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Group gap cover a compelling opportunity for healthcare brokers and consultants

22 July 2020 Gareth Stokes

Independent healthcare brokers and consultants will be familiar with the employee benefits world because the bulk of their business is written at the employer or group level. Although their primary focus remains to assist individual employees within these groups in selecting the appropriate medical scheme and medical scheme benefit options, they are more empowered than ever to offer comprehensive group health benefit solution thanks to the ongoing evolution of medical gap cover.

Competitive; but concentrated

Ambledown observes that the majority of its book is written as group business to firms with 10 or more employees. The domestic market is competitive; but concentrated. Ambledown, Kaelo Xelus, and Stratum Benefits control approximately 70% of premium with more than 20 other brands competing for the rest. Group gap cover is marketed by healthcare brokers and consultants who are already responsible for a firm’s medical schemes business. “Large employer groups are provided for by the likes of Alexander Forbes and NMG, consultancies that dominate the business landscape in this space,” says Tiago De Carvalho, CEO at Ambledown Financial Services. But there are thousands of brokers and consultants servicing small and medium enterprises too. 

Gap cover goes hand-in-hand with medical schemes because gap cover can only be sold to the principle member of a medical scheme. It is thus among a rare subset of insurance products that has limited scope outside the healthcare broking community, with the possible exception of the direct market to individuals and small business owners. Stakeholders in this market segment are also painfully aware that their product is strictly regulated to avoid any possible conflict with the business of a medical scheme, as defined in the Medical Schemes Act (MSA). Demarcation Regulations have been in-force since April 2017 to clearly spell out what may be covered, and for how much. 

Group gap differentiators

De Carvalho singles out the ability to differentiate on price as among the benefits of structuring group gap cover solutions. The regulation allows the gap cover provider to offer discounts on the product subject to strict conditions. “You can provide discounts if the employer group opts for compulsory participation [for all its employees]; you can differentiate based on the demographics of the employer group; and you can price in line with the coverage offered by the medical scheme that the employer group has selected for its staff,” he says. Premiums vary significantly from one employer group to the next based on these factors, with the final amount paid by each employee depending on the benefits selected, and often partly subsidised by the employer. 

Most gap cover providers offer a range of product solutions that start with basic gap cover for a low premium, with each additional benefits level incurring a higher cost. “It is up to the individual [or employer group] to first establish what medical scheme benefits are in place in order to determine the level of gap cover they need, with assistance from healthcare brokers or consultants,” says De Carvalho. “An employer group that takes our entire series can further customise the cover for each employee; different employees on the group solution can have different gap cover structures”. 

Those offering gap cover policies to individuals do not have as much flexibility as providers in the group gap cover space, because the legislation only allows them to ‘age base’ premiums and charge a late joiner penalty. Regulation precludes any underwriting being applied in the individual market, which is largely in line with what happens in the medical scheme space. The premium on a gap cover policy is repriced annually to coincide with the 1 January implementation of new medical scheme tariffs and benefit option limitations. An increase is typically calculated and passed on to each individual gap cover policyholder. 

Alarming impact of pandemic

The good news for gap cover product providers is that they are insulated from the COVID-19 crisis due to the disease being included in the Prescribed Minimum Benefits (PMBs) that medical schemes must provide full cover for. Stakeholders in the industry will have to adapt their business practices for economic consequences. “The consumer base that takes up gap cover will shrink as the economy contracts, which is sad,” says De Carvalho. “There will also be a greater burden on the public healthcare sector; but the long lasting effects from this pandemic on South Africa, in my opinion, will be the economic impact”. 

The medical schemes environment is in a state of flux as the South African government prepares for the introduction of a National Health Insurance (NHI) solution. The Council for Medical Schemes (CMS), in an ongoing effort to facilitate a transition to the universal healthcare solution proposed under NHI, has issued various communications that place certain healthcare insurance products under threat. De Carvalho identifies affordability as the main stumbling block for an NHI implementation and suggests it may be some time before it gets underway. Until such time, gap cover will be an essential complementary product for medical scheme members. “Gap cover will still be necessary in a post-NHI world; but in a slightly different guise, perhaps more like the Bupa structure seen in the United Kingdom,” he says. 

Primary care solutions under fire

Gap cover is safe for now; but so-called primary care options are under fire. “When the Demarcation Regulations were promulgated, National Treasury asked the CMS, through the minister of health, to provide exemptions to primary care options,” says De Carvalho. This exemption will be ‘pulled’ as communicated in CMS Circular 80 of 2019 in favour of a low cost benefit option under the medical schemes environment. “The discontinuation of these primary care options is particularly concerning,” he says, adding that more attention should be given to primary healthcare solutions. There is some irony that the CMS and department of health are halting one of the few solutions that shift the burden of healthcare expenditure from the state to private sector employers. 

“The CMS announcement does not affect gap cover and the other health insurance products that were listed in the demarcation regulations,” concludes De Carvalho. “Any changes to those products would have to be made by way of regulations at National Treasury’s behest”. 

Writer’s thoughts:
As we penned this article, BBC news led with a horror story about hospitals in the Eastern Cape being on the brink of total collapse. Each of us should be concerned about the disconnect between the NHI “grand promise” and government’s ability to provide and run the infrastructure and human resources needed to make it possible. We should also lament that the CMS is more interested in an NHI implementation than ensuing a sustainable medical schemes industry. What are your thoughts about the sustainability of medical schemes, gap cover, and healthcare broking as NHI unfolds? Please comment below, interact with us on Twitter at @fanews_online or email me us your thoughts editor@fanews.co.za.

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