Government has knives out for hospital plans

The government is planning a new law to ban certain kinds of hospital plans. It wants the new regulations in place by October this year.

This is because the medical aid industry is in a tizzy saying that the growing popularity of these products is affecting the popularity of medical aids, which have to operate under much stricter rules that most hospital insurance plans.

Critics say “hospital plan products undermine the principles of community risk and social solidarity that form the basis of medical schemes.”

Simply put, that means that the premiums of healthy members pay for the medical schemes of the unhealthy members.

Hospital insurance companies fight back

Insurance companies who offer cheap hospital cover, gap cover and cash back hospital plans are squaring up for a fight against draft regulations as they now stand.

Steph Bester, the CEO of The Unlimited, which offers cheap hospital insurance, says the company will go to court over the proposed regulations.

He says that hospital plan products do not undermine medical schemes. Bester gave the example of Discovery, which is a non-profit medical scheme, had nonetheless paid out R3,3 billion to its administrators – a for profit company – and still had a R1,5 billion surplus.

Bester says the new law will prevent cash-strapped consumers who cannot afford to join a medical aid from having any health cover at all.

Government and Hospital PlansThe Unlimited is just one of the firms that offer hospital plan products. Among the plans they offer is primary healthcare insurance, covering GP visits and prescribed medicines. Under the new regulation they will not be allowed to offer this kind of cover.

Says Bester: “Millions of South Africans cannot afford medical aid. This is the only alternative they have to relying on limited savings and the state health infrastructure.

Government health system

Just fewer than 20 percent of South Africans belong to a medical aid scheme. There are also millions of people who do not qualify for free government health care because they earn R6 000 or more. If you earn more than that you end up in a state hospital you can rack up huge bills.

The new hospital plan products such as offered by The Unlimited and various insurance companies arose to cater for this portion of the market.

Hospital cash plans

An estimated 2,5 million people have hospital cash plans that pay out cash to policy holder, usually only when they have spent three days in hospital.

Gap cover plans pay the “payment gap” where a patient’s medical scheme benefits do not cover all the costs incurred by the policy holder when having medical treatment.

Prescribed minimum benefits and medical aids

Unlike the insurance companies that offer hospital plans, medical schemes are obliged by law to cover the treatment for a long list of treatments. These are described as prescribed minimum benefits (PMBs).

In addition, medical aids may not refuse anyone membership on the basis of their health status or age.
The medical aids are worried that hospital plans are attracting young, healthy people to bail out of their expensive medical schemes and getting hospital insurance instead. This is affecting the financial health of medical schemes.

What the government is planning

The government plans to introduce “demarcation regulations” that specify the kinds of health insurance plans that are permitted in terms of two specific laws: the Medical Schemes Act and the Act governing long term and short term insurance.

Government also intends to broaden the definition of the “business of a medical aid scheme” in the Financial Services Laws General Amendment Act in support of the new demarcation regulations.

The Treasury, which is the arm of government gunning for hospital plans, says that health insurance plans that are deemed to fall under this definition will become illegal.

How the regulations might help South African consumers

•    Because the regulations will govern health insurance apart from medical schemes, the insurance companies that market hospital plans will not be able to engage in “misleading marketing” by saying they are kind of medical scheme. Hospital plans do not cover anything like the range of treatments and conditions that medical schemes must, by law, cover.
•    In terms of the latest draft regulations gap cover and hospital cash plans will still be available although they will be restricted. A maximum of R50 000 in claims per year will be permissible for gap cover, while hospital cash plan payouts will be capped at R3000 cash payout per day.
•    Primary healthcare policies are not included in the new regulations. Treasury spokesperson Jabulani Sikhakhane said the government was worried that primary health care products replicated the business of medical schemes and therefore eroded the medical scheme base.
•    In future, insurance companies offering primary health care policies will have to apply to the Council for Medical Schemes.