Fedhealth’s innovative new option regarding medical aid savings

Deon Lategan, Fedhealth Fund Manager, talks to us about their innovative new option regarding medical aid savings and assisting clients who want to manage their contributions personally.

If you would prefer to read this interview, we have provided the transcription below.

Tony van Niekerk 0:12
This is Tony from cover magazine. I’m speaking to Deon Lategan, Fedhealth Fund manager. Deon, thank you very much for talking to me this morning.

Deon Lategan 0:20
Thanks Tony, it’s an honor to have this conversation with you.

Tony van Niekerk 0:25
Deon, I was very excited when I received the information and I felt a bit bad that I hadn’t picked it up before. So it was great for me to also see your launch discussion around what we used to call the savings accounts, etc, and how you’ve now turned it on its head to actually be a proper facility for health care funding. But before we get to that, maybe just to start off with a general discussion around your overall experience of 2020. What it was like for you guys, and how you feel about the upcoming year, anything more positive in the outlook.

Deon Lategan 1:14
Tony, it’s been a strange here, we live in interesting times. So, we started off the year before the COVID lockdown.

We weren’t expecting it to be a great year and then we got the COVID lockdown. We saw a significant drop in our elective procedures, we are down between 40 and 45% on what we expected our experience to have been. We were sitting with bated breath to see what the impact of COVID was going to be on the scheme and touchwood, up to now, it’s been fairly negligible. We had less than 200 deaths that we attribute directly to COVID, but we haven’t really seen a huge cost impact of the pandemic on the scheme. Obviously, the investments took a dip, so we are under in terms of our investment returns. But the big question is, of course, what’s going to happen now? We’ve already seen a return to normal levels for certain elective procedures, like cataracts and prosthesis, but the big question is, of course, the second wave. Although, from what we’ve seen in the market, it seems that the second wave is better handled from a medical perspective than the first wave. So we don’t really foresee a huge impact, even if we were to have a second wave that would of course, impact on elective procedures. But we believe, as a scheme, that these elective procedures will come back, so the cost will come back, they won’t just disappear. I mean, if you had a need for a knee or hip replacement, you could postpone it, but that claim is going to come through. So on the whole we believe that the claims that we didn’t see, the majority of them will come through the system at at some stage, and we are already seeing the evidence of that.

Tony van Niekerk 3:56
Deon the main point for my discussion, and wanting to chat to you, is your innovative option on your plans regarding what we used to call, or what mostly is still called, a medical aid savings account, which actually isn’t a savings account, but just a loan in a different name. Now looking at assisting clients in a different way to manage both their monthly costs to medical aid, but also their access to funds should they have any emergency. Maybe you can tell us a little bit more about that.

Deon Lategan 4:36
Tony in 2018 we’ve been looking for ways of of shaking up the industry coming up with innovative ideas. There hasn’t really been any innovation in the industry for a long, long time. We then looked at the so called savings accounts and initially, it seemed when you explain it to someone, the wallet and the vault concept that we’ve introduced, people find it quite difficult, because they try and compare it to savings. And because the savings has a certain connotation to it, people think it’s a good thing, we are actually saving money. And we’ve been battling to get this across to brokers and employers and members, until we latched on to the idea that we actually need to first explain to them what they currently have. Then all of a sudden, the Fedhealth product, or the new product, makes a lot of sense on all levels, because your savings, or the so called savings that members have gotten used to in probably the last 20-25 years, is actually a misnomer, it is not savings at all. It is a compulsory loan that you buy an insurance product, you belong to a medical aid, you buy insurance, which insures you for for health, and packaged with this is an compulsory loan that you have to take, that you are lending money from the medical scheme to pay for your day to day benefits. You have no choice in it, each option is registered with a certain level of loan called savings, which you have to repay over a 12 month period. And you know, we all know people that say I’ve got a medical aid or my medical aid ran out by March. And if you really go and have a look at it, what actually happened there is that the member took a loan savings, which they’ve now used up and they still have to repay it for the next 12 months. So what what fedHealth has done, it’s just turned that concept on its head and said, we’ll still provide you with the loan. I mean, it’s exactly the same as what people now know as savings, except it’s your choice. It’s your choice, whether you want to take it, it’s your choice how much you want to take and it’s your choice how you use it, as long as it’s for a relevant health service. Now other than the fact that it’s just choice, it has a lot of other advantages which people don’t know. Like in your conventional and compulsory loans savings environment, you are repaying a loan, which your broker takes commission on your repayment, which just doesn’t seem right. The the amount that you spend from your savings account, which members, especially the older members that can deduct medical expenses from their tax, don’t realize that the savings on this loan that they’ve taken, the expense there is not tax deductible. In the fedhealth environment, the loan that you take, every cent that you spent, you can add to your medical aid tax claim at the end of the year. So if you understand that what you currently have, what the industry currently perceives as a savings account, is just a compulsory loan, then what fedhealth is offering you is exactly the same as you had before except you don’t have to take the loan if you don’t want to. Plus, you can take it when you want. So you might not have a need for it now, but you step on your glasses, and we all know what glasses cost these days, you can approach fedhealth and you say you want the 5000, 6000, glasses can cost you 10,000 Rand, and we provide you with the loan, which would have been your savings account in the in the old setup. So it’s actually a very simple concept when you look at it from the perspective of what I currently have and what fedhealth is offering. So don’t try and look at it the other way because people try and understand the vault and the wallet and we had to use those terms to differentiate it from the current savings environment.

Tony van Niekerk 9:31
It absolutely makes make sense. I just have a question with regards to the amount that you are able to take over any particular 12 month period because it seems like it is now running 12 months. So whenever you take the loan and it runs for 12 months, is there a limit as to what you could have taken over any specific period, how do you determine that?

Deon Lategan 9:58
So we have a registered a maximum amount per option, but it is very generous. So previously, in our first year that we ran the product, we limited it to what the savings would have been before. We just wanted to see what the experiences and what the members usage of it was. What we found is that most members actually use a lot less than what they used before in savings. I mean, I’ve experienced that personally, where my wife goes to the pharmacy and as long as the scheme pays for it when you get your script, nothing is questioned. So I personally don’t use the loan, I just fund it from my pocket, so what now happens is when you reach the pharmacist and the pharmacist says, you don’t have money available, do you want the generic, as an example, it becomes a different conversation. You now all of a sudden realize that you’re paying for this, whether you pay it through the compulsory loan, or from your pocket or from your credit card, it’s the same thing. But it forces members, it actually achieves what savings accounts originally intended, that the member takes control of the day to day medical spend.

Tony van Niekerk 11:37
Deon this obviously relies on the fact that members understand how this works, and how they should be managing it to get the most out of it. How do you go about that process?

Deon Lategan 11:50
So we do intensive member education. We find that the older members tend to resist it a bit and we also find some brokers have resisted it. We’ve even had some brokers saying, well, you know, we don’t like it very much because we don’t earn commission on the savings portion. Which is a little bit of a strange concept. So we’ve got a website that has member videos, instructions, there’s a bot that educates members, but for the younger member, we find they grasp the concept, it’s intuitive, they understand it but for the older member, I want my savings. But if you take the loan on the first of January, you’re actually in exactly the same position that you would have been in for a conventional, so called savings option. So for the older member, we promote them actually doing that, because they don’t like the change. And there’s a lot of members that don’t want the choice, the medical aid is a grudge purchase, and now you’re forcing me to to make choices, I know I have to pay all of this every month and now you’re asking me to actually go and think about it. And that’s really what we actually want to do, because of the amounts being spent, like I said, on a on a top option, you can spend 200,000 a year premium. This is this is a big expense in your life. And we should get more member activism, we should get more members to ask, why am I having to pay for this? Why haven’t you told me that I’m actually lending this money to pay for my own day to day expenses, you’re not giving me a choice, you’re not really offering me a choice in this? So I think, what I would like is that members start taking a greater interest in this big expense that they have, and they can. With options like we have on fedhealth with the EDOs, you can actually save huge amounts of money with exactly the same cover that you had before.

Tony van Niekerk 14:32
Yeah, absolutely. Now, I think personally, congratulations on driving this. And I’m sure that once it starts permeating in the market, everybody will logically move towards a similar type of way of doing it, maybe different names, etc, but definitely the same sort of process. So Deon, thank you very much for this chat, it was very interesting and I hope you enjoy your day.

Deon Lategan 15:05
Thanks for the opportunity.

Tony van Niekerk 15:07
Thanks a lot Deon. Go well.

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