Last weekend's Personal Finance covered factors you should take into account when considering which medical scheme to join. In particular, last week's articles focused on choosing a scheme that is financially strong, has a good membership base, is well governed and has good administration. Here are two more issues - tax deductions and waiting periods - that you may want to consider when selecting a scheme.
At times, the choice between one medical scheme option and another may come down to funding some of your healthcare needs yourself or paying higher contributions to ensure you enjoy the right cover.
In these cases, you may want to consider the tax advantages of paying for benefits as a scheme member.
You can claim your annual medical scheme contributions against tax and/or enjoy tax-free an employer subsidy of your contributions up to a certain amount.
Each tax year, a rand limit is set for this deduction and/or tax-free subsidy of medical scheme contributions. If you pay your own contributions, you can use this limit as a tax deduction. If you receive a subsidy from an employer, you can receive the subsidy tax free, up to the limit, and if the subsidy is less than the limit, the balance can be used as a deduction for any contributions you pay yourself (the portion not covered by your subsidy). As of March 2008, these limits are R570 a month for a member only and R1140 a month for a member and one dependant, plus R345 a month for each additional dependant.
Tax benefits
Assume that, as a single member of a medical scheme, your contributions are R600 a month. Your employer pays R400 of this and you pay the remaining R200. You will be able to receive the R400 subsidy from your employer tax free and deduct R170 a month (R570 - R400) from your taxable income for the R200 of the contributions that you pay. The remaining R30 of the R200 you pay will not be tax deductible.
If your employer pays the full R600 a month, you will pay fringe benefits tax on the R30 a month that exceeds the R570 rand limit.
If you have the option to pay R700 in contributions with the additional R100 going into a medical savings account, there won't be any tax advantage unless you can deduct the R100 as an unrecovered medical expense (see below). If your employer pays the R100 it will be taxable.
If your employer won't pay the additional R100, you will have to decide if it is worth your while saving it through a medical scheme or setting it aside yourself.
Remember, if your scheme gives you access up front to the full amount you will contribute for the year (in this case R1 200) there could be an advantage, especially if you do not have discretionary savings and are living on a tight budget.
But you may be better off saving the money yourself, earning a better interest rate and without your scheme dictating how you spend it.
Costs not covered
Medical expenses that are not covered by the scheme, as well as contributions you pay and cannot deduct under the rand limit, may qualify as a deduction from your taxable income for medical expenses.
If you are over the age of 65, you may claim any medical bills from a registered medical practitioner and contributions paid. But if you are under 65, you can only claim these expenses when they exceed 7.5 percent of your taxable income. This means your expenses need to reach quite a high level before further expenses become deductible.
Beware of waiting periods when joining up
Open medical schemes are obliged by law to admit anyone who applies to join. But to guard against people who join only when they are sick, schemes are allowed to impose waiting periods on you under certain circumstances. These are periods during which you pay contributions but are not entitled to claim from the scheme.
Schemes can impose the following waiting periods:
- A three-month general waiting period during which time you cannot claim any benefits, except, in some instances, those for the prescribed minimum benefits (PMBs) - the benefits that schemes must by law provide; and
- A 12-month condition-specific waiting period, during which time you cannot claim any benefits related to a condition you had when you joined the scheme. It applies to a condition for which you received medical advice, a diagnosis, care or treatment, or recommended care or treatment within 12 months before the date on which you applied to join the scheme.
A scheme cannot impose a waiting period on you, except to continue one that has already been imposed and that has not yet expired, if:
- You apply for membership or for registration as a dependant within 90 days of leaving another scheme and the change is due to a change in your employment, or
- You are changing schemes because your employer is changing or terminating the scheme. In this case you must apply to the new scheme within 90 days of leaving your previous scheme, the application must be made within a reasonable period before the start of a new financial year and your membership commences at the beginning of the financial year.
If neither of these conditions apply, a scheme may impose the following waiting periods:
- If you have not been a beneficiary (a member or dependant of a member) of a scheme for 90 days before applying to join a new scheme, it may impose the three-month general waiting period and/or the 12-month condition-specific waiting period. These waiting periods will also apply to the PMBs.
- If you have been a beneficiary of a scheme within 90 days of applying, but have not been a beneficiary of one or more schemes for a continuous period of up to 24 months, the scheme may apply only the 12-month condition-specific waiting period (but this will not apply to PMBs) and the balance of any unexpired general or condition-specific waiting period imposed by your previous scheme.
- If you have been a beneficiary of a scheme within 90 days of applying, and have been a beneficiary of one or more schemes for a continuous period of more than 24 months, the scheme may impose the three-month general waiting period but this will not apply in respect of the PMBs.
The waiting periods are applied to you and your dependants individually.
You cannot "buy out" of a waiting period and cannot remain a member of one scheme and join another at the same time to have cover while the waiting period applies.
A scheme can insist you submit a medical report so that it knows what conditions to apply waiting periods to. The scheme will pay the costs of any medical examination.