Proposed amendments to the definition of a “business of a medical scheme”
The publication of the Second Draft Demarcation Regulations follows the enactment of the Financial Services Laws General Amendment Act, No. 45 of 2013 which became effective on 28 February 2014. An amendment to the definition of a “business of a medical scheme” was deferred to come into effect at the same time as the Demarcation Regulations are finalised, which is expected to be in September 2014.
Health insurance products that fall within the ambit of this amended definition will be prohibited, unless they are explicitly exempted through the Second Draft Demarcation Regulations.
Basic principles of a health insurance policy
A health insurance policy (health policies under the LTIA and accident and health policies under the STIA) is a binding contract issued by an insurance company to an individual, can be sold by an insurance company in terms of the LTIA or STIA and is subject to regulatory oversight by the Financial Services Board.
The policy undertakes to pay for certain stated benefits when the individual is ill or injured. The individual pays a premium which is directly related to the age, health status or income of the individual. Specific type of exclusions may also be built into a policy, which can have the effect of limiting who the policy can be sold to.
Please click here to download a matrix provided by the FSB, outlining the basic information of 11 products affected by these proposals.
The current market challenge
The draft Demarcation Regulations seek to address concerns relating to contentions that certain health insurance products in the long-term and short-term insurance market are harmful to medical schemes by enticing younger and generally healthy members to leave medical schemes.
“This practise, if left unchecked, could result in increasing costs for the older and less healthy who remain dependent on medical schemes for their cover. Pooling healthier and sicker individuals facilitates a form of cross-subsidisation which improves the affordability of medical schemes.”
A clear demarcation between health policies and medical schemes is therefore necessary to support and enhance the objectives and purpose of the Medical Schemes Act, No. 131 of 1998, which entrenches the principles of community rating, open enrolment and cross-subsidisation within medical schemes.
Section 72(2A) of the LTIA specifically requires the Minister of Finance, when making regulations, to consider the objectives and purpose of the Medical Schemes Act, including the principles mentioned above.
The proposed conditions on health insurance products, as outlined below, seek to ensure that the design and marketing of health insurance policies does not undermine a sustainable medical scheme industry, while at the same time serving the needs of those who require additional protection against health related risks:
- prohibition on health insurance policies from discriminating against any person on the grounds of race, age, gender, marital status, ethnic or social origin, gender orientation, pregnancy, disability and state of health;
- enhanced product disclosure/marketing requirements;
- alignment of broker commission between health insurance and medical scheme products;
- enhanced regulatory reporting and monitoring;
- product standards which limit policy benefits; and
- limitations on bundled type health insurance products which replicate medical schemes.
Affected parties are strongly advised to comment on these proposals. There were substantial changes as a result of comments on the first proposals, and a strong united front from the industry is required to ensure that these amended proposals reflect the market reality, and not good intentions paving the way to hell.
Health insurance policies came into being as a result of medical schemes becoming unaffordable. Healthcare insurance products address the public’s needs which arose as a result thereof. The solution should not be sought in the symptom, but in the cause.
Comments on the revised Demarcation Regulations are invited from all interested stakeholders. Written comments should be sent to Reshma Sheoraj at LTdemarcation@treasury.gov.za or faxed to 012 315 5206 on or before 7 July 2014.
The final Demarcation Regulations are expected to be published by September 2014, after taking into account public comments, with an effective date of implementation soon after publication.