Greater longevity and rising health costs are driving take-up of gap cover 

By Michael Emery, Marketing Executive at Ambledown Financial Services 

More and more South Africans are recognising that gap cover has become an integral part of their planning to ensure financial and physical wellbeing. 

Advances in medical science and technology, combined with better sanitation and hygiene, have dramatically increased life expectancy and quality of life. South Africa’s life expectancy is currently just over 65 years, somewhat below the global average of 71 years^[i] but still double what it was in 1900. 

While these figures vary slightly depending on which data is used, the trend is clear: we are living longer. At the same time, though, it’s important to recognise that longevity must be accompanied by good health or it becomes a burden. 

Consequently, people are taking more care to eat more healthily and exercise. In addition, wherever possible, they are enrolling in medical schemes to ensure that they have access to the best quality of medical care they can afford. Good medical schemes typically provide help with preventative care while also making it possible to access top specialists and effective medicines when required. 

However, fewer people realise that tariff rates in the medical sector vary widely, which means that hospital and specialist costs can be significantly higher than the benefits paid out by any medical scheme, no matter what the level of cover is. 

For example,^[ii] most medical scheme options typically cover 100% of the scheme’s rate, with the higher end schemes rising to 200% or even 300%. This looks sufficient, but the trouble is that doctors and hospitals can and do charge much more – claims in excess of 300% can occur.^[iii] 

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Some of these high rates are simply the result of market dynamics – the best can always charge a premium – but also medical inflation is running at a higher rate than consumer price inflation. The consumer price index of medical products was measured at 112 points^[iv] in November 2023, compared to 96.5 in January 2021, an indication of how medical costs are rising all the time. Healthcare costs are said to be running at 3%-5% above consumer inflation,^[v] resulting in corresponding increases in medical scheme contributions. Medical inflation is the basic driver of increasing medical costs – Stats SA publishes the medical inflation rate and this is the basic underpinning of the industry’s pricing structure, including both medical scheme and gap cover premiums. 

This challenge is not unique to South Africa. In response, medical schemes have introduced a growing number of initiatives designed to reduce the rise they have to pass onto their members. These include co-payments, and restrictions on which doctors and hospitals may be used. Medical schemes may also restrict increases by reducing the amount of annual savings, making comparisons with gap cover difficult. By contrast, because it is an insurance product, gap cover premiums are determined by underwriting rates, with premiums often fluctuating between individuals and groups. 

These measures are helpful, but they are only partial solutions. The basic trend is that even those on high-tier medical plans face the prospect of significant shortfalls for certain procedures which need to be paid for out their own pockets; these expenses can be financially crippling. Given our current cost-of-living crisis, unbudgeted expenses can have a highly detrimental impact on finances that are already under pressure. 

Gap cover was created to provide some relief and protection to members of medical schemes from these shortfalls. The word “cover” is important; gap cover is essentially short-term insurance cover, as opposed to a medical scheme, which is governed by the particular scheme’s rules and ultimately regulated by the Medical Schemes Act. Gap cover supplements, but cannot replace a medical scheme, and is not a substitute for a medical scheme – in fact, gap cover is only available for members of a registered South African medical scheme. 

Financial Mail reported earlier this year that uptake of gap cover has surged among medical scheme members, as gap cover accounts for as much as half of some members’ payouts.^[i] The same article noted that as the medical aid industry battled soaring inflation, monthly gap cover claims were averaging some R1 million higher than in previous years. 

As always in a vibrant marketplace like South Africa, there is a range of gap cover products that can be purchased. It is very important that individuals consult with a reputable broker to identify what gap cover is best suited to their needs – and pocket. 

Depending on your Gap provider, gap cover can be purchased for the family plus its dependants for a single amount per month. However, dependants who are over the age of 21 have to get their own gap cover, although if they are financially dependent on the principal member, coverage can be extended to the age of 25 if the rules of the particular company allow for it. 

Mentally or physically handicapped children are covered irrespective of age if they are financially dependent on their parents. Always make sure that you check with your broker to be sure what your plan covers. 

Members of the extended family, even if dependent on the principal member, such as parents, have to get their own gap cover, although, as always, the rules of the various gap cover companies vary. Again, it’s worth checking with your broker to be certain.