With guns blazing, the insurance industry is fighting back against the government over the latest legislation on medical schemes.
The Medical Schemes Act Amendment Bill will drive up the costs of belonging to a medical scheme and deny you the opportunity of buying health insurance to supplement your medical cover, the insurance
Both the long-term and the short-term insurance industries this week spelt out a number of serious repercussions for consumers if the latest round of medical legislation is implemented.
Gerhard Joubert, the executive director of the Life Offices Association (LOA), says the cost of healthcare is increasing at an alarming rate for South African consumers. He says there is no doubt that the Medical Schemes Act and its regulations are the main culprits.
Costs to members will continue to increase if schemes cannot prevent opportunistic scheme-hopping, impose exclusions for known pre-existing illnesses, and charge more if people join schemes only when they are already sick.
If costs continue to increase, healthy people are going to opt out of medical schemes because they will not be getting value for money.
Health insurance outlawed
The insurance industry's chief concern is that health insurance could be outlawed if the amendments are accepted.
Caroline da Silva, an executive of the South African Insurance Association - which represents the short-term insurance industry - says medical schemes cannot provide for all the financial losses that you could face as a result of sickness or injury. Yet the proposed amendments stipulate that you may not buy additional cover for medical costs via health insurance.
The need to keep membership affordable has resulted in many schemes cutting their benefits to retain their members. This has meant that comprehensive benefits - for example, the loss of income after an accident - are only available through supplementary cover.
Da Silva says the hospital cover of millions of policyholders would become illegal if the Medical Schemes Act Amendment Bill was signed into law, as would travel insurance policies, which provide for emergency healthcare and ambulance services to travellers outside South Africa.
Hospital policyholders include many old people and people who will never be medical scheme members because of their low income levels.
The new Bill has been issued in direct contradiction of a recent agreement between the Department of Health and the Financial Services Board (FSB), she says.
Less than a year ago, the department and the FSB issued a joint demarcation agreement to define the differences between a medical scheme and health insurance. But the definition of a medical scheme in the Bill will allow the Registrar of Medical Schemes to override that agreement.
The real danger lies in the cumulative effect of the new proposals in conjunction with the existing medical schemes legislation, under which schemes are already severely restricted in the measures they can impose to contain costs, Joubert says.
The Bill plans to bring a number of products and service providers in the financial services industry under its ambit. The LOA is concerned that these products and services will be subjected to duplicated regulation.
Apart from the cost impact, the Constitution clearly states that organs of state must not impinge on one another's established areas of control and must co-operate with one another.
The Bill wants to force all medical schemes to submit their re-insurance arrangements to the Council for Medical Schemes for approval. Joubert says reinsurance arrangements already fall under the scrutiny of the FSB. The over-regulation which would result from the Bill is not only unnecessary, but is ill-advised because the Council for Medical Schemes is not geared to properly assess the complex financial aspects of reinsurance.
Schemes use re-insurance to insure themselves against the risk of not meeting their claims.
Details about the Medical Schemes Act are to be spelt out in regulations accompanying the Bill. These have yet to be released.
The Bill plans to remove more detail from the Act itself and leave this open to regulation. This means that the medical schemes industry could be materially affected by a few individuals with no need to involve Parliament, Joubert says.
The Bill suggests that medical schemes should only be allowed to set conditions for membership after retirement as prescribed in regulation. Although the regulations have not yet been published, the LOA assumes that the intention is to limit the conditions a scheme can apply, Joubert says.
If so, it can be assumed there will be a financial impact because funding healthcare into retirement is particularly expensive.
Employers are already having second thoughts about offering healthcare benefits due to increasing cost and, if forced to finance healthcare into retirement, employers will to reconsider whether they can afford to continue offering health benefits to their staff.
Moving between schemes
Another proposal in the Bill is to remove the protection that schemes have against members moving from scheme to scheme to manipulate the system. If these regulations are passed, Joubert says, schemes would have no option but to again increase their costs.
If members are allowed to join low-cost (and low-benefit) schemes when they are healthy and then move to high-cost (high-benefit) schemes
only when sick, then the entire principle of cross-subsidisation through community rating would be undermined.
The net effect is that the best schemes would cost more, because they offer the best benefits. These schemes would be the most attractive
to members, who would inevitably claim more than they pay. To counter this,
schemes would either have to increase premiums or decrease benefits, which is exactly the opposite of what the legislation sets out to achieve.
Source: Personal Finance, 4 August 2001