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Cape Town - Gap cover and hospital cash plans will continue to be available to consumers, but the days of primary healthcare insurance policies are over, according to new regulations.
There has been a long process of consultation between the ministers of health and finance and the Council for Medical Schemes - the body regulating the medical schemes industry - and the Financial Services Board, the financial regulatory agency responsible for non-banking services industry in SA.
The aim of this process is to clarify where to draw the line between the insurance industry and the medical schemes industry – a line that has become blurred in recent years with medical insurance products coming onto the market. To quote the Council for Medical Schemes:
The Regulations seek to clearly demarcate the responsibility for supervision of medical schemes and health insurance products, and ensure that health insurance products do not undermine the medical scheme environment, resulting in better protecting for consumers.
New (third, revised) demarcation regulations were tabled in Parliament at the end of October 2016 in terms of the Long-term Insurance Act of 1998 (number 52) and the Short-term Insurance Act of 1998 (number 53).
The first draft regulations were published for public comment in March 2012.
According to the new draft regulations, gap cover and hospital cash plans will continue to exist, but the selling of new primary healthcare insurance policies will probably be terminated with effect from April 1 2017 if the legislative process goes according to plan, and the final regulations become law.
The minister of health has requested a two-year exemption while research is done into developing guidelines for a low-cost benefit option to accommodate people who have these policies.
Many schemes are struggling to keep afloat with the prescribed minimum benefit regulations being enforced: these oblige schemes to pay for treatment of 270 prescribed minimum benefits at cost – and not at medical fund rates. While this continues to be enforced (and it must be said that it provides protection and peace of mind for medical scheme members), it is difficult for schemes to contain spiralling contribution costs.
What is gap cover?
Gap cover products, which cost between R130 and R300 per month, are aimed at covering medical scheme members for any shortfall/co-payments they may have to fund after a hospital stay. Most schemes pay claims according to the individual medical fund rates, but many private medical practitioners charge more than these rates, leaving members with co-payments which can be substantial.
Gap cover products were criticised by Health Minister Dr Aaron Motsoaledi in March 2015, as he said that the extra cover provided for scheme members by these policies gives private doctors a free rein to charge much higher tariffs.
He said that “….profit-maximising specialists and hospitals are able to exert their dominance through price increases and price discrimination with relative impunity, and currently have no need to compete on either price or quality in order to attract patients”.
Gap cover products are regulated by legislation covering the insurance industry and not by the Medical Schemes Act of 1998. They are intended as back-up for medical scheme members, and you cannot take out gap cover unless you have medical scheme membership.
What are hospital cash plans?
With the spiralling cost of medical scheme contributions many people, especially in lower-income groups, are opting for hospital cash plans. These are run for profit by the insurance industry and are not governed by the regulations of the Medical Schemes Act.
These do not pay your medical costs, but pay you per day (sometimes from day one, and sometimes only from the third or fourth day, depending on the policy you have chosen) that you spend in hospital – whether private or public.
The idea behind them is to refund you for lost income while you are in hospital, not to pay your medical bills. But there is nothing stopping you from using the money in whatever way you see fit. The daily payout is unlikely to cover the cost of a private hospital stay though, especially if an operation or expensive tests are involved.
There are strict regulations as to how both gap cover products and primary healthcare policies are marketed and sold.
What are primary healthcare policies?
These are not full medical schemes and provide only limited medical service benefits, such as GP visits, acute and chronic medication, emergency medical care, dentistry and optometry. Their contributions are usually much lower than those of full medical schemes or hospital plans. These are insurance policies which are not governed by the Medical Schemes Act.
These policies are often taken out by employee groups or bargaining councils to provide some relatively low-cost medical benefits to their workers. Members are usually expected to make use of state hospital facilities wherever possible.
Primary healthcare policies do not cover members for prescribed minimum benefits.
It is envisaged that there will be a two-year leeway period during which existing policies will be allowed to continue as is, but that new policies will not be sold.
The way forward to low-cost benefit options
The Medical Schemes Act as it stands obliges schemes to fund prescribed minimum benefits for all its members (although on some lower-cost hospital plans for certain procedures, patients are referred to state hospitals). The definition of “the business of a medical scheme” has been somewhat of a grey area up till now.
However, the definition was amended in 2014 and health insurance products deemed to do the business of a medical scheme, such as primary healthcare policies, will be prohibited.
The main issues at stake in debating the way forward are as follows:
- How can a larger portion of the SA population get private medical cover?
- How can it be made more affordable to belong to a medical scheme?
- Will the Medical Schemes Act have to be altered to incorporate low-cost benefit options?
- What will happen to prescribed minimum benefit regulations if the Medical Schemes Act is changed?
- How will new legislation affect existing medical schemes?
