If it is not broken, why fix it?

What type of a medical industry is starting to unfold in South Africa? Not only has the industry become tied up with a pricing scandal with the competition commission, National Treasury is implementing restrictions on gap cover, which adds a new plot twist in the demarcation debate. Treasury has recently invited the industry to respond to the proposed demarcation regulations on healthcare products. This invitation has received many responses.

The demarcation debate has cast a far reaching shadow over the industry for the past decade and has intensified to the stage where the government was considering scrapping gap cover altogether. Treasury are now proposing similar provisos as contained in the Medical Schemes Act which, according to Michael Settas, Managing Director of Xelus Specialised Insurance Solutions, are unfortunately highly restrictive.

A temporary truce or a permanent solution?

Treasury is of the opinion that gap cover undermines the function of medical schemes and their purpose in society. But this is untrue as gap cover is provided as complementary cover to medical schemes. You cannot buy gap cover without belonging to a medical scheme.  

“The matter is much broader than just gap cover products. The latest draft demarcation regulations are undoubtedly the result of a political compromise between Treasury and the Council for Medical Schemes (CMS). If the CMS had their way, they would have all health insurance banned, but clearly there would have been infringements on the constitutional right of citizens to cover their medical expenses. The CMS appear to hold the stance that if you wish to purchase private medical cover, your only option is to purchase medical scheme cover,” says Settas.

The current stance by Treasury may be seen as a temporary truce, but the matter is far from settled.

Looking after the public

Should the truce fall apart, and Treasury does go ahead with banning gap cover because of a change of heart, the issue can be challenged in court. Patrick Bracher, Director at Norton Rose Fulbright, points out that the current demarcation regulation amounts to an administrative action. All administrative actions can be challenged under the constitution supplemented by the Promotion of Administrative Justice Act. “Regulations can only be challenged if they are illegal in some way, unconstitutional, or the regulations are not rational in relation to the powers given to make regulations. Because there are constitutional issues relating to healthcare, the matter can go all the way to the constitutional court,” says Bracher.

It is evident therefore that Treasury is treading a fine line and a fall in the wrong direction may result in an infringement of human rights. Embedded in the constitution is the right of everyone to have access to healthcare services and the requirement that the State takes reasonable legislative and other measures to achieve the realisation of these rights.

“Healthcare also covers broader aspects such as dignity and equality. It can hardly be said to be progressive realisations of constitutional rights if you take away lower income healthcare products. There are tens of thousands of existing policyholders, many of whom cannot afford to be members of medical schemes. The current demarcation regulations would make many of those policies void, and that in itself would be the subject of a legal challenge,” says Bracher.

He adds that the constitutional arguments are valid arguments and would probably prevail if government were to publish the current draft regulations in their existing form.

The way forward

To say that the medical scheme industry currently exists on shifting sands is an understatement. Clarity is not one of the features of the industry and no one can safely say that Treasury is happy with its current approach. But what is the way forward during a time of such uncertainty?

“The demarcation regulations have a fairly long history so it seems there is now an urgency from Treasury to get them passed. The truth remains that the assumptions which underpin the apparent necessity for these regulations are largely erroneous. The CMS have for years blamed health insurance products for harming medical schemes which in turn has driven the apparent need for demarcation. However, this blinkered approach has meant that the regulatory framework that medical schemes have operated in has not been critically evaluated. In our opinion, the framework that medical schemes operate in, requires a major overhaul if they are to survive in the long-term.  Passing the demarcation regulations will not have any effect on the rampant cost escalations that have bedevilled medical schemes for more than a decade,” says Settas.

Bracher adds that there does not seem to be any good reason to push through badly drafted regulations before the Competition Commission enquiry into pricing into the health sector is completed. There is also no reason to do this before the thinking regarding the NHI is concrete. “Demarcation is just one part of a much bigger issue and the whole problem should be tackled at once. We have also not seen any compelling evidence that the existing insurance products, perhaps with a few exceptions that could be dealt with by some rational interim regulation, are having a material effect on the membership of medical schemes.

Editor’s Thoughts:
It perplexes me why government would want to try and fix a perfectly functioning system. Government has said access to medical cover is a basic human right. And if the industry is currently providing that, no matter what form this takes, surely the debate should be dead and buried? Of more importance is to resolve the tariff situation after the conclusion of the Competition Commissions investigation. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].

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