Medical scheme, medical insurance, demarcation debate, presentation at Institute of International Research

1. Draft Regulation
Health Insurance vs.
Medical Schemes
Clayton Samsodien

2. The Scene

3. 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

4. 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.

5. 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.

6. 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”

7. 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.

8. 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.

9. 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?

10. Move to Lower Rates
Move to lower rates of reimbursement 150% to 100%
1200000
2006
1000000 2007
Number of members
800000 2008
2009
600000
400000
200000
0
100% 150%

11. Move to Lower Rates
Move to lower rates of reimbursement 300% to 200%
600000
2006
500000 2007
Number of members
400000 2008
2009
300000
200000
100000
0
200% 300%

12. 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.

13. Case Study 1
Scheme A: 100% VS 200% : (M+S+2C)
Plan Type Hospital Cover Contribution
Option A 100% R2 957
Option B 200% R3 490
DIFFERENCE R533
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!

14. 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%

15. 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

16. 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.

17. 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.

18. 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.

19. 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?

20. Questions?
Thank You