insurance, do so as complementary to medical aid, not a substitute.

‘My advice: Shop around to find the best plan that covers your health needs and suits your pocket.  A number of Low Cost Benefit Options have been introduced by Medical Schemes – these offer more affordable plans that give you peace of mind in terms of access to quality healthcare.  Interrogate the benefits you receive on the plan you are considering versus the monthly contributions but, above all, never compromise on your health.’

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