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Low-cost and health insurance products “debarred” – Will the poor suffer most?

The Council for Medical Schemes (CMS) has published a circular in which it prohibits South African medical aids from offering Low-Cost Benefit Options (LCBO) to low-income market segments. Furthermore, no products based on the Demarcation Exemption Framework and/or the MS Act, i.e. health insurance products, will be allowed beyond 2021. In the view of the CMS, this is to align such products with the broader health policy discussion that seeks to ensure adequate access to care, irrespective of the economic status of the population.

“The concept of a Low-Cost Benefit Option was intended to increase the affordability of medical schemes and membership through the development of a product targeted to a specific group of the population, mainly low-income households. These households cannot afford medical scheme premiums as coverage and benefit richness is generally correlated to income, therefore the higher the premium, the richer the benefits,” Dr Sipho Kabane, Chief Executive and Registrar of CMS states in the circular.

Transitional provisions in the Demarcation Regulations allowed time until January 2018 or upon renewal, for amendment of health and accident policy contracts to become compliant with the Insurance Act.

However, the Ministers of Health and Finance were of the view that some health and accident policies could not be amended without regressing access to healthcare services from private healthcare providers for the part of the population that relies on these policies. They then agreed to a two-year exemption period, from 1 April 2017 until 31 March 2019, while a Low-Cost Benefit Package was being developed. Due to the LCBO guideline not being finalised by 31 March 2019, the CMS consulted with National Treasury, Financial Sector Conduct Authority and the Prudential Authority on the extension of the current exemption period by another two years, to 31 March 2021.

The continuation of the exemption process is seen to have created regulatory arbitrage opportunities which are not in the best interests of members and policyholders of the products under consideration.

Continuing to conduct business and offering financial products outside of the MS Act would continue to encourage opportunistic product design that undermines the principles of the medical schemes environment – open enrolment, community rating and prescribed minimum benefits.

It further notes that “products which do not comply with the MS Act must be wound down before March 2021 and will be deemed to be illegal after this date.”

Comments in response to the announcement were, in the main, negative:

Day 1 Health CEO Richard Blackman said the assertion that health insurance beneficiaries only had access to state facilities was untrue. “Over 98% of all of our authorised hospital cases received thus far in 2019 were admissions to private hospitals, mostly Life Healthcare and Mediclinic, with whom Day 1 Health has formal contracts,” he said. Patients who used state facilities had their bills paid by Day 1 Health at rates regulated by the government, according to a Business Day report.
According to Dr Jonathan Broomberg, CEO of Discovery Health, hundreds of thousands of people may be affected by the decision. “The decision of the CMS is contrary to policy aimed at making medical insurance and ultimately medical schemes more affordable for millions of South Africans,“ he said.
Another source told the media that the CMS has announced these changes as a result of the future implementation of NHI, an implementation that according to him “will not happen soon”.
Michael Settas, an independent health consultant, also said it seems that there was no consultation with the medical funds and insurers who were initially granted the exemption. “It will still be many years until the NHI will be a reality and it is very unlikely that it will provide comprehensive coverage given the country’s poor finances. What should these members do after April 2021 when their primary care benefits are simply taken away from them? “

The CMS calls on all stakeholders to share their comments and inputs to – email:
lcbo@medicalschemes.com

Click here to download the Circular.

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