After four years of consultation, Treasury gazetted final demarcation regulations in late December, ending years of uncertainty on the future of gap cover, hospital cash plans and primary healthcare policies.
Finance Minister Pravin Gordhan and Health Minister Aaron Motsoaledi published the final demarcation regulations under the Long-term and Short-term Insurance Acts in December.
The issue at stake has been about where the line should be drawn between medical scheme products and health insurance. Medical scheme products are regulated by the Medical Schemes Act of 1998, and health insurance products are regulated by the Long-term and Short-term Insurance Acts of 1998.
Gap cover, which covers clients for co-payments/shortfalls incurred for in-hospital private doctors’ bills, and hospital cash plans, which pay clients a lump sum per day they spend in hospital, will continue to exist, but strict regulations will be enforced from 1 April 2017 with regards to maximum payouts allowed to be made by both these products to their clients.
Existing policies will have to comply with the new regulations from January 2018, and new policies from 1 April 2017.
The new payout limits
The new regulations stipulate that hospital cash-back plans are limited to paying their clients a maximum of R3 000 per day, or a total lump sum of R20 000 per year. Currently there are no limits in place for these payments.
In the past, Motsoaledi criticised gap cover policies, as their existence “gives doctors a free reign to charge much higher tariffs, … as they have no need to compete on either price or quality in order to attract patients”.
Gap cover policies will now be limited to a payout of R150 000 per annum per client.
Primary healthcare policies to go
Primary healthcare policies are not full medical schemes, and they provide limited medical service benefits, such as GP visits, basic dentistry and optometry, and some acute and chronic medication.
These policies are not governed by the Medical Schemes Act, and because they do not cover private hospitalisation costs, their contributions are much lower than those of full medical schemes, or even hospital plans.
These have been criticised for discouraging people from becoming medical scheme members, thereby contributing to the essential cross-subsidisation within schemes. Medical scheme membership in South Africa has been almost static for the last 20 years, with only 1.4 million new principal members (with 2.2 million beneficiaries) joining since the year 2000.
The medical schemes industry and the Council for Medical Schemes are currently looking at low-cost benefit options (LCBO), which would fall under the Medical Schemes Act, but that would possibly entail having to make changes to the current medical schemes legislation. One of the issues at stake is the stipulation that all schemes have to provide 270 Prescribed Minimum Benefits to all members at cost. This increases the cost of medical-scheme membership, and can make it more difficult for schemes to remain financially viable.
The new regulations outlaw primary healthcare policies from 1 April. These policies are seen as straying into the territory of medical schemes, and will no longer be seen as insurance products, but will have to be amended to comply to the stipulations of the Medical Schemes Act.
The relatively high cost of medical scheme membership is, however, seen as a deterrent to many prospective new members, and it is hoped that the proposed new low-cost benefit options will cover this gap.