Low-cost options must close – regulator
LOW-COST benefit options (LCBOs) aimed at low-income earners will be illegal from March 2021, and medical schemes and insurers must phase them out before then, the Council for Medical Schemes (CMS) says.
In a circular issued last week, the CMS says LCBOs were intended to increase the affordability of medical schemes and membership through the development of a product targeted to a specific group of the population, mainly low-income households.
However, it said these products “present an opportunity for inferior benefits. Mainly, such products potentially use the state as a designated service provider without entering into the necessary agreements with the state, and lack prescribed minimum benefits (PMBs).”
In addition, it said the poor performance of the economy and high unemployment “suggest an LCBO could be difficult to realise”.
The CMS said it has been conducting an “extensive review” of the PMB package that medical schemes must offer all their members. It said this package, which will have a strong emphasis on primary healthcare, will be “a more direct and efficient manner in which to bring affordable and quality healthcare financing packages to citizens of South Africa, as opposed to the current LCBO considerations and demarcation products on the market”.
The ban will also apply to products allowed in terms of the Demarcation Regulations, which prohibited insurers from providing financial services products that included primary healthcare insurance policies. Transitional provisions in the regulations allowed January 2018 or upon renewal for health and accident policy contracts to become compliant with the Insurance Act.
However, the ministers of health and finance realised that some health and accident policies could not be amended without denying private healthcare to people to use these policies, the circular said. As a result, the ministers of health and finance agreed to a two-year exemption period, from April 1, 2017 until March 31, 2019, while a low-cost benefit package was being developed. Due to the LCBO guideline not being finalised by March 31, the CMS consulted with the National Treasury, the Financial Sector Conduct Authority and the Prudential Authority on the extension of the current exemption period by another two years, to March 31, 2021.
“The continuation of the exemption process is seen to have created regulatory arbitrage opportunities which are not in the best interests of members and policyholders of the products under consideration. Continuing to conduct business and offering financial products outside of the Medical Schemes Act would continue to encourage opportunistic product design that undermines the principles of the medical schemes environment: open enrolment, community rating and prescribed minimum benefits.”
The CMS said no exemptions will granted for LCBO products. All products that do not comply with the Medical Schemes Act must be wound down before March 2021 and will be deemed to be illegal after March 2021, the circular said.