Draft demarcation regulations
The long awaited Draft Regulations on the Demarcation between Health Insurance Policies and Medical Schemes have been released. These have been eagerly awaited by the Industry, and once finalised will give much clarity as to which products and services ma
National Treasury has stated that the aim of the Draft Regulations will be to find a better balance between Medical Schemes and Health Insurance Products, with the ultimate aim of protecting Medical Schemes from anti-selection based on age and health profiles. The Draft Regulations are the end result of consultation between Treasury, the Department of Health, the Financial Services Board and the Council for Medical Schemes. The Draft Regulations will provide clarity on the types of policies that will be allowed to be sold by long-term and short-term insurance companies, with due regard to the impact of these products on Medical Schemes. Comments are invited from all stakeholders and these need to be submitted before the 23rd of April 2012.
A differentiation is made between Health Insurance and Medical Schemes. Health Insurance is offered to companies or individuals and seeks to cover certain stated benefits when an individual is ill or injured. Premiums may be based on the age, health status or income of an individual and it is possible that certain exclusions may be contained in the product design, which effectively limits some members from taking out this insurance.
Medical Schemes on the other hand, may not discriminate on the basis of age or health and are required to accept all members, with universally applied premiums across options, thereby promoting greater equity and cross-subsidisation within the Scheme. Government holds the view that Health Insurance Products are viewed by many members as offering the same protection as a Medical Scheme and that this belief encourages healthier members not to join Medical Schemes until their health situation deteriorates.
The Draft Regulations provide that a Health Insurance policy must not be directly linked to the cost of medical care and must not cause harm to the Medical Schemes environment. Thus any product that is deemed to be ‘doing the business of a medical Scheme’ or that is deemed harmful to the Medical Schemes environment will be outlawed.
The Draft Regulations will allow for Health Insurance products that provide for loss of income or contingency expenses associated with a health event, but are not directly related to medical expenses. An example of an acceptable product would be a product that pays a lump sum benefit per day, aimed at taking care of contingency expenses. Strict rules will be attached to the marketing of these products.
A matrix of acceptable products has been supplied by Government, which includes both short-term and long-term products. These include Lump Sum or Income Replacement policies, HIV and AIDS products, Travel Insurance, Emergency evacuation and Frail Care amongst others. There are certain criteria attached to each of these.
It is likely that many of the existing products, for example Gap Cover products, would have to be changed substantially, or possibly even cease to exist in order to comply with the proposed Regulations. However, it is likely that the final Regulations will allow a period for existing products to adapt and comply with the Regulations.
There are differing views on when these Regulations would take effect if implemented, but it is extremely likely that there will be much comment from industry providers and that if adopted in their current format, that there would be legal challenges against the proposals.
Taking in to account the April comment date, it is unlikely that finalised regulations would be released before mid-year. In the interim, members still have access to their standard benefits, as per the products they have purchased, for example Gap Cover products and there is no need for immediate concern.
