Medical Aids

Will you be able to have a medical aid under the National Health Insurance scheme?

Health Minister Aaron Motsoaledi released the NHI white paper in Pretoria on Thursday. The document sketches out the details of the future NHI Fund through which it will pay for medical services — whether in public or private facilities — for all South Africans.

The fund, which will report to Parliament and be governed by an independent board, will be financed by mandatory contributions.

Whether NHI-specific taxes will be introduced will be decided by the treasury. Yet, Motsoaledi said he was confident that Finance Minister Malusi Gigaba would remain true to former minister Pravin Gordhan’s word when he committed to ending tax credits for private medical aid members and diverting that money to the NHI.

Medical aid members, including state employees, received R20-billion in tax credits in 2015 alone. Motsoaledi argues that high medical aid subsidies for state employees means that about 85% of healthcare costs for a member of the Government Employees Medical Scheme are paid for by the state.

“Part of the source of that NHI Fund has to come from the tax credits, meaning what? You are taking money that is being sent to people who are already rich to help those who are poor, and that is called social solidarity,” maintains Motsoaledi.

The Democratic Alliance has also supported the axing of tax benefits for medical aid members in its NHI alternative, called Our Health Plan.

Motsoaledi adds that the NHI or universal health coverage is the only way to redistribute the country’s heavily skewed resources.
“One private clinic, [Johannes-burg’s] Netcare Park Lane Hospital, has 64 gynaecologists — that is more than the total in [government hospitals in] the North West, Limpopo and Mpumalanga added together,” he said.

“About 80% of doctors in this country serve only 16% of the population, [and] the remaining 20% of doctors must serve the rest — how can you expect not to have long queues [in the public sector]? The NHI must make [these doctors] available to the rest of the population and then there will no longer be long queues.”

Under the NHI, the government will be able to buy services from accredited private health facilities for even the poorest South Africans, at set rates. These rates will be determined by the fund in consultation with the health minister.

So even though medical aid schemes are likely to remain until the NHI is more established, their fate may be set in stone.

He explains: “Medical aids will have to give way because we want one similar system for everybody. We want one united pool of funds for everybody, and this will also make healthcare very cheap. If you have lots of health schemes all over the place, you are not able to control prices because you can’t use economies of scale.

“In the beginning, we will work with medical aids, but maybe 10 years from now, they will all have to be gone.”

Health department director general Precious Matsoso says she is already working with some medical aids to streamline the products they offer to help them to move members slowly on to one standard package of services that will mirror NHI offerings.

Meanwhile, about 1,000 private health facilities are already working with Matsoso to prepare to begin taking public patients.

But the private health sector isn’t the only one in for a shake-up. The NHI will take some power away from provinces, at least 10 Acts will have to amended to make way for the coming healthcare revolution. Legislative changes will, for instance, put control of the country’s large teaching hospitals back in the minister’s hands.

The centralisation of some health functions may also translate into less money for provincial coffers as functions such as drug procurement are taken out of provinces’ hands — a move that some health activists may welcome, after years of protests over weak provincial health management.

Motsoaledi explains: “How many South Africans are happy with their cover and how many are not happy with any cover because they have nothing? People must appreciate that we want to be a nation where equality, social justice and social solidarity are the order of the day.”

NHI white paper issues raised

The two fundamental issues with the new white paper on National Health Insurance (NHI) are a single payer fund and the nationalisation of private healthcare without compensation.

Single payer fund

In terms of the single payer fund, the white paper believes that the NHI can use bulk purchasing power to drive down the price of healthcare services. However, it then simultaneously declares that it will accredit medical service providers – public and private – and then set the prices at which they can sell their services to the NHI. It specifically states that it will deploy a “uniform reimbursement strategy” and that accredited service providers will not be allowed to deviate from that.

This raises a fundamental question. If the NHI is going to regulate the price at which the services are being procured, why does it need to use the bulk purchasing power of a single fund to reduce prices?

Nationalising private service providers

The white paper also declares that medical schemes will not function in parallel to the NHI, but will only be permitted to offer “complementary services” that are not available under the NHI. This will destroy the current medical scheme market and effectively nationalise most private service providers, since they will have no choice but to contract with the NHI for the defined services at regulated prices.

In a further contradiction, the white paper states that citizens will not be forced to use NHI services but if medical schemes cannot co-exist with the NHI, how will this choice be achieved?

Consequences

The two fundamentals of removing competition between funds and service providers will have disastrous consequences. Quality will suffer and the ultimate long-term impact will be higher prices – it’s the undisputed consequence of removing competition from a market.

As the Department of Health currently operates, it’s effectively a single payer fund. Citizens who cannot afford medical aid cover, have no choice but to receive their healthcare from state-funded public health facilities. The obvious quality problems that currently beset the public system are exactly what will transpire under a single payer NHI.

Value-based health systems

The best option would be to allow multiple paying funds – similar to medical schemes – that compete with each other on the price, quality and efficiency of their service. Prices for medical services should also not be set. These multiple funds should be allowed to freely contract with any provider – public or private – based on the quality of their clinical outcomes, rather than on the price they charge. This structure would ensure competition between funders as well as providers.

Value-based health systems are growing in popularity and success in many countries around the world. By sharing clinical data, treatment methodologies and health outcomes, these value-based systems are achieving superior clinical outcomes at lower costs. It also allows consumers freedom of choice and leads both funders and providers to focus not on revenue generating, but on the clinical outcome of the patient. Competing on the quality of the health outcome results in a win-win situation. Costs are controlled and quality rises.

Further consequences of what NHI is proposing will be a brain drain, as doctors emigrate to friendlier markets, and corruption is virtually certain to be endemic in a state-run NHI fund that, in today’s value, will turnover in the region of R400bn annually.

Medical scheme members likely to lose their tax credits under NHI

Medical scheme members are likely to lose their tax credits to help pay for the first set of benefits to be rolled out under National Health Insurance (NHI), Health Minister Aaron Motsolaedi said.

Briefing reporters on the government’s latest policy position on NHI, which will be published as a revised White Paper in the government gazette, Motsolaedi said the first package of benefits would target women, children and the elderly: “The central philosophy is that we are going to start pooling funds for people who are not on medical aid, starting from the bottom.”

The government provided R20bn in tax credits to members of medical schemes in 2015, many of who were among the nation’s most wealthy citizens and least in need of government support, he said. Only 8.8-million people currently belong to medical schemes, out of a population of about 55.5-million, he said.

Former finance minister Pravin Gordhan announced in his February budget that an NHI Fund was to be established, which would progressively expand the services it provided. At the time, he indicated that Treasury was looking at various financing options for the fund, including possible adjustments to the tax credits on medical scheme contributions, with more details expected in the October adjustment budget, and during the course of the legislative process for NHI.

Motsoaledi said the priority programmes that would initially be covered by the NHI Fund include healthcare at schools, childhood cancer, women’s health (including pregnancy, cervical cancer and breast cancer), mental health services, disability and rehabilitation services, and hip, knee and cataract surgery for the elderly.

The total cost of implementing these priority programmes will come to R69bn over four years, he said, less than the total cost of the tax credits provided to medical scheme members over the same period.

Counting the costs of medical aid fraud

“The reduction and elimination of fraud, waste and abuse will impact on medical aid contribution increases,” says Gerhard van Emmenis, Acting Principal Officer of Bonitas Medical Fund. More importantly, benefits could be enriched to pay for even more critical healthcare and treatments. He says, “Fraud, waste and abuse is one of the biggest contributors to escalating healthcare costs as the fee-for-service model of payment encourages people to over-charge or over-service for profit.”

The cost of irregular claims

Last year Bonitas identified over R79 million in irregular claims involving medical practitioners. Money which could have been used to pay for around 57,000 more GP consultations or eight lung or liver transplants. “It’s a travesty that greed ultimately denies others the opportunity for quality healthcare,” says Van Emmenis.

The private healthcare funding industry spent over R150 billion on private healthcare in 2016. Of this a staggering 10-15% of these claims contained elements of fraudulent information – adding an estimated R22 billion to the annual cost of private healthcare in South Africa.

Who are the culprits?

The culprits are not just medical practitioners. Guilty parties are found all along the healthcare delivery chain – from medical practitioners through to employees, service providers and members. There has also been an increase in collusion between members and healthcare providers.

The trends

Van Emmenis says fraud may not necessarily be on the increase but the high-level analysis means medical schemes are uncovering substantially more fraud than previously.

Identity fraud: Current trends seem to be ‘bogus doctors’ who submit claims, using another doctors’ practice number.

Time-based health practitioners: “2016 data revealed a massive increase in costs for allied/auxiliary service providers,” says Van Emmenis. “These are your dieticians, physiotherapists, psychologists and most time-based non-surgical healthcare practitioners. Using big data analytics, we are now able to identify these culprits much sooner, some of whom claim as much as 50-60 working hours a day!”

Other fraudulent activity

Waste and abuse is far higher than fraud and is more easily quantifiable in terms of values as it is usually a clear contravention of tariff codes or a rule that exists. Most of the common practices include:

  1. Billing for services not rendered (over billing).
  2. Using incorrect codes for services (at a higher tariff).
  3. Waiving of deductibles and/or co-payments.
  4. Billing for a non-covered service as a covered one.
  5. Unnecessary or false prescribing of drugs.
  6. Corruption due to kickbacks and bribery.

Economic downgrade

When the economy is bad, people including medical practitioners and suppliers can get desperate. There are so many ways in which the system can be manipulated. For example, if a doctor does not get enough patients to cover his expenses he may well resort to abuse or fraud. If a member has used all their out of hospital expenses, a doctor might admit the patient to hospital just to access more benefits. If hospital occupancy is low, the hospital may well extend the stay.

Who pays the price?

As medical aid schemes became acutely aware last year during the increased tariff period, everyone suffers, including the general public. Schemes have to introduce double-digit increases which are sometimes unaffordable. This forces members to buy down or leave the medical scheme and join the public healthcare sector. This not only creates an additional burden on the state where they are already under-resourced but medical schemes start to stagnate if they are losing members and the vicious cycle of premium increases continues.

What is the best deterrent?

“In our experience, the biggest single deterrent to fraud, waste and abuse is making it known that we are actively investigating every suspicious or unusual claim or activity. Education in terms of the relationships with medical aids, their members and the healthcare providers goes a very long way in curbing the abuse of medical aid benefits and, as such, our approach to fraud management speaks to this education component in all the matters we deal with.”

We believe in ‘prevention is better than cure’, and encourage the members to participate in the process. For example by checking their accounts and questioning strange or unfamiliar claims.

Collaboration

Van Emmenis believes that working together is the only way to combat this scourge in the industry. To this end SA Fraud Prevention Services (SAFPS) is encouraging all the roleplayers to come aboard its new initiative. This is a listings database where details of reported and investigated cases are captured to enable all members of the initiative to mitigate their risk with the sharing of information and identifying serial abusers or fraudsters.

Bonitas actively participates in industry initiatives including the SAFPS, The Healthcare Forensic Management Unit (HFMU) and Association of Certified Fraud Examiners (ACFE) as well as a range of associations focused on preventing fraud.

Another important aspect of this initiative is the coordination of collaboration among healthcare insurers, where knowledge, skills, operating structures and many other important aspects can be shared.

Who deals with the perpertrators?

The only body who can deal with this is the Health Professionals Council of SA (HPCSA) or the Pharmacy Council. There is no one monitoring the hospitals. The Medical Schemes Act states that it is a criminal offence but, due to volumes and complexity, it is difficult to prove intention beyond reasonable doubt. A more effective measure is to stop payment.

“We believe the HPCSA are too lenient on offenders. According to Section 66 of the Medical Schemes Act, medical aid fraud, committed either by a member or a healthcare practitioner, is a criminal offence which carries a fine or imprisonment or both,” says Van Emmenis.

Fraud and abuse is committed by a small number of healthcare providers but is a major cost driver in terms of financial impact. Bonitas is leading the way in effectively detecting and preventing the fraud because substantial losses are suffered and it adds between R192 and R410 per month to every principal member’s medical aid contributions.

In conclusion Van Emmenis says it will take a combined effort of the regulatory bodies, the professional associations and the medical schemes to raise the necessary awareness and stop fraud, waste and abuse going forward.

Prosecution and consequences

A member found guilty of committing fraud will have their membership terminated. All fraudulent claims submitted will be reversed and the member will be liable for them. A criminal case will also be opened. In addition, members who commit fraud may also have their employment jeopardised – especially in cases where their medical aid contributions are subsidised by their employer.

In instances where a healthcare provider is guilty of committing fraud, all fraudulent claims will be reversed. The provider will be reported to the relevant regulatory body and a criminal case will be opened.

Examples of medical aid fraud, waste and abuse
Psychologist billing for extra hours

A psychologist was investigated after his claims were analysed. It was found that he was claiming for services, rendered to Bonitas members, for durations up to 57 hours per day, which is impossible. The psychologist was operating a sole practice and did not employ any additional psychologists and services and claims are hour-related.

After an investigation was conducted it was established that the psychologist submitted false claims and used the following methodology:

  • In some instances the psychologist was not known by the members, but had obtained their details fraudulently.
  • Claiming for services not rendered could be cancelled retrospectively upon discovery of the fraud, leaving them in financial distress should they or their dependants subsequently had being hospitalised for genuine treatment. They also face criminal prosecution that will not only impact themselves but also their employment, as longer hourly sessions were claimed.
  • Some members consulted once but the psychologist submitted claims on a monthly basis.

A criminal matter was lodged and the psychologist was prosecuted for fraud.

Pharmacies approving claims for non-medicinal items
Information was received that several pharmacies, in a specific area, were supplying members with cash, toiletries and groceries. The pharmacist then submitted false claims to cover the costs for the non-claimable articles.

Upon further investigation, it was found that pharmacists of six pharmacies were operating in conjunction with several GPs to carry out this scheme. The following modus operandi was uncovered:

  • The members will receive non-claimable articles such as toiletries, cash and groceries.
  • The pharmacist submits false claims for high-cost medication to cover his expenses.
  • The pharmacist obtains a false prescription from participating GPs to cover for claims submitted for scheduled medication.
  • The GPs then also submit false claims for consultations without consulting with the members.
  • Allowing other people to use your medical aid card.

A full-scale investigation in conjunction with the SAPS was lodged and an undercover operation was conducted, pharmacists from six pharmacies and several GPs were arrested and prosecuted successfully for fraud.

“These examples paint a very gloomy picture,” says Van Emmenis. “They reveal not only how our own members were involved but also how their fraudulent actions quickly spread to allow further fraud against the scheme in their names. These members also clearly did not realise the extent of the impact of their fraudulent actions on themselves. Their membership employers usually subsidise contributions.”

If you suspect any medical aid fraud, contact our independent Whistleblower Hotline on 0800 112 811.

Survey: Attracting young members a problem for small medical aids

The survey analyses and rates medical aid schemes and it also provides a standardised comparison and ranking of the choices available to consumers.

“This survey cuts through the notoriously complicated landscape of the medical aid industry and simplifies it according to the factors that matter most when consumers choose a medical aid scheme and option,” explains Jill Larkan, the firm’s head: healthcare consulting.

This year’s survey reviewed 23 open medical aid providers (Profmed is the only closed scheme reviewed this year), with a total of 144 plans, which were categorised into 11 areas according to benefits offered. The categories range from entry-level to traditional plans, and include hospital-only, saver and comprehensive options. All top-up plans as well as all primary care plans were excluded from this year’s survey, with a view to producing an entirely separate survey for those categories going forward.

Micro and macro ratings

The survey assigns every plan with a micro – indicating a plan’s competitiveness in relation to others in the same category – and macro rating – broadly a measure of a scheme’s ‘health’, and considers factors such as membership size and growth, average age and financial stability.

“We have simplified this year’s assessment which has allowed us to compare plans more objectively, by confining this year’s review only to open medical aid schemes and excluding all short-term top-up/gap and healthcare policies,” says Larkan.

Smaller medical schemes have again scored well in the micro ratings.

“Fedhealth is one of the schemes that has performed consistently well in the micro ratings, indicating that it is very competitively priced and can offer consumers good value for money,” she says.

With this year’s inclusion of multiple additional macro demographic areas, along with the applied weightings on these, the more stable growing schemes have now scored considerably better in the macro rating. Discovery Health has topped these macro rankings.

“This year we have included a broader range of areas in determining the macro rating, and have weighted each according to the importance thereof in the decision-making process for consumers,” says Larkan. “In previous years, we assigned equal weights to each factor, whereas this year’s survey shows a variation in the weightings of areas such as membership, average age or solvency, according to the relative degree of impact that these elements have on the overall decisions by consumers.”

Larkan believes that if smaller schemes are unable to attract more (and younger) new members, they will not be able to continue as good-value options for consumers, and ultimately become less sustainable as their demographics begin to deteriorate over time.

Hollard partners with Cigna

Insurer Hollard planned “significant acquisitions” on the continent in the next few years and was partnering with global health insurer Cigna to offer health insurance to companies operating in Africa, said Brooks Mparutsa, executive director of Hollard’s international business.

Hollard, which already has offices in Zambia, Namibia, Mozambique, Botswana and Ghana, hoped to finalise the acquisition of a health insurance company in Kenya by the end of 2017, Mparutsa said. It wanted to secure a life insurance licence in Ghana by August and conclude a transaction in Nigeria in the next 18 months.

Hollard was also in discussions over a possible partnership with Resolution Insurance in East Africa and was keen to do an acquisition in West Africa, Mparutsa said.

Hollard is a privately held insurance company, majority owned by the Enthoven family, which also own Nando’s.

At the end of 2015, it was SA’s second-largest short-term insurer, with an 11% share of the industry’s total premium income and ousting Old Mutual Insure, previously Mutual & Federal, from this position.

Hollard’s partnership with New York Stock Exchange-listed Cigna, dubbed Hollard Cigna Health, could see it break into a market that rivals have struggled to crack. Hollard is the distribution partner for Cigna.

Liberty Health, which provides medical expense cover to corporate customers in 10 African countries, continues to post losses. For the year to December, the unit’s loss rose more than 100% to R45m. MMI’s health business outside SA has also reported losses, although these narrowed for the six months to December.

The Hollard-Cigna partnership would provide health insurance, approved by in-country regulators, to multinationals operating across Africa, said Jason Stadler, president of Cigna’s international market division. Companies were inadequately served, with providers such as the British United Provident Association and Allianz focusing predominantly on the corporate expatriate market, Mparutsa said.

Hollard Cigna Health would serve expatriates and local employees of multinationals, including local companies with operations outside SA.

Cigna is in a strong position on the continent, having built up a network of 2,000 healthcare providers over decades.

In terms of the agreement, Cigna would be treated as a reinsurer, with a large portion of premium income ceded to it.

Stadler would not comment on the venture’s premium targets, saying only Cigna had “high growth aspirations”. Africa had a low insurance penetration and a growing burden of noncommunicable diseases, he said.

New law crimps hospital cash-back plans

Affected markets

These regulations will primarily affect those between 20 and 35 years of age. The annual Council for Medical Schemes (CMS) report shows that children up to the age of 20 usually stay on their parents’ medical aid. Then you see a significant drop in the number of dependents between the ages of 20 to 35, and then the line goes up again. This is a clear indication that the young and healthy are exercising their freedom of choice to not have medical aid cover. This is the group that, until now, has often relied on hospital cash-back plans for catastrophe cover.

As a young and healthy person, you’re mostly at risk for some sort of catastrophe – an accident, a fall while cycling downhill, having your appendix removed – and that’s why this demographic has been buying hospital cash-back plans. But if you got cancer, it wouldn’t work, so it’s been a gamble, albeit one with some validity.

Legislated limitations

From 1 April 2017, payouts on hospital cash-back plans will be limited to R3,000 a day, with a maximum of R20,000 per year per insured life. The way it’s been restructured is that you’ll get very limited benefits from this kind of cover. It places the young and healthy at serious risk and they will need to rethink their cover, as R20,000 won’t necessarily pay in full for a catastrophic event like an accident.

The hospital cash-back plan is now something you would buy as an add-on. It could help someone who has medical aid if they were in hospital for quite a while and needed some extra income for additional expenses. It’s changing its nature and a different group of people will buy it if it is cheap enough.

Future planning

But where does this leave the young and healthy? Those with a hospital cash-back plan have a few months to get themselves sorted. Their cover for 2017 will remain as is But by 1 January 2018, they need to reassess their risk and investigate the lower tier of medical aid plans that cover the primary expenses of hospitalisation and chronic medication.

Regardless of the plan you choose, it’s really important that you understand what the limitations are and that you’re happy with them. Are you perhaps restricted in your choice of GP, for example? Or can you only go to certain hospitals and pharmacies? Scrutinise the restrictions as well as the benefits and ensure you know how you would go through the system should something go wrong. Read the fine print and make very sure it suits your lifestyle and needs.
As for gap cover (for medical expense shortfalls), this will be limited to a maximum of R150,000 per insured life per year. Again, existing policies will remain unchanged until 1 January 2018, when the new limits will apply.

Genesis wins case on accounting for use of medical savings funds

Genesis medical scheme has won its legal battle with the Council of Medical Schemes over how to account for the funds in members’ medical savings accounts (MSAs), a development that has potentially far-reaching implications for both the industry and consumers.

On Tuesday, the Constitutional Court ruled that all funds paid by members to their schemes should be considered as assets, regardless of their intended use.

This technical accounting point will make a material difference in the way schemes calculate their solvency ratios that measure gross income against reserves.

Treating MSA balances as assets means schemes’ reported solvency ratios will improve, because funds accumulated in MSAs will now be considered as part of a schemes’ reserves, said Insight Actuaries joint CEO Barry Childs.

This is important because better solvency ratios mean less pressure on schemes to increase premiums.

The judgment overturned a high court ruling that the council has used for the past decade as basis for instructing the industry to regard the money in an MSA as being held in trust and protected from creditors if a scheme was liquidated. The council had also directed schemes to pay interest earned on MSA funds to members.

The judgment means that medical schemes can now retain the interest, and if a scheme is liquidated the funds in a member’s MSA are not protected from creditors.

Council spokeswoman Elsabe Conradie said the most important aspect of the judgment was that the members’ MSA could no longer be ringfenced from being accessed by creditors. The last scheme to be liquidated was Renaissance, about seven years ago, she said.

Genesis marketing manager Elmarie Jensen said the scheme’s trustees were still studying the judgment.

Board of Healthcare Funders head of benefit and risk Rajesh Patel said it was unlikely that schemes would stop paying MSA interest to their members as it would cause immense reputational damage.

The council’s position was based on its interpretation of a 2007 high court ruling on medical scheme Omnihealth, which was liquidated in 2005. The high court held that MSA funds constituted trust property and therefore did not fall into Omnihealth’s insolvent estate.

The council’s registrar used this ruling as the basis for rejecting Genesis’s financial statements in 2013. Genesis launched an application to review the registrar’s decision, arguing the Omnihealth judgment was an error of law that had materially influenced the registrar’s decision. Its contention was upheld by the Western Cape High Court, but subsequently overturned by the Supreme Court of Appeal. It then took the matter to the Constitutional Court.

Medical scheme board of trustees suspended

Community Medical Scheme has been placed under provisional curatorship by the High Court in Pretoria after the Council for Medical Schemes discovered alleged governance failings by its board.

The apparent failures in fiduciary oversight include allowing a R1.1m bonus to be paid to the scheme’s principal officer, which was outside the scope of her employment contract, and allowing illegal advance payments to the scheme’s administrator Allcare to go ahead.

Community Medical Scheme had 13,109 beneficiaries at the end of 2016.

The council’s head of legal services, Craig Burton-Durham said members should rest assured that it was “business as usual” for the scheme, which had sufficient funds to cover their medical bills.

The medical scheme had been making monthly payments to Allcare in the region of R2m to assist the administrator with cash flow difficulties, effectively depriving the scheme and its members of potential investment income, Burton-Durham said. It was illegal for a scheme to make advance payments or loans to any entity, including its administrator, he said.

The council approached the high court urgently and last Friday it appointed Deon van Wyk provisional curator, pending the outcome of a hearing on 4 August 2017.

This gives Van Wyk oversight of the scheme while the board of trustees is suspended.

Community Medical Scheme has a long history of conflict with the council.

Last September, it successfully interdicted the council from publishing its annual report over an accounting dispute over how to calculate its solvency ratio, which the council argued was 13.7% – barely half the 22.5% reported by the scheme for December 2015.

Its argument, which has yet to be resolved, centred on how to account for a R26m transaction with a managed healthcare organisation called Enablemed. The annual report was eventually published, but all references to Community Medical Scheme were redacted.

Source: Business Day

Mind the gap

Medical insurance products, including hospital insurance and gap cover, have got a (not necessarily undeserved) bad rap for overselling and under-delivering, to the extent that the National Treasury stepped in to ensure consumers are safeguarded.

The government was approached to ensure that the business of medical aid and medical insurance is clearly defined, resulting in the Demarcation Act.
The National Treasury communicated the latest version of the Demarcation Regulations (DR) in Parliament, for implementation 1 April 2017. Although the regulations became effective then, existing health insurance products will only need to comply with the regulations by 1 January 2018.

  • The demarcation regulations underwriting: Gap cover will be aligned to the same underwriting requirements imposed by medical schemes, such as open enrollment and three- 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, per insured life, which is applicable to any co-payment and medical expense shortfall. It should be noted that claims in excesses of over R15,000 only amount to 1% of all historical gap claims.

“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 aid. We are pleased to note that legislative requirements, particularly with regard to underwriting and gap cover products, have been aligned,” says Gerhard van Emmenis, acting principal officer of Bonitas Medical Fund.

Is gap cover hero or villain?

The advantage of having a Gap Cover is being insured against some of the additional costs that could be incurred with an in-hospital procedure, in that it will help lessen, or cover, the shortfall between the rates paid by your medical scheme and the actual charges by the hospital or specialist. But it is also a case of “buyer beware”.

You should never assume that all costs will be covered as the payment options depend on the product you have taken out which is subject to limits and exclusions. The onus is on the policyholder to check what is covered, what is excluded and how much will be paid.

However, consumers have not always been safeguarded against being, at best confused and at worst taken for a ride when purchasing ‘medical insurance’ which includes hospital insurance and gap cover. The issue is that these medical insurance products are doing ‘the business of a medical scheme’ but often fail to meet their legal requirements. This is the reason demarcation regulations were introduced.

You also need to remember that gap cover is an insurance product and the companies that sell them are ‘for profit’ organisations, unlike medical aid which is are not for profit. This also means that your contributions are not tax deductible.

So who should take gap cover?

It is only available to someone who has a medical aid plan. Taking out gap cover is an individual choice based on a range of factors, centred on personal need and the benefits of medical aid plan you are currently on.

The way forward

Some health insurance companies sell primary healthcare policies which offer limited day-to-day limited cover and hospital cover. This is not to be confused with gap cover. They are often even more misunderstood or misused as they are billed as being equivalent to medical aid which is definitely not the case. The Department of Health is looking to outlaw these policies. It is envisaged that once completed, all primary care products operating under insurance companies will migrate into the low-cost benefit option framework within medical schemes.

According to the new demarcation regulations any product related to the selling healthcare products will be subject to Council of Medical Schemes regulations. For this reason the Department of Health is looking at ways of creating affordable healthcare for all South Africans including the development of low-cost benefit options (LCBO) within the next two years. Medical schemes are also creating more affordable plans for low-income earners.

“There has been a growth in health insurance products over the past few years, mostly taken up by low-income earners which means there is a ‘gap’ in the market for low- cost plans which cover both hospital and primary healthcare claims,” Van Emmenis says.