By: John Cranke, National Manager: Employee Benefits, PSG Wealth, 23 August 2017, cover.co.za.
The much-awaited revised Demarcation Regulations have yet to be released, despite several commitments to do so from National Treasury.
As a reminder, the Demarcation Regulations were going to provide absolute clarity regarding what type of cover constituted “doing the business of a medical scheme”, and what cover was to be permitted via insurance policies.
Recent indications from National Treasury were that gap policies would be permitted, as would hospital cash plan policies to a limited degree, but it was clear that the knives were out for the “hybrid” arrangements, which combined day-to-day cover with hospital cover. The reasoning behind this was that the health insurance plans, by virtue of the fact that they are not regulated in terms of the Medical Schemes Act (MSA), are able to offer more affordable cover and are therefore more attractive to the young and healthy, who then take out this cover as an alternative to medical scheme cover. The problem is that medical schemes rely on the cross subsidisation of the young and healthy to fund the benefits of those in need.
In terms of the MSA, all options on all medical schemes are obliged to cover members at cost and in full for a range 270 medical conditions and 26 chronic illnesses known collectively as “prescribed minimum benefits”. It is estimated that it costs medical schemes in excess of R560 per month per beneficiary to provide this cover, as per the annual Council for Medical Schemes (CMS) report published in September 2015.
Health insurance products, however, provide a stated benefit, which means they only cover policyholders within the limits stipulated. So while it may be evident that the cover offered via a medical scheme is going to provide comprehensively better cover, the problem lies with the affordability of the medical scheme contributions required – and it’s for this reason that health insurance products are attractive to some, and also why the medical scheme membership pool has remained fairly static for some time.
Thus, in order to protect the medical scheme membership pool, the intention was to outlaw health insurance products and in so doing, leave the young and healthy with no alternative cover to medical schemes to achieve the desired cross subsidies mentioned above. Initially, gap cover products were included in the products considered to prejudice medical schemes, which was somewhat perplexing as medical scheme membership is a prerequisite in order to obtain gap cover. Fortunately, as stated above, this approach has changed. Recent indications are that Treasury is going to permit limited hospital cash plan cover and gap cover to continue – but still intends to outlaw the hybrid type of health insurance cover.
In addition, in an attempt to broaden the number of beneficiaries covered via the regulated medical scheme framework, the CMS has published proposals which would enable medical schemes to offer Low Cost Benefit Options (LCBO’s) to people with income below the income tax threshold (R75,00p.a. 2016/2017).
However, as well intended as the proposals were, they still left a considerable number of the employed (specifically those with income in excess of the income tax threshold, but still unable to afford medical scheme cover) in limbo and this, together with the National Health Insurance expectations, ultimately lead to the withdrawal of the LCBO proposals in October.
SO WHERE DOES THAT LEAVE US NOW?
In my view, there has always been a high degree of alignment between medical scheme cover and gap cover and it seems that is accepted and will remain in place in future. However, given the ongoing challenge of affordability faced by medical schemes (and let’s be clear – this is not of the medical schemes’ making as they are required by law to conform to the requirements of the MSA), and in the absence of any regulated solutions, the regulator/s will have to accept that it is a citizen’s constitutional right to insure him / herself against potential loss.
The gathering number of products in the primary healthcare and health insurance space would seem to bear testimony to the fact that there is growing recognition of this.