Hospital Cash Plans Under Threat

The article below is, in the main, an extract from a media release by ASISA.

The Association for Savings and Investment South Africa (ASISA) warned that, if the abuse of hospital cash plans continues to escalate, life insurers may be forced to implement tough measures to ensure the financial viability of these products.

According to Peter Dempsey, deputy CEO of the Association for Savings and Investment South Africa (ASISA), these measures could include raising premiums, introducing standard cancellation clauses and even stopping hospital cash plans completely.

He says hospital cash plans offer good value for money and help alleviate the financial burden of hospitalisation such as having to take time off work if you are self-employed or having to hire help if you are a stay-at-home parent. The money can also be used to fund any medical bills not covered by a medical aid scheme.

According to a review of the South African hospital cash plan market commissioned last year by the FinMark Trust, there are between 1 million and 1.5 million hospital cash plans in effect, providing cover to some 2.4 million people. The review found that the hospital cash plan market is growing rapidly with an estimated 50 000 new policies sold every month.

“Unfortunately we have seen a consistent increase in fraudulent claims where doctor and hospital administrator collusion is helping dishonest policyholders make claims they are not entitled to.”

Dempsey says life insurers have come across cases where patients being treated for minor conditions are kept in hospital for much longer than needed, enabling them to claim from a number of hospital cash plans with several different insurers.

“While some of these cases were spurred by desperation where the money was needed to repay debt, in many other cases the goal was blatant self enrichment.”

With a hospital cash plan, the policyholder is admitted to hospital first and then makes the claim once released. Dempsey explains that, even if a doctor hospitalises the policyholder for flu, the insurer cannot decline the claim, because the patient had been in hospital, whether this was necessary or not.

The question that arises is whether the policy conditions allow for the drastic measures mentioned. Dempsey said it was imperative that a cancellation clause be contained in the contract at inception and that the decision to cancel a policy was exercised in a reasonable manner.

“It is important for policyholders to know that a decision to cancel the policy can be challenged and that the long-term ombudsman has the power to overrule the decision of an insurer.”

Judge Brian Galgut, the Long-term Insurance Ombudsman, comments in his recently released Annual Report that many of the excessive hospital cash plan claims appear to be part of an organised scam. He notes that steps must be taken by insurers to stop this trend as soon as possible as the impact of these excessive claims will no doubt lead to an increase in premiums for this type of policy.

The Annual Report makes reference to a specific case that came across Judge Galgut’s desk where a policyholder had claimed for 10 hospital stays, totalling 71 days, over a period of two years. The reasons included flu and other medical conditions that do not normally require hospitalization.

An important aspect of the proposed regulatory review, and of Treating Customers Fairly is that policy wording should be in plain language, and easy to understand. The challenge facing product providers is to cover all the legal loopholes at the same time as simplifying the wording.

These problems with hospital cash plans may be a timely warning to dot each and every I and cross every T.

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