Gap Cover Is Not Medical Aid — and It Was Nearly Banned Outright

Gap cover exists because South African medical aid frequently pays less than the specialist charges. The scheme settles at its rate, the surgeon bills at a higher one, and somebody has to cover the difference. A gap policy covers that shortfall.

What almost nobody is told is how precarious the product's legal position is, and what that precariousness explains about its limits.

Gap cover is not medical aid. It is short-term insurance, sold under insurance law, and it survives inside a regulatory carve-out that was very nearly closed.

The line the regulations draw

In December 2016 the Minister of Finance, with the concurrence of the Minister of Health, published what are known as the Demarcation Regulations. Their purpose was to settle a long-running question: when does an insurance policy stop being insurance and start being, in substance, a medical scheme?

The regulations classify certain policies as "health policies" or "accident and health policies" precisely because they contain elements of the business of a medical scheme, while excluding primary healthcare and hospital indemnity products from that treatment.

The distinction matters because medical schemes and insurance are regulated on opposite principles, which is the real subject of this page.

It was proposed for prohibition

Here is the part that never appears in a product brochure.

The first draft of the Demarcation Regulations proposed a prohibition on gap cover products, along with restrictions on hospital cash plans. That proposal drew substantial public comment. The revised draft stepped back, recognising the role of appropriately designed and marketed health insurance and providing for "the continued sale of Gap Cover and Hospital Cash Plan insurance within defined product parameters."

Read that last phrase carefully, because it is the whole story of the product. Gap cover is not permitted at large. It is permitted within defined parameters — which is why it is capped, why it is constrained in how it may be sold, and why it cannot simply expand to do whatever a buyer might want.

The concern behind the original proposal was straightforward. If insurance can select the healthy and price on risk, while medical schemes must accept everyone at a common rate, then insurance drains the good risks out of the scheme pool and leaves schemes carrying the rest. That is the tension the regulations manage rather than resolve.

Community-rated versus risk-rated

This is the structural difference to hold onto, because everything else follows from it.

A medical scheme is community-rated. It may not refuse you, and it may not charge you more because you are older or sicker. Everyone on an option pays the same contribution for it.

Insurance is risk-rated. It may assess you, price for your risk, and decline you.

So the two products are not competing versions of the same thing. One is a pooling arrangement with open enrolment; the other is a priced contract. A gap policy that felt cheap at 35 is not a substitute for scheme membership at 65, and the regulations exist partly to stop it being sold as though it were.

It may not be sold as a substitute for a scheme

Which is the marketing rule that follows: a hospitalisation policy may not create the impression that it is a substitute for medical aid scheme membership.

If a product was pitched to you as an alternative to joining a scheme — cheaper cover for the same problem — that pitch was improper, whatever the policy document then said.

Gap cover is designed to sit on top of a medical scheme, covering shortfalls the scheme does not settle. Without underlying scheme membership it is not doing the job it was designed for, and in most cases it cannot be held at all.

The cap, and why we are not printing a number

Gap cover benefits are capped, per beneficiary, per year. That cap is not fixed: the regulations provide that the relevant amounts escalate annually, from 1 April each year, by the Consumer Price Index inflation rate published by Statistics South Africa.

We are deliberately not publishing the current rand figure. It changes every April, and a number quoted without a date becomes wrong within a year — which is how most stale figures on the internet start life.

What to do instead: ask your insurer, in writing, for the current annual limit per beneficiary and the date it applies from. Any competent provider will answer immediately, and the answer is the only version that is reliably current.

What your scheme must cover regardless

Before buying a gap product to solve a coverage problem, check whether the problem is actually one your scheme is already obliged to fix.

Prescribed Minimum Benefits are a set of 271 diagnosis-and-treatment pairs, together with a defined list of chronic conditions and emergency medical conditions. Your scheme must cover them regardless of which option you are on, and even where your annual benefits are exhausted.

That last clause does real work. Where a claim falls within PMBs, "your benefits have run out" is not a complete answer from your scheme, and buying insurance to plug a gap the scheme is legally required to close is solving the wrong problem. If you are in that position, the argument is with the scheme, not with an insurer.

The designated provider rule, and where shortfalls actually come from

PMB cover usually comes with a condition attached: the scheme may require you to use a Designated Service Provider — a hospital, doctor or pharmacy it has contracted with at an agreed rate. Use the DSP and the claim is settled in full. Go elsewhere and you can be left with a co-payment, which is exactly the shortfall people then look to gap cover to solve.

But the requirement is not absolute. Where there is no designated service provider within reasonable distance of your home or work, the scheme is obliged to pay. That is worth knowing before you accept a co-payment as inevitable, particularly outside the metros where "reasonable distance" is doing a great deal of work.

The practical sequence, then, is: establish whether the treatment is a PMB; establish whether a DSP was available and reasonably reachable; and only then treat the balance as a genuine gap. A meaningful share of shortfalls people insure against are shortfalls the scheme should not have created.

What to establish before buying

Gap cover can be genuinely useful — specialist shortfalls in South Africa are real and can be large. The questions worth asking are narrow and specific:

• What is the current annual limit per beneficiary, and from what date does it apply?
• What waiting periods apply, and to what — general, pre-existing conditions, maternity? These vary by product and are where most declined claims originate.
• Exactly which shortfalls are covered: in-hospital only, or specified out-of-hospital procedures too? Co-payments and deductibles?
• What happens as I age — how is the premium reviewed, and on what basis?
• What is excluded, in the policy wording rather than the brochure?
• Does it require me to remain on a medical scheme, and what happens if I leave one?

Then read the policy document itself. A gap product is a short-term insurance contract, and the wording governs — not the summary, and certainly not the sales conversation.

Our overviews of health insurance in South Africa and medical schemes cover the surrounding ground, and we review individual products including Old Mutual and Discovery gap cover separately.

For everything else, start at our money guides.

Frequently asked questions

Is gap cover the same as medical aid? No. Gap cover is short-term insurance that pays shortfalls between what a provider charges and what your scheme settles. A medical scheme is a different legal animal, regulated on different principles.

Can I have gap cover instead of a medical scheme? It is not designed for that, and a hospitalisation policy may not create the impression that it is a substitute for medical scheme membership. Most gap products also require underlying scheme membership.

Was gap cover nearly banned? The first draft of the Demarcation Regulations proposed prohibiting gap cover products. After public comment, the revised draft allowed continued sale within defined product parameters.

Is there a limit on what gap cover pays? Yes, per beneficiary per year. The amount escalates every 1 April by the CPI inflation rate published by Statistics South Africa, so ask your insurer for the current figure and its effective date.

Why can a gap insurer decline me when a medical scheme cannot? Schemes are community-rated and must accept members at a common rate. Insurance is risk-rated and may assess, price for, or decline a risk.

My scheme says my benefits are exhausted. Do I need gap cover? Check whether the claim falls within Prescribed Minimum Benefits first. Those must be covered regardless of your option and even where annual benefits are exhausted, so the issue may be with the scheme rather than a gap in your cover.

What are PMBs exactly? A set of 271 diagnosis-and-treatment pairs, plus a list of chronic conditions and emergency medical conditions, which schemes must cover.

What is most likely to get a gap claim declined? Waiting periods and exclusions, particularly around pre-existing conditions. Both vary by product, so read the policy wording rather than the brochure before you buy.