On 23 December 2016, National Treasury promulgated the latest version of the Demarcation Regulations (DR) in parliament, for implementation on 1 April 2017.
Although the regulations will become effective then, existing health insurance products will only need to comply with the regulations by 1 January 2018.
The DR provide much needed clarity on the role of a medical scheme (regulated by the Medical Schemes Act of 1998) and health insurance products (regulated by the Long-term and Short-term Insurance Acts of 1998). Of significant benefit to South African consumers is that the DR gives the green light for the insurance industry to provide both gap cover and low-cost primary care products in co-existence with medical schemes.
Gap cover, which covers policyholders for co-payments and shortfalls incurred whilst in-hospital, relates to the fees charged by specialists versus the tariffs paid by medical schemes; and other products such as hospital cash plans which complement medical scheme benefits with annual limits, will continue to exist. They will however need to comply with the new regulations.
Newly developed gap policies will have to comply with the new regulation as from 1 April 2017, while clients with existing gap policy products can be assured that there will be no change to their existing gap policies for 2017.
Below are the following key changes under the DR:
• Underwriting: Gap cover will be aligned to the same underwriting requirements imposed by medical schemes, such as open enrollment and three month and 12 month waiting periods for various specified conditions.
• Medical Expense Shortfall: The gap benefit is limited to a maximum of R150,000 per annum and per insured life, which is applicable to any co-payment and medical expense shortfall. While this could prove problematic for claims that exceed the R150,000 limit, current actuarial data shows that claims in excess of R150,000 are very rare, equating to less than 1% of all historical gap claims.
• Hospital Cash Plans: pay-outs are limited to a daily limit of R3,000 and a maximum of R20,000 per insured life, per annum/per hospital stay.
• Primary Healthcare Insurance products: Will be outlawed and insurers have a two-year exemption period while the Department of Health rebuilds its Low-Cost Benefit Option (LCBO) which was stopped in 2015. It is envisaged that once completed, all primary care products operating under insurance companies will migrate into the LCBO framework within medical schemes.
• Broker Commission: Will work on a sliding scale starting at 20% down to a minimum of 5% aligned to the monthly member contribution.
It will be interesting to see what will happen to Occupational Healthcare products as they are clearly offering cover similar to that of an envisaged LCBO type product, with the exception of in–hospital care offerings. However, it is important to remember that the LCBO framework is still being developed and in order to accommodate LCBO products it will require an amendment to the Medical Schemes Act, which is normally a lengthy process that could take years.
Aon views the changes in a positive light for consumers, as it demonstrates Government’s realisation that it is crucial to bring very necessary primary care to the uninsured population in a more regulated environment, which in turn provides greater consumer protection and balanced cover. Essentially Government is acting on its constitutional obligation to do as much as it can to make healthcare available to all citizens.
The good news is that regardless of whether or not future primary care products are delivered via the insurance industry or via Government’s LCBO, primary care products are here to stay. Millions of South Africans who have previously been denied access to private sector cover because of affordability constraints will now be able to enjoy private healthcare at an affordable price. This is particularly good news for employer groups who found themselves hamstrung in providing healthcare benefits to lower income employees due to the high cost of private healthcare.
The task of assessing your healthcare financial planning is a role best undertaken with the guidance and advice of a professional healthcare broker who can do a thorough needs analysis and investigate the benefits options that are right for your budget and personal circumstances.
The 2017/2018 Budget has the following impact on healthcare:
Tax credits on medical scheme contributions have been increased by 6%. The new tax credits are as follows:
- R303 each for the individual who paid the contributions and the first dependant on the medical scheme and
- R204 for each additional dependant
It was noted that it is being considered to reduce this medical subsidy in future, as part of the financing framework for National Health Insurance.
Jacqui Nel is the Business Unit Manager for Healthcare at Aon South Africa.