Industry body (South African Insurance Association) comments on impact of health insurance proposals on consumers

09 May 2012 The South African Insurance Association (SAIA)

The South African Insurance Association (SAIA) has announced that it has made its submission to the National Treasury with regards to the proposed Demarcation Regulations demarcating between Health Insurance Policies and Medical Schemes.

The SAIA, an industry body representing 59 member companies in the short-term insurance industry, made its submission following the National Treasury’s release of the draft Demarcation Regulations on the 2nd of March 2012.

The draft Demarcation Regulations propose that only seven categories of accident and health policies in the short-term insurance landscape will be allowed. The SAIA expressed concern regarding the policies that will be outlawed, such as gap policies, major medical cover. The suggested categories will result in severely limiting consumer choice and are susceptible to a constitutional challenge, says Suzette Strydom, SAIA General Manager: Technical.

Gap cover pays the difference between actual medical costs on limited specific events, usually confined to in-hospital costs from a specialist and that paid by the medical scheme, while major medical cover pays a lump sum benefit linked to a listed health condition or medical/surgical procedure. All these benefits are paid to the individual, and not the service provider.

Consumers are furthermore restricted in protecting their medical expenses by an existing provision in the Medical Schemes Act that prohibits consumers from belonging to more than one medical scheme.

The categories in the draft Regulations also include certain criteria that insurers must comply with, in order to be regarded as a permissible accident and health policy under the Short-term Insurance Act. The SAIA also believes that the criteria that exist in the proposed Regulations may be regarded as discriminatory against employment or income, for example the criteria for HIV and AIDS will be limited to cover offered to employers in respect of employees. The SAIA believes that the criterion, namely employment is insensitive and unfair as it inhibits cover.

In its submission to National Treasury, the SAIA notes that no evidence has been produced to demonstrate that medical insurance and specifically gap policies result in younger and healthier members limiting or reducing their medical schemes cover, which results in a negative impact on the life cycle protection offered by medical schemes. Similarly, there is no evidence indicating that medical schemes are reducing their cover due to the existence of such policies.

In reality, the SAIA believes that the individual consumer selects a medical scheme benefit option based primarily on affordability, the effect of the medical scheme rules regarding the use of designated service providers, and the rules-based diagnosis and treatment pairs, particularly for the list of medicines covered by medical schemes for on-going chronic benefits.

“Initial indications are that 887 000 policies affecting approximately 1870000 beneficiaries may be compromised if current products, from contested categories, are to be discontinued. Over the past year, these beneficiaries received claim payments totalling approximately R262 million from our member companies and this protection will be lost to policyholders and the economy in future,” says Strydom.

Strydom also notes as an area of concern that about 150 jobs in the insurance industry will be directly affected by the disappearance of these products, such as gap cover, and this does not include the effect on the financial advisors who received commission through the sale and support of these products.

The association also points out as another area of concern in the proposed regulations is the possible spike in costs to insurers, specifically around the area of reporting requirements. The draft Regulations requires insurers to submit a summary of the benefits, terms and conditions and marketing material for the permissible health and accident policies to both the Financial Services Board (FSB) and the Registrar of Medical Schemes for all new accident and health policies. All existing policies introduced or launched after 15 December 2008 will similarly have to be submitted to both Registrars. SAIA says the increase in regulatory compliance will inevitably lead to costs being passed on to consumers. The cost of doing insurance business in South Africa is becoming increasingly challenging. The Registrar is also afforded the right to “at any time thereafter” object to the health policy. The practical implication of this open ended discretion could lead to enormous losses for insurers.

SAIA’s CEO, Barry Scott says that he hopes that the submissions made by SAIA will be taken into account, considering the impact the Demarcation Regulations will have on the already overburdened consumers as well as the inevitable possibility of job losses.

“We confirm our appreciation to the National Treasury and the FSB for the opportunity to participate in the process and look forward to further consultations in respect of those areas of uncertainty identified by the SAIA,” concludes Strydom.

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