The second draft on the reform of the national healthcare system, published by National Treasury, was somewhat of an about-turn on the proposed regulations published in 2012, which would have meant the banning of gap cover and hospital cash plans.
The previous draft regulations aimed to find a balance between the role played by certain health insurance products and the need to protect key principles underpinning medical schemes. National Treasury stated that there is a need to ensure that health insurance products, including gap cover, do not contravene the Medical Schemes Act, and that people need to know there is a difference between medical schemes and health insurance products.
The premise of the regulations was that insurers are increasing the cost of belonging to a medical aid by offering alternative health insurance cover to young, healthy people who would otherwise be subsidising the cost of older and not-so-healthy members. The Department of Health believes that medical schemes are important in enabling access to private healthcare, and that the risk-pooling and cross-subsidisation achieved through medical schemes help to spread healthcare costs between the young/healthy and the old/sickly.
Additionally, medical aid premiums are community-rated, while insurance premiums are determined by an individual’s risk profile and claims history. ‘Community-rated’ means that an insurer charges all people covered by the same type of health insurance policy the same premium, irrespective of age, gender, health status, occupation or other factors; the insurer determines the premium based on the health and demographic profile of the geographic region or the total population covered under a particular policy.
The following insurance products, which have shown significant growth in the last few years, were at risk following the original draft regulations:
- Gap cover — cover that pays the difference between medical scheme cover and the fees charged by private specialists.
- Top-up cover — covers payments after medical aid benefits have been exhausted.
- Hospital cash plan — cover that pays out a set amount for each day of hospitalisation of the insured.
According to the first draft, had you already owned one of these policies, you would not have been able to renew it once its term had expired, and the only health insurance products that would have been allowed to be marketed would have been income protection policies that cover up to 70% of your daily income for the time you spend in hospital.
The new regulations released by Treasury allow insurers to continue selling gap cover and hospital cash plans. This change of heart is a blow to the Council for Medical Schemes, which regulates medical schemes, who argued that it wanted these types of health insurance products banned, as they threaten the sustainability of medical schemes.
The new set of regulations has, however, also been criticised by industry experts, who believe it is an attempt by Treasury to placate all stakeholders through a compromise. The new regulations, for example, empower the Council for Medical Schemes to process and approve health insurance products, despite its belief that these products are harmful to its members. It also reduces brokers’ commission to 3%, from 20%, and reduces the waiting period applicable to gap cover products to 6 months.
The revised regulations further introduce community rating for health insurance products, meaning that an individual policyholder’s premium will no longer be determined by his risk profile and claims history. The unintended consequences of this change may be a rise in the cost of these types of products, as healthy/younger policyholders will have to subsidise sickly/older policyholders.
The revision also limits gap cover benefits to R50 000. The South African Insurance Association (SAIA), an industry body representing 60 member companies in the short-term insurance industry, says it welcomes the inclusion of gap cover in the second draft, but thinks the R50 000 ceiling on this benefit should be removed, so as not to exclude cover for costly procedures such as joint replacements.
Some industry role-players believe the draft regulations are in violation of the Constitution, in that they deny South Africans the right to access to healthcare services by outlawing health insurance products that provide access to primary healthcare. Under the proposed regulations, health insurance products that are seen to be doing the business of a medical scheme, such as providing for GP visits or dental care, will fall under the MSA, and will have to comply with its provisions.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, financial advice. For more information regarding financial planning, please speak to your financial adviser.