On Friday, 28 October 2016, draft Demarcation Regulations were published on which types of contracts are regulated under the LTIA and STIA as health policies and accident and health policies, and accordingly excluded from the Medical Schemes Act, No. 131 of 1998 (MSA), despite such contracts meeting the definition of the business of a medical scheme.
This is the third revised draft Regulations, which will be finalised and gazetted after taking into account the required parliamentary process, which is expected to happen in early December 2016. It is intended that the final Regulations will take effect from 1 April 2017.
The Regulations seek to clearly demarcate the responsibility for supervision of medical schemes and health insurance products, and ensure that health insurance products do not undermine the medical scheme environment, resulting in better protection of consumers.
Three categories of health insurance products are of particular relevance to the abovementioned 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.
- 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.
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 draft Regulations do not allow insurers to continue to provide Primary healthcare insurance policies. These types of benefits will, going forward, have to be provided in accordance with the MSA. 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 policies, while further research is being led by the Department of Health into the development of a Low Cost Benefit Option (LCBO) guideline. It is envisaged that the existing primary healthcare insurance policies will be required to transition into a LCBO framework once finalised.
Amendment to definition of “business of a medical scheme”
The Financial Services Laws General Amendment Act, No. 45 of 2013, which came into effect on 28 February 2014, amends the definition of a “business of a medical scheme” to support the Regulations and will take effect on 1 April 2017.
All new health policies (LTIA) and accident and health (STIA) policies written after the Regulations come into operation must comply with the requirements set out in the proposed Regulations.
Existing health policies (LTIA) will be expected to align to the Regulations as and when such contracts are varied or renewed after the Regulations come into operation. Existing accident and health policies (STIA) will be expected to align to the Regulations by 1 January 2018.
The two relevant Draft regulations can be downloaded below:
Annexure A: Third draft LTIA Demarcation Regulations;
Annexure B: Third draft STIA Demarcation Regulations;
Annexure C: Response to key issues raised in public submissions;
Annexure D: A folder entitled “First Draft Demarcation Regulations, 2012”;
Annexure E: A folder entitled “Public comments received on First Draft Demarcation Regulations”; and
Annexure F: A folder entitled “Second Draft Demarcation Regulations”.