Consumers need to understand that medical insurance is changing – for worse
Insurance is a grudge purchase – a necessary expenditure most of us do not willingly make. However, all consumers of insurance need to take note of two events that happened in the last 12 months which are going to affect them all; two pieces of legislation introduced under the guise of protecting consumers from “abuse” by rogue practitioners in the insurance industry.
One was the introduction of the Twin Peaks* system of regulation of the financial services market. This affects the cost, quality, and choice of all insurance products and source of advice.
The other, which specifically impacts healthcare, was the introduction of the new Demarcation Regulations for Healthcare, in force since 1 April 2017. Again, the effect is an increased cost of insurance and a negative effect on the quality and choice of products and advice available.
The demarcation regulations govern products offered by health insurance companies, such as medical gap cover, hospital cash plans and primary health insurance policies and draw a clear line between these products and medical aid (MA) schemes.
Health insurance companies fill an important gap in the market by offering these lower cost alternatives and other complementary policies that augment medical scheme benefits and typically benefit lower and middle-income individuals. Without these options, most of us will receive fewer benefits and may even be forced to abandon our insurance policies and use the ailing, public health system.
Consider, for example, the case of a young man diagnosed in early 2018 with a potentially fatal, inoperable cancer. His only hope of survival is a course of new age cancer drugs. However, these drugs are very expensive, but his medical scheme will only cover half of the total cost of nearly R1 million. This leaves him with a shortfall of about R500,000 that he needs to cover out-of-pocket. He could claim the shortfall from his gap cover policy, but, whereas previously gap cover benefits were unlimited, under the new regulations, they are now limited to R150,000 per annum per beneficiary.
On these rare occasions when highly specialised, expensive treatments are required, medical schemes cannot cover the full cost of the treatment as they run the risk of bankrupting the entire scheme and having to deny cover to all beneficiaries enrolled on that option.
Gap cover products were designed so that consumers can avail themselves of additional cover for catastrophic shortfalls. But the new legislation denies patients the right to insure themselves comprehensively against such catastrophes, and thus denies them their right to access healthcare.
The market, historically, recognised the need and developed products to overcome such shortfalls, but now government is preventing insurers from meeting the real needs of consumers. Why would a government be so intent on interfering with mutually beneficial contracts and denying people the right to cover themselves when catastrophe strikes?
Instead of encouraging and enhancing low income earners’ access to quality healthcare, the regulations effectively prohibit insurers from offering innovative low-cost health insurance products and severely restrict the benefits of existing insurance products. Individuals unable to afford the higher cost insurance products will have no option but to exit the market and use the already failing public healthcare system which is plagued with poor quality service.
Medical insurance – medical gap cover, hospital cash plans and primary healthcare policies – used to be regulated by the long- and short-term insurance Acts, but now the demarcation regulations state that most health insurance products will be deemed to be a medical aid, and like medical schemes regulated by the Council for Medical Schemes (CMS).They will therefore have to adhere to the same onerous obligations as medical schemes, including providing for prescribed minimum benefits (PMBs) that all medical schemes are compelled to provide regardless of whether you need the cover or not. At the stroke of a statutory pen, these regulations are driving the cost of obtaining health insurance up out of the reach of the less wealthy and will deliver the opposite of government’s stated intentions.
The need for low cost products in healthcare is needed more today than ever. Yet, government is tying the hands of insurance companies by forcing them to abide by the same onerous rules as medical schemes rather than deregulating the health insurance market and allowing actuaries to develop products that cater for low and middle-income individuals.