Regulations concerning your choice of health insurance products, the benefits they offer, and the consumer-protection measures to which they must adhere, came into effect at the beginning of April. If you’re using these products, either as a substitute for medical scheme cover or to supplement it, or are looking at using them, you need to know what has changed and the type of products that are now available.

The regulations under the Long Term and Short Term Insurance Acts, known as the demarcation regulations, were instituted in an effort to forge a clear boundary between medical scheme cover, which is governed by the Medical Schemes Act, and other types of health insurance, which are governed by the two insurance Acts. Certain types of insurance policies that superficially resembled medical scheme cover will be phased out.

The reasons for the regulations are twofold:

• They make sure you, as a consumer, are better informed of the differences between health insurance and medical scheme cover; and

• They ensure that the cross-subsidisation within medical schemes between healthy and sick members, which is critical for schemes’ well-being, is not undermined.

All new health policies have had to comply with the new requirements since April 1. Existing long-term insurance policies will have to align to the regulations as and when such contracts are changed or renewed. Existing short-term insurance policies will have to align by January 1 next year.

Short-term accident policies, which pay out if you are injured in an accident (and which are not covered in this article), will also have to align to the regulations.

Product providers are obliged to communicate clearly to you that health insurance policies, particularly hospital cash plans, are not a substitute for medical scheme membership.

Roseanne Murphy Harris, the president of the Actuarial Society of South Africa, says the regulations were much needed. “Confusion over the benefits offered by health insurance policies versus medical schemes has unfortunately resulted in consumers inadvertently sacrificing adequate medical cover by opting for products not appropriate for their circumstances. This confusion also restrained medical schemes from developing a broader and more sustainable membership pool, which is crucial for the financial well-being of schemes.”

These views are echoed by Gerhard van Emmenis, the acting principal officer of Bonitas Medical Fund: “We welcome the demarcation, as it is designed to protect consumers and will assist in stabilising the medical schemes industry. The demarcation will further aid in clearing the misperception that exists between health insurance products and medical schemes.”

The main types of health policies affected are:

• Gap cover, which is used to supplement medical scheme cover. It makes up the difference between what your scheme pays out for hospitalisation and in-hospital specialists and what hospitals and specialists actually charge.

• Hospital cash plans, which are often taken out by people who can’t afford medical scheme cover but need some sort of cover for healthcare expenses. These policies pay out a fixed amount per day for each day you are in hospital.

• Primary healthcare policies, which are policies from insurers that resemble basic medical scheme cover, paying for certain medical consultations and procedures. These will be phased out over the next two years while the Department of Health and National Treasury look at ways of integrating them into the medical scheme framework as low-cost medical scheme options.

Van Emmenis says you need to remember that health insurance products are sold by insurance companies, which are for-profit organisations. Medical schemes, on the other hand, are non-profit (although the administrators of such schemes are for-profit). Also, insurance contributions are not tax-deductible, whereas you receive tax credits for medical scheme contributions.

Medical scheme cover outweighs what you get from a short-term insurance policy, Murphy Harris says. It helps you to pay for a comprehensive range of healthcare needs and expenses, offering different levels of benefit options. It also provides guaranteed prescribed minimum benefits, which provide for full cover for treatment in medical emergencies, 270 life-threatening conditions and 25 common chronic conditions.

Roseanne Murphy Harris says rules introduced by the demarcation regulations for the protection of consumers include the following:

• Commission payable to insurance brokers on health insurance policies has been limited to prevent mis-selling. Commission is now set according to monthly premium bands, ranging from a maximum of 20% of premiums less than R300 a month, to a maximum of 5% of premiums above R1 200 a month.

• Insurers are prohibited from discriminating against individuals by refusing them cover or increasing their premiums on the basis of their state of health, because they have a disability or because they are pregnant. However, insurers may price premiums based on the age of the policyholder when taking out a contract, provided that this pricing affects all new policyholders of the same age.

• Insurers may impose a general waiting period of up to three months on policyholders before they can submit a claim, as well as a condition-specific waiting period of up to 12 months. This will apply to individuals who have been diagnosed with or sought treatment for an illness or condition in the year preceding the date on which they take out a new policy.

• As part of the Treating Customers Fairly principles adopted by the financial services industry, the terms of policies, the premiums payable, as well as any restrictions on benefits, must be disclosed when a policy is taken out.

GAP COVER

Gap cover policies, which have become popular as a way of supplementing medical scheme cover, have been allowed to continue under the demarcation regulations. 

Whereas gap cover limits were determined by individual insurers in line with industry norms (you could buy cover of up to R1 million a year), the new regulations limit cover per individual to R150 000 a year.

Murphy Harris says the benefit cap on gap cover may help to counter escalating healthcare expenses, because in the past some healthcare specialists may have increased their fees according to how much insurers paid, contributing to medical inflation.

Michael Settas, the director of Kaelo Xelus, a provider of gap cover, disagrees with this view. He says there are many reasons for the high fees specialists charge, and capping benefits will have no effect on medical inflation. 

First, Settas says, it’s simply a matter of supply and demand: specialists in short supply in a particular discipline will charge more for their services. 

Second, specialists face escalating costs, particularly for liability insurance – gynaecologists and obstetricians now pay about R1 million a year to cover themselves when faced with malpractice suits. 

He says isolated practitioners may have charged more if a patient had gap cover insurance, but this was the exception.

Settas says the new regulations will not have much of an effect on business, and very few claims in the past exceeded the now-imposed R150 000 annual limit. 

He expects the gap cover market to grow now that the uncertainty surrounding the future of these products has been removed and, more pertinently, because medical costs will continue to soar. 

Van Emmenis of Bonitas says you should be aware of the following when you buy gap cover: 

• Cover differs from policy to policy in terms of the percentage payout, as well as any waiting periods (how long you must wait before you are covered) or exclusions (events or circumstances in which you are not covered);

• You may need gap cover even if you have a top-of-the-range medical scheme option, because there might still be gaps between what your scheme pays and the amounts specialists charge; and

• Never assume that all costs will be covered. “Gap cover is by no means a cure-all solution to avoid co-payments,” Van Emmenis says.

HOSPITAL CASH PLANS

Hospital cash plans are intended to pay a daily amount towards non-medical expenses that might arise when you are hospitalised, such as childcare or loss of income. 

“However, these policies are often used as low-cost cover by people who mistakenly believe that the benefits will cover the costs of hospitalisation, leaving them without adequate medical protection,” Murphy Harris says. 

“Moreover, many hospital cash plans paid benefits only after policyholders had spent as many as four or five days in hospital, which happens only in rare cases.”

Hospital cash plans have therefore been limited to paying up to R3 000 for each day spent in hospital to a maximum of R20 000 a year. The new regulations further stipulate that benefits should be paid after two days spent in hospital, and must be calculated from the first day on which you are hospitalised. In other words, if you spend only a day in hospital, you will not be covered, but if you are in hospital for longer than that, you will be paid out for all days, including the first day, up to the maximums.

PRIMARY HEALTHCARE POLICIES

Primary healthcare policies offer a limited range of healthcare benefits, such as visits to general practitioners and emergency medical care. Because they are considered to perform the business of a medical scheme, these products will be phased out.

“However, insurers are able to apply for a two-year exemption under the regulations in order to protect the rights of policyholders, as these policies target low-income earners,” Murphy Harris says.

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