Gap cover... light at the end of the tunnel?
01 November 2013 | Magazine Archives FAnews & FAnuus | Healthcare | Mike Settas, Xelus Specialised Insurance Solutions
The South African medical industry currently finds itself in a precarious position whereby quality medical cover comes at a high cost, a cost which the public increasingly has to fund privately. In order to mitigate this, many members of the public have taken out gap cover which bridges the gap between what medical schemes are prepared to cover for certain procedures, and what doctors and specialists are charging for these procedures.
However, government was considering banning gap cover as it said that gap cover undermines the medical schemes industry. But it is now seemingly changing its stance on the ban. A recent article in Business Day quotes the Treasury’s Deputy Director-General for Tax and Financial Sector Policy, Ismail Momoniat, as saying, "We are worried that gap cover is undermining the medical schemes industry, but it would be unconstitutional to ban these products.”
Demarcations back on the table
It would be catastrophic if Government cancels gap cover, but also possibly unconstitutional seeing as though it is not a Government initiative that is up for cancellation. If the public is privately funding gap cover, then let it continue.
National Treasury has announced expected timelines for the release of the revised draft Demarcation Regulations ("the regulations”) as the second quarter of 2014. Treasury added that the finalisation of the draft regulations is a complex process given the need to ensure the principle of solidarity in health funding and the diverse views of the various affected stakeholders.
The two key proposals in the first draft regulations which elicited the most public responses relate to the prohibition of gap cover and product restrictions on hospital cash plans.
Striking the balance
The revised second draft regulations will acknowledge that, while health insurance products have a role in the market place, these products must operate within a framework whereby they complement medical schemes and support the social solidarity principle embodied in medical schemes. It is in this context that the envisaged revised second draft regulations seek to strike a better balance between health insurance and medical schemes.
The revised second draft regulations will, therefore, provide for the continued sale of gap cover and hospital cash plan insurance within defined regulatory product parameters. These parameters, explicitly requiring that health insurance products be provided on similar terms as medical schemes, seek to ensure that medical schemes are not compromised.
Road to disaster
Where the supply and demand of a particular service is imbalanced, as is the case with medical specialists, a medical scheme may not be able to convince the specialist to agree to a payment arrangement with them. The medical scheme then refunds the member an amount according to its own set of tariffs which may be substantially lower than the specialist’s fee. This creates a tariff shortfall, which members are personally liable for on an out-of-pocket basis.
Michael Settas, Managing Director of Xelus Specialised Risk Solutions, points out that "One of the major factors that created the necessity for gap cover is the absence of any price regulation. This means that providers can charge any rate they wish, often a lot more than the medical scheme rate. It is now common place for us to see shortfalls of 20 000 to 30 000 for a procedure. Most families are simply not in a position to carry this level of risk”.
"The need for gap cover is undeniable and it is very encouraging that Treasury have now acknowledged that consumers have the right to insure themselves. It would also be mindful of the regulators to consider that gap cover arose because of inherent market failings in the private healthcare sector and not by virtue of any intent by the insurance industry to undermine medical schemes”.
