Medical Aid Costs
As most of us with medical aid cover are now reviewing the cover we have and the cost increases we face for next year, it seems appropriate to consider whether we will be able to continue to enjoy this cover into our retirement when we may require it most.
As a benchmark I have chosen two popular types of cover:
Managed Care and
Comprehensive Cover
The cost of these options for 2013 will be
Managed Care – R 1 330 pm
Comprehensive Cover – R 3 086 pm
Both these options’ costs have increased by between 9% and 12% from 2012 to 2013.
South Africa’s healthcare expenditure, according to the National Treasury, has increased annually at a rate of 9% since 2008, nearly 4% higher than the annual rate of inflation. Medical Inflation rising faster than consumer inflation is not a uniquely South African problem.
The World Health Orgranisation (WHO) indicates that 10.4% of global GDP was spent on health in 2010. PriceWaterhouseCoopers projects that healthcare expenditure is expected to increase sharply over the next few years, with the percentage of GDP spent be OECD countries increasing from 9.9% currently to 14.4% in 2020.
Let us consider what the impact of the varying levels of inflation could be on the cost of medical aidover the next 50 years. Let us assume three levels of inflation 6%, 9% and 12% so that we may have a best and worst case scenario. The monthly premium projections are as follows:
To give some context to these figures we indicate below what a R 20 000 monthly income would be at these same intervals, assuming a 5% and 10% salary increase per annum.
Providing for Medical Aid Cover During Retirement
As Medical Aid costs are expected to become an increasing burden on the income of retirees we are recommending that you consider saving seperately to cover these expenses. The Retirement Annuity Product is especially well suited for this purpose.
Not only does the product allow the invested capital to grow without a tax burden, but access to the capital is restricted so that you may not access the capital until age 55 or thereafter. At that point you are only able to draw one third as a lump sum with the balance purchasing an annuity income. This not only allows for very efficient growth but also forces you to have the dicipline not to access capital that will be vitally important during your retired years.
If you are interested in setting up a seperate savings product to provide for your medical aid needs during retirement we invite you to contact us for more information.
