Lighthouse Consulting actuary Barry Childs has advised medical schemes to step up lobbying for the elimination of insurance products such as gap cover and hospital cash plans as these have the potential to undermine medical schemes.
Speaking at the Board of Healthcare Funders conference yesterday, Childs said if hybrid insurance products were allowed to continue, medical schemes would be left to pay for prescribed minimum benefits and the elderly, while insurance firms took away the young and healthy, who did not claim regularly.
He said medical schemes should look at developing their own complementary products as it did not seem there would be much progress on demarcation regulations any time soon.
In the past couple of years, there has been a rapid expansion of insurance products offering elements of medical scheme benefits, prompting the National Treasury to gazette amended demarcation rules last year to prevent insurance firms from taking over medical scheme functions.
The insurance products have flooded the market to such an extent that there is no reliable data on how many exist.
Health-care insurance products are governed by the long- and short-term insurance acts, but Childs said the regulations only spoke to gap cover, while cover for dental and optometry expenses that insurers offered were in a regulatory vacuum.
Childs found that gap cover benefited schemes with no high rate options and no or limited designated service providers for specialist consultations. On the other hand, for a scheme with higher rate options and extensive benefits, gap cover was a problem. But the most problematic were the hybrid insurance products that had gap cover for hospital treatment, dentistry and optometry benefits as well as medicine plans and looked very much like medical aids.
“There’s a significant potential that these products will undermine medical schemes if they are allowed to continue because there is no level playing field,” Childs said.
The playing field between the two is not level because insurance products’ premiums relate to risk and high risk individuals can be rejected, whereas medical schemes have open enrolment and have no risk ratings.
Childs’ analysis showed hospital cash plans did not compromise medical schemes and had a role to play. But when demarcation rules were amended, the wording put them at risk of being classified as income replacement products as they paid out up to 70 percent of income to policyholders who were incapacitated.
Health economist Alex Van den Heever from Wits University said the government needed to make swift regulatory decisions on health-care insurance products because these only protected the young and healthy, who should be improving schemes’ risk pools. The products often did not even protect the children of these young and healthy members, he said.