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Update on Health Insurance Products

National Treasury (“NT”) released the Second Draft Demarcation Regulations for further public comment at the end of April.

These 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 accordingly excluded from regulation under the Medical Schemes Act, No. 131 of 1998.

The First Draft Demarcation Regulations, published for public comment on 2 March 2012, set out to ban the sale of Gap Cover products, and place restrictions on Hospital Cash Plan policies. In response to 343 responses to this, NT changed its view on this.

“The Second Draft Demarcation Regulations recognises that there is a place for appropriately designed and marketed health insurance policies to provide protection against unanticipated health events. These products must, however, operate within a framework whereby they complement medical schemes and support the social solidarity principle embodied in medical scheme cover.”

“The demarcation regulations are seen as essential to protect medical schemes against products which are counter-productive to the principles of community rating, open enrolment and cross-subsidisation within medical schemes.”

Young and healthy medical scheme members often opt for the cheapest plan, and top this up with gap cover and hospital plans. NT’s views on this are:

“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.”

The following proposals are contained in the draft regulations:

  • prohibition on health insurance policies from discriminating against any person on the grounds of age, gender and other criteria;
  • enhanced product disclosure/marketing requirements;
  • alignment of broker commission between health insurance and medical scheme products – the current medical scheme commission of 3%, capped at R69 will apply;
  • enhanced regulatory reporting and monitoring;
  • product standards which limit policy benefits; and
  • limitations on bundled type health insurance products which replicate medical schemes.

The proposals appear to be an attempt at blurring the lines between medical schemes and long- and short-term policies, as is borne out by the commission prescription. The LTI and STI Acts should prescribe what commission is payable, not the Medical Schemes Act.

Some of the limitations on products include:

  • a R50 000 annual limit on Gap Cover benefits per member
  • a R3 000 per day limit on Hospital Cash Plans

These amounts will be increased annually in line with the consumer price index. The reality of medical cost increases will result in these products becoming irrelevant in the not so long run.

The following practical example comes from an excellent article by Laura du Preez, published in Personal Finance on 3 May 2014:

But if the regulations are adopted as proposed, they will stop the sale of new combined policies and phase out existing ones. These policies combine hospital cash plans, or plans that cover hospitalisation after an accident, with access to a network of general practitioners and limited benefits for medicine, optometry, dentistry, radiology and pathology.

The National Bargaining Council for Road Freight and Logistics, for example, uses such a plan to provide some 90 000 truck drivers with ambulance and private hospital care after an accident, as well as primary healthcare benefits, for R90 a month.

The cheapest medical scheme options typically cost more than R700 a month, but have unlimited cover for the prescribed minimum benefits (PMBs), which cover all medical emergencies and life-threatening conditions, as well as a number of chronic conditions.

I trust that those who respond to these proposals will highlight this type of unforeseen outcome if these regulations are implemented.

All relevant documentation is published on the National Treasury website.

Please click here to read the Personal Finance article.

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