FANews
FANews
RELATED CATEGORIES
Category Healthcare
SUB CATEGORIES General  |  HIV |  Medical Schemes | 

Treasury’s draft demarcation regulations not sufficient to ensure the marketability or sustainability of Gap cover products

01 August 2014 Butsi Tladi, Alexander Forbes Health

The National Treasury’s Second Draft Demarcation Regulations to the Short Term Insurance Act are not sufficient in substance and form to ensure the marketability or sustainability of Gap cover products.

This is according to Alexander Forbes Health which submitted its commentary on the regulations to National Treasury.

Gap cover refers to the cover that is needed for shortfalls in expenses between what a medical or hospital scheme pays for procedure and the actual cost of a procedure.

“We are encouraged by National Treasury’s acknowledgement that appropriately designed and marketed health insurance policies play a meaningful role in protecting consumers against unexpected health events and welcome the explicit provision in the regulations for the continued sale of Gap cover and Hospital Cash Plan insurance within defined product parameters,” says Butsi Tladi, Managing Director of Alexander Forbes Health. “However, we urge Treasury to review the conditions related to commissions; policy benefit limits; and underwriting and waiting periods which we regard as unworkable and potentially harmful to the viability and sustainability of Gap cover in their current form.”

Alexander Forbes Health argues that the proposed limit on commission to a maximum of 3% plus value added tax of the premium, in line with Regulation 28(2) of the Regulations to the Medical Schemes Act, is unreasonably low and is not commensurate with the advice and service obligations of accredited healthcare consultants in terms of the FAIS Act’s, General Code of Conduct. The company says the restriction on commission levels does not take into account that Gap Cover premiums are substantially lower than medical scheme contributions whilst the advice process to members is similar in nature and complexity.

“The expected average commission earned on a Gap cover policy would be between R3 and R5 per member per month (based on an average monthly policy premium of between R100 and R165 per member). This would not cover the costs incurred for providing the services expected of an accredited consultant,” says Tladi. She says in applying these commission levels to the Alexander Forbes Health client base, as an example, annual revenue from Gap cover policies would be expected to reduce by approximately 85%.

“The impact to our business would be significant and could potentially result in the layoff of 13 to 14 jobs or 14% of our representative consultants. This would have a profound impact on the quality of service delivered to our medical scheme clients, many of whom are joint Gap Cover clients.”

Alexander Forbes Health urged National Treasury to maintain the current commission level at a maximum of 20% and to place reliance on the General Code of Conduct to safeguard the individual consumer and to ensure fair and proportionate commission for advice and services rendered.

The company says that the proposal to remove underwriting for health insurance business and to severely restrict waiting periods is misguided and irrational. “The consequence of this approach is a rise in unexpected high cost claims and an increase in premiums for members. Ultimately, in the absence of appropriate levels of control health and accident policies will become unaffordable and unsustainable,” said Tladi.

Alexander Forbes Health said Treasury needed to align the underwriting terms and conditions and the application of waiting periods to the Medical Schemes Act. It said in so doing, it would support the removal of the maximum entry age for Gap cover policies with the replacement of a Late Joiner Penalty, similar to that which is contained in Regulation 13 of the Regulations to the Medical Schemes Act, where creditable coverage is linked to the applicant’s length of medical scheme membership, as a pre-requisite for Gap Cover.

The limitation on policy benefits under the demarcation regulations were found undesirable by the company. “There is an apparent inconsistency in the limit for Gap cover benefits as stated in the regulations and those stated in the Explanatory Memorandum. This makes it difficult to provide accurate and meaningful comment. Suffice to say that in general, Alexander Forbes Health does not support pre-defined benefit payments linked to health events as these are an inefficient method of providing Gap cover benefits,” said Tladi.

In its submission, the company said that the very nature of Gap cover policies is to protect medical scheme members from additional unbudgeted costs arising when medical scheme cover for in-hospital related healthcare expenses is less than the actual rate charged by healthcare providers. “In the absence of regulated tariffs for healthcare providers, the shortfall in cover is highly variable and unpredictable. We request urgent clarification on the limitation of Gap cover policy benefits to enable more meaningful comment and recommendations to be made.”

Alexander Forbes Health said that a holistic review of health insurance, medical scheme and occupational health products, along with all relevant legislation, is needed to ensure that the rights of all citizens, to adequately protect themselves from financial hardship resulting from health-related risks, are protected and preserved.

“We acknowledge that in the absence of an appropriate regulatory framework, the right of consumers to exercise choice may cause younger and healthier members to terminate, limit or reduce their medical scheme cover which may cause harm to medical schemes. We also recognise that consumers may mistakenly believe that accident and health policies offer the same level of protection as a medical scheme or are medical schemes themselves,” said Tladi.

Alexander Forbes Health also appealed to Treasury to wait for the publication of the findings of the Competition Commission Market Inquiry into the Private healthcare sector before finalising the regulations. The Competition Commission Market Inquiry’s Draft statement of issues stated the Inquiry panel’s wish to understand the nature of competition among medical schemes and other providers of health insurance in the South African market and the impact of this on the affordability and quality of the products and services that consumers purchase.

Quick Polls

QUESTION

South Africa went to Davos to pitch itself as an investor-friendly destination, then signed an Expropriation Act. What message does this send to global investors?

ANSWER

Invest at your peril
SA is open for business
Two steps forward, one land grab back
Welcome to Hotel California
fanews magazine
FAnews February 2025 Get the latest issue of FAnews

This month's headlines

Unseen risks: insuring against the impact of AI gone wrong
Machine vs human: finding the balance
Is embedded insurance the end of traditional broker channels?
Client aspirations take centre stage as advisers rethink retirement planning
Maximise TFSA contributions before year-end
Subscribe now