Demarcation of health insurance products

The demarcation debate started when the Council for Medical Schemes stated that the so called “hospital plan” insurance products contravened the Medical Schemes Act.

What is a medical scheme?

Medical schemes are non-profit organisations governed by the Medical Schemes Act. Schemes have to match premiums and benefits paid to providers or members, over the period of a scheme year. Applicants are guaranteed acceptance, although limited underwriting may be applied. They are affected by the National Health Act, Pharmacies Act, Medicine and Controlled Substances Act, Compensation for Occupational Injuries and Diseases Act (COIDA), Road Accident Fund (RAF), Consumer Protection Act as well as the Financial Advisory and Intermediary Services Act (FAIS). However Medical Schemes are not affected by the Long and Short term Insurance Acts as those apply solely to health insurance other than a medical scheme.

What is a health Insurance Product?

Section Health insurance products are issued by for-profit organisations who rely on underwriting and actuarial knowledge to predict expected future claims over the long term. They do not have to accept all applicants and pay the insured amount, regardless of the actual expense incurred.

Such policies are regulated either under the Short-term or Long-term Insurance Acts, depending on the insurer’s licence and product structure. Selling and managing these products is also regulated by the Financial Advisory and Intermediary Services Act (FAIS).

Travel insurance, gap cover or dread disease cover are normally marketed as top up insurance products for medical scheme members or as standalone offerings that are independent to medical scheme membership. Standalone offerings can be defined as cash based products that pay lump sum cash benefits independent of the cost of care or care-based products that provide cover aimed at meeting the cost of care. Cash-based products are normally structured as Hospital Cash Plan (HCP) products with cover that mostly relates to a stated cash amount for each day spent in hospital.

The health insurance market constitutes a far smaller proportion of healthcare financing than the medical schemes environment.

The Second Draft Demarcation Regulations1

The recently released Second Draft Demarcation Regulations specify which types of health insurance policies are permissible under the Long-term Insurance Act, No. 52 of 1998 (“LTIA”) and Short-term Insurance Act, No. 53 of 1998 (“STIA”), and are excluded from regulation under the Medical Schemes Act, No. 131 of 1998, despite such health insurance policies meeting the definition of the business of a medical scheme.

Three categories2 of health insurance products are of particular relevance to the demarcation, namely:

  • Medical Expense Shortfall policies (Gap cover plans): These policies cover the shortfall between medical scheme benefits and the rates that private medical service providers may charge. Gap cover cannot be sold in terms of these regulations without a medical scheme membership. There is also a proposed cap of R3000 per day.
  • Non-medical expense cover as a result of hospitalisation policies (Hospital cash plans): These policies pay out a stated benefit upon hospitalisation, usually per day spent in hospital. The stated benefit is unrelated to the actual cost of any medical service as it is aimed at covering incidental costs, such as loss of income.
  • Primary healthcare insurance policies: These policies provide limited medical service benefits (often to employee groups or bargaining councils) including services such as general practitioner visits, acute and chronic medication, emergency medical care, dentistry and optometry. These policies will be discontinued form the 1 April 2017. Low Cost Benefit Options are proposed from the Council For Medical Schemes to take the place of primary health care policies. In this regard, the Minister of Health has requested that the CMS grant a two year exemption, subject to certain conditions, for primary healthcare insurance.

Excerpt from the presentation by the FSB


The draft Regulations allow insurers to continue to provide Medical Expense Shortfall policies (Gap cover plans) and Non-medical expense cover as a result of hospitalisation policies (Hospital cash plans) in a manner that complements medical schemes, subject to strict underwriting and marketing conditions. The Financial Services Board will be requested to monitor any potential miss-selling or abuse during the transition period, and take appropriate action where necessary.

Policy and underwriting limitations include:

  • underwritten on a group and non-discriminatory basis
  • limitation on waiting periods
  • requirements for variation and termination
  • Wording of the marketing material

Maximum commission levels and maximum policy benefits3

Individual and group policy
Monthly premium band Maximum Commission Level
Above R1,200 5%
R601 to R1,200 10%
R300 to R 600 15%
Less than R300 20%

These Regulations were tabled in Parliament on 28 October 2016 with planned effective date of 1 April 2017. Existing health policies (LTIA) are expected to be aligned as and when varied or renewed after the Regulations come into operation. Existing accident and health policies (STIA) expected to be aligned by 1 January 2018.


2Paul Kruger: Draft Demarcation Regulations tabled in Parliament: 31 October 2016

3National Treasury: Long-term Insurance Act, 1998: Amendment of Regulations made under section 72

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