Draft Regulation

Health Insurance vs.

Medical Schemes

Clayton Samsodien

The Scene

Contents 1. History Check

2. A better balance or not?

3. What can be sold should the regulations go ahead in its

current form?

4. Sufficient demarcation to prevent disputes

5. Concerns

6. 2013 Medical scheme review

7. Case Study 1: Gap Cover

8. Case Study 2: Health Insurance

History Check

In the matter between Guardrisk Insurance Company Limited

and the Registrar of Medical Schemes, court included in its

judgement:

“Practical reality has shown that there exists a need for this

type of insurance and there seems to be no reason why it

should not be permitted”.

The Judge also noted the lack of evidence that gap cover

products undermine medical schemes, and to date, no

evidence has been presented to support this contention.

A Better Balance or Not?

Treasury had to bring the draft regulations to the fore, as a result

of the CMS vs. Guardrisk case, where the Judge ruled in favour

of Guardrisk.

At the heart of the debate is the allegation that insurance

products are constituting the “business of a medical aid”.

Concern that health products exclude conditions, age. etc.

The draft regulations seek to:

1. Protect the medical risk pool from younger / healthier clients

buying down, buying alternate cover or buying a lower level of

cover within a scheme.

2. Intends to regulate “health and accident” policies in the short tem

and life industries.

3. CMS wants to accept or decline such products in association

with the FSB.

What can be sold?

1. Qualifying criteria of Health Insurance policies, must not;

Be linked to medical care or medical expenses.

Cause harm or undermine the medical scheme environment.

2. Description of policies that can be sold;

Income replacement.

Frail care / contingency expenses.

HIV and AIDS.

Emergency evacuation or transport.

Strict policy wording: “benefits payable in the form of lump sum

benefits per day to cover contingency expenses”

Sufficient Demarcation

1. Health Insurance policies can only provide for loss of income,

contingency expenses associated with a health event but not

linked to a medical expense, HIV and AIDS as well as emergency

evacuation.

2. Heath Policies – long term

3. Health and Accident – short term

4. Must not constitute the business of a medical scheme or cause

harm to the medical scheme environment.

Concerns 1. Allowing HIV and Aids, but precluding any other dreaded disease,

is seen as discriminatory and / or insensitive?

2. CMS 2011 report stated the reason for members cancelling

membership or buying down, was as a result of affordability.

3. If schemes have payment arrangements for specialists, then why

are members buying down.

4. Regulation will be detrimental to existing clients, as it does not

specify that medical schemes are required to cover benefits

currently provided by health insurance products.

5. Gap cover, covers expenses not covered by medical schemes, i.e.

the difference between medical scheme rates and what is charged

by private practitioners.

6. Medical schemes implementing co-pays, deductibles, sub-limits,

etc. - this poses a financial risk for clients, which opens the door

for insurance.

Concerns Cont.

1. There are 5 times more gap cover policies in place than 6 years

ago.

2. No guideline tariffs? HPCSA attempts?

3. CMS suggests CPIX plus 3%, medical scheme inflation therefore

outstrips CPIX, hence cost pressures on consumers to continue

to afford medical scheme contributions.

4. CMS state that private hospitals and specialists are responsible

for the rising cost of medical schemes.

5. FAQ correspondence released by Treasury, states that rising

costs will be addressed and it is a separate matter. Surely this

process must be completed prior to outlawing other products?

6. New members to medical schemes are buying lower cover. Is

this a result of financial pressure on consumers, bearing in mind

increases in commodities, such as electricity or fuel or possible

e-tolling or is it Gap Cover?

Move to Lower Rates

0

200000

400000

600000

800000

1000000

1200000

100% 150%

Nu

mb

er o

f m

emb

ers

Move to lower rates of reimbursement 150% to 100%

2006

2007

2008

2009

Move to Lower Rates

0

100000

200000

300000

400000

500000

600000

200% 300%

Nu

mb

er o

f m

emb

ers

Move to lower rates of reimbursement 300% to 200%

2006

2007

2008

2009

Gap Cover Data

1. Complimed

15% of claims exceed 300%

57% of claims exceed 200%

2. Turnberry 2011 vs 2012 claims graph

Specialists are charging more.

Cost increase per claim.

Note increase in number of claims.

Case Study 1

Scheme A: 100% VS 200% : (M+S+2C)

If member was to upgrade, no protection for below!

SOME: Co-Pays, deductibles & sub-limits

Investigative procedures.

Co-pay for dental admissions.

Sub-limit for hip, knee & shoulder joint prosthesis.

THEREFORE, member can have a gap

in three instances for one event!

Plan Type Hospital Cover Contribution

Option A 100% R2 957

Option B 200% R3 490

DIFFERENCE R533

Medical/Health Insurance

1. What happened to LIMS?

2. Sudden shift to NHI.

3. If NHI is a 14 year project and only 11 pilot districts named, what

happens in the interim?

4. No mention of occupational health products.

5. Only those earning above tax threshold of R5750 will receive a

tax credit that can assist in affording a medical aid scheme.

6. What about those earning below the tax threshold?

7. How many members can afford plans that reimburse at 300%.

8. What about schemes that only have plans that reimburse at 100%

Case Study 2

Medical Scheme vs. Medical Insurance

(Income = R5500, M+S+2C)

Plan Hospital Day-to-Day Contribution

Scheme A 100% - network Capitation R1 730

Scheme B 100% - network Capitation R1 638

Scheme C 100% Network Capitation R1 752

Insurance A No cover Capitation R 629

Insurance B No cover Capitation R 574

Affordability

Medical Schemes

Contribution 31% of CTC on average

Medical Insurance

Contribution 10.9% of CTC on average

If these products are outlawed?

1. Lower income earners will suffer the most.

2. No access to primary healthcare.

3. Additional burden on State.

Medical Scheme Review for 2013

1. Silence after the public and industry outcry!

2. No guidelines to assist consultants to advise their clients

through the year-end renewal period 2012.

3. If members were to upgrade, there is little certainty that they

will not have gaps in cover.

4. Schemes are introducing more and more, co-pays,

deductibles and sub-limits, these risks are mitigated by gap

and health insurance products.

5. In the absence of clear guidelines;

Status quo remains,

Most consumers cannot afford to upgrade,

Key to inform clients of the potential risks of the cover

selected.

If Regulations go ahead

1. Gap cover will evolve to provide predetermined sum-insured for

listed events.

2. Policyholders will therefore have lower or higher pay-out than

cost of medical event. Little or no certainty that financial loss

will be appropriately covered.

3. Insurance products can evolve to become occupational health

products. This will eliminate family from cover.

4. Loss of income, contingency cover, HIV and evacuation

products will be developed.

Considerations 1. Consumer right to access affordable products?

2. Constitutional right to insure against financial risk?

3. No guideline tariff?

4. Voluntary membership?

5. Majority of schemes had improved financials according to

CMS?

Questions? Thank You