New proposals for limits on healthcare insurance

In trying to prevent insurance companies from undermining the business of medical schemes, government says benefits on gap cover and hospital cash plans should be reduced, writes

The benefits you can enjoy on medical gap cover and hospital cash plans are likely to be limited and top-up cover banned on new insurance policies from April next year and on existing policies from January 2018, if draft regulations published this week are implemented.

Insurers will be allowed to continue to sell policies that provide basic healthcare benefits, known as primary healthcare plans, to employee groups and bargaining councils for the next two years. The Council for Medical Schemes will use this period to draw up a low-cost medical scheme option covering these benefits, a statement released yesterday by National Treasury and the Department of Health, says.

The statement announcing that Finance Minister Pravin Gordhan and Health Minister Aaron Motsoaledi have tabled the third draft of the demarcation regulations outlining that health insurance policies insurers will be allowed to sell, says that once the low-cost medical scheme benefit option is in place, providers of these primary healthcare plans will be expected to register as medical schemes.

The latest draft regulations, which will fall under the Short Term and Long Term Insurance Acts, propose that insurance policies that pay a predetermined sum of money per day spent in hospital, known as hospital cash plans (not to be confused with medical scheme hospital plans), be allowed to continue, but limited to offering a benefit of R3 000 a day or a lump sum of R20 000 a year.

The draft regulations provide for gap-cover policies with annual benefits up to R150 000 – up from the R50 000 in the second draft regulations. The first draft regulations, published in 2012, proposed banning gap-cover policies altogether, but Treasury received many objections to the proposed ban.

Gap- cover policies cover you when there is a shortfall between what your scheme pays and what your doctor charges for a procedure, typically in hospital.

The uptake of this cover has increased dramatically since 2010 when the Department of Health’s guideline tariffs for medical services were struck down after a court challenge and the gap between what doctors charge and what schemes pay has broadened.

Insurers also offer top-up cover that pays out when you exhaust your medical scheme benefit or annual limits, but these policies will not be able to continue if the draft regulations are promulgated.

The Treasury/ Department of Health statement says the regulations are being tabled in Parliament for comment.

The intention is to finalise the regulations and make them effective from April 1 next year for all new policies. On existing policies, insurers will have until January 1, 2018 to comply.

This means that if you have gap cover or a hospital cash plan in place now, or take out a policy before April next year, there will be no limits on the benefits until January 2018. But from April next year, any new policy you buy will have to comply with the limits in line with the final regulations.

INSURERS vs SCHEMES

The aim of the regulations under the Insurance Acts is to ensure that healthcare policies offered by short-term insurers and life assurers do not undermine the cross-subsidisation medical schemes require to be sustainable. Insurance can be cheaper for younger, healthier people, but schemes need young and healthy lives to subsidise the healthcare costs of the old and sick.

Medical schemes are able to offer you better protection against financially catastrophic medical bills, because while the benefits may be subject to some limits, certain minimum benefits for emergencies and other life threatening conditions are unlimited.

Insurance products can pay out only the benefit amount defined in the policy. The draft regulations specifically prohibit insurers from offering benefits that cover actual medical costs.

In 2013, the definition of a medical scheme in the Medical Schemes Act was amended to ban healthcare policies, with only regulated exceptions. This will take effect when the regulations become effective, making it possible for insurers to offer some limited healthcare policies subject to strict conditions.

The draft regulations name the policies that will be allowed: gapcover policies and hospital cash plans, as well as policies covering frail care expenses, benefits for the testing and treatment of HIV/Aids, tuberculosis and malaria, evacuation or transport in a medical emergency, and health events while travelling internationally.

Existing primary healthcare plans, which serve some 200 000 people, provide cover for general practitioner visits, acute and chronic medication, emergency medical care, dentistry and optometry. These plans do not cover hospital expenses and are often sold to lower earners in conjunction with hospital cash plans. Hospital cash plans are intended to provide for other expenses that arise from your hospitalisation, such as loss of income or transport costs.

Although there is nothing stopping you from using these plans to pay your hospital bills, they can fall horribly short of covering, for example, a day in an intensive- or high-care unit in a private hospital or even in a government hospital (if you earn above a certain threshold – about R6 000 a month).

These plans are sold to working people who want to see private doctors rather than use government clinics for their day-to-day healthcare needs but who will use state facilities for costly hospital procedures and chronic conditions.

In an attempt to ensure that you are not unfairly discriminated against if you have health problems, the draft regulations also state that:

• Hospital cash plans, cover for HIV/Aids, TB and malaria, and gap cover must be sold on a group basis – that is the insurer may not make you pay a premium that is based on your individual health status, age, gender or any similar grounds, but is priced according to the group that is likely to take up the insurance.

However, your insurer can charge you a higher premium for gap cover, hospital plans and plans covering HIV, Aids, TB and malaria if you take out a policy after a certain age, as long as this condition applies to everyone over that age.

• Hospital cash plans must pay benefits from the first day you are hospitalised.

• Commissions payable to a broker who sells you a health insurance policy is limited to between five and 20 percent, depending on your premium. The commission limit is aimed at preventing brokers from selling you insurance because the commission is higher, when it would be in your best interests to join a medical scheme. Medical scheme brokers earn only three percent on your contributions up to R80 a month plus VAT.

The regulations are the outcome of a consultative process between the Ministers of Finance and Health as well as the Council for Medical Schemes and the Financial Services Board.