The release on Friday, 2 March 2012 of the draft Regulations on the Demarcation of Medical Aids between health insurance products and medical schemes can only be described as disappointing and a blow to medical aid members who are already hard pressed in meeting soaring private healthcare costs.
This is according to Michael Settas, Managing Director of Xelus, a Gap Cover provider.
One of the participants in the work group who developed the set of draft regulations, the Council for Medical Schemes (CMS), has repeatedly cited over recent years that health insurance products are harmful to the medical schemes environment and this sentiment is echoed repeatedly in these draft papers. This draft is unfortunately a superficial approach to regulation that lacks the sophistication required to garner control of South Africas complex private healthcare industry with its multitudes of variable dynamics, says Michael.
Certainly there are some health insurance products that are infringing upon the business of a medical scheme but instead of specifically analysing the various forms of current health insurance products and determining which products bring value to consumers and which may be harmful to medical schemes, the regulators have painted all health insurance products with the same brush, sweeping out the good with the bad.
The dramatic restructuring of existing products that will be required under these draft regulations, such as gap cover products that offer valuable supplementary benefits to medical scheme members, means that premiums will increase and that the shortfalls between medical scheme benefits and actual costs incurred may not be met for major events such as hospitalisation and surgery, says Michael.
In an ironic twist, the CMS last year went to court to challenge the interpretation of the payment of the Prescribed Minimum Benefits (PMB) at scheme tariff as opposed to actual cost the CMS wanted schemes to cover the PMB at actual cost in order to protect consumers.
The PMBs are a set of defined medical services mainly constituting major medical in-hospital events that all medical schemes must pay for. However, according to the 2010 annual report compiled by the CMS, only about 50% of private hospital admissions are for a PMB condition.
Consumers therefore do not have the at cost PMB protection from their medical schemes for approximately half of private hospital admissions therefore making gap cover essential if consumers want comprehensive in-hospital cover. The CMS intrinsically confirmed this problem, citing in one of its industry circulars late last year that the high increases in medical specialists costs cannot be rationally explained and might be attributed to inherent market failures within the private healthcare sector.
The enormous growth in supplementary gap cover products over recent years has not been by choice for consumers but has been precipitated by this very market failure that the CMS alludes to. South Africa has a shortage of medical specialists who subsequently have shown little interest in contracting with medical schemes which would thereby require them to charge rates equal to the schemes tariffs currently specialists charge well above scheme tariffs. This inherent market failure therefore leaves medical scheme members exposed and combined with the manner in which the draft regulations currently stand, the consumer is going to lose, warns Michael.
Hopefully some sense will prevail and a more inclusive and articulate set of regulations will be structured that provides the protection necessary for medical schemes but also does not leave the consumer exposed to unaffordable private medical costs, he concludes.
TRIARC is an authorised financial services provider FSP45009. TRIARC insurance products underwritten by Guardrisk Life FSP76. Council of Medical Scheme
Number ORG 4040.