Medical aid vs medical insurance – the demarcation regulations
After four years of consultation, the Treasury finally gazetted the demarcation regulations in December, ending years of uncertainty on the future of gap cover, hospital cash plans and primary healthcare policies.
The issue at stake has been about where the line should be drawn (hence demarcation regulations) between medical scheme and health insurance products.
Medical schemes are regulated by the Medical Schemes Act, and health insurance products are regulated by the Long-term and Short-term Insurance Acts, making these two completely different entities, each with their own set of rules, even though they do look and sound very similar.
There are a number of other things that set them apart. By law, medical schemes must adhere to the following:
- Social solidarity principles – your contributions are unrelated to your health risks and in general, your claims are paid according to your needs, not what you can afford to pay;
- Community rating – all members who belong to the same product pay the same contributions;
- Open enrolment – schemes must admit everyone applying as a member; and
- Prescribed Minimum Benefits (PMBs).
These are all good in principle, but thanks to imperfect and outdated legislation, schemes across South Africa are taking a knock.
In the absence of demarcation regulations, many people thought that purchasing insurance products was similar to having cover from a medical scheme. These new regulations clearly identify which products are from medical schemes and which are insurance products. They ensure that insurance products do not undermine the critical building blocks of medical aid – that being cross-subsidisation – and to provide better protection for consumers.
Gap cover, which covers consumers for co-payments or payment shortfalls incurred for doctor’s bills, and hospital cash plans, which pay consumers a lump sum per day they spend in hospital, will continue but strict regulations will be enforced from 1 April of this year, with regards to maximum pay outs. Existing policies will have to comply with the new regulations from January 2018 and all new policies from 1 April 2017. Top-up cover will also be banned as of January 2018.
The new regulations stipulate that hospital cash-back plans are limited to paying their clients a maximum of R3000 per day, or a total lump sum of R20 000 a year. Currently there are no limits in place for these payments. Those who have had a prolonged stay in hospital will know that often R3000 per day doesn’t always cover everything, least of all the lump sum total of R20 000!
Gap cover policies, on the other hand, will now be limited to a pay out of R150 000 per year per client. Gap cover can only be bought if you are a member of a medical scheme.
Insurance companies also offer something called primary healthcare policies. These are not the same as medical scheme cover either, but they do provide limited medical service benefits, such as doctor’s visits, basic dentistry and optometry, and some acute and chronic medication.
Additionally, these policies are not governed by the Medical Schemes Act and because they do not cover private hospitalisation or Prescribed Minimum Benefits (PMBs), they are much cheaper than medical aid.
The new demarcation regulations outlaw primary healthcare policies from 1 April 2017. These policies are seen as straying into the territory of medical schemes, and will no longer be seen as insurance products, but will have to be amended to comply with the Medical Schemes Act. In other words, these policies must either become medical scheme products, or they won’t be allowed at all.
The Treasury has said that the regulations will allow insurers to continue to provide gap cover and hospital cash plans but only in a way that complements medical schemes. We do realise that this leaves a lot of medical scheme members and non-medical scheme members who rely on insurance products in a tough spot. To combat this, the Council for Medical Schemes is currently looking at low-cost medical scheme options.
Sadly, medical schemes aren’t out of the woods yet. In order to improve medical scheme sustainability, certain measures need to be put in place. This includes risk equalisation (equalising the cost of providing minimum benefits across the scheme), and compulsory membership for employed people. In an attempt to further strengthen the private healthcare system, low-income schemes and products are also being considered.
A further complication comes in the form of PMBs – by law, all schemes must provide PMBs to all members at cost. Naturally, this increases the cost of medical scheme membership, and can make it more difficult for schemes to remain financially viable.
As mentioned in the November 2016 edition of Elixir, we still have a long way to go when it comes to improving the health of the medical scheme industry, and the industry as a whole. At the moment, the government is completely focused on getting National Health Insurance (NHI) up and running, so when these changes will be considered or take place is another issue. As usual, we’ll keep you informed every step of the way.
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