Insurers will be allowed to continue selling two popular health policies but could be prevented from risk-rating, or setting premiums in line with your state of health or age.
National Treasury this week released a statement saying that it and the Department of Health have decided to publish new draft regulations under the Short and Long Term Insurance Acts that will allow, rather than ban (as was previously proposed) gap cover and hospital cash plans.
Treasury’s statement says that, although these policies have a role, they must complement, rather than compromise, medical schemes and support social solidarity – the principle whereby the young and healthy subsidise the old and sick.
The statement says that these policies will have to be provided on similar terms as medical schemes.
Ismail Momoniat, deputy director-general of tax and financial sector policy at National Treasury, says the demarcation between medical schemes and health policies is a complex issue and the terms on which gap cover and hospital cash plans will be allowed still have to be finalised. However, the proposals have included denying insurers the ability to risk-rate, he says.
Gap cover policies are sold to medical scheme members and pay the difference between what a specialist charges you, mostly for in-hospital services, and what your scheme pays for these services.
Hospital cash plans provide a cash payment for each day you spend in hospital and can be used by anyone regardless of whether they belong to a medical scheme.
One of the arguments against gap cover policies is that, whereas young and healthy members can buy cheaper medical scheme cover and then top up their cover with a gap policy, older, sicker members are denied gap cover or they find that the premiums are too expensive.
Treasury’s statement was released ahead of Parliament’s standing committee on finance this week approving a bill that contains an amendment to the Medical Schemes Act. The amendment, which is in the Financial Services Laws General Amendment Bill, aims to clarify the definition of a medical scheme.
Once the definition is amended, health policies, other than exempted ones, will be regarded as doing the business of a medical scheme and will be illegal, unless they register as a medical scheme.
Exempted policies will be defined in regulations under the Short and Long Term Insurance Acts. The Acts were amended in 2008 to provide for the Minister of Finance, by way of regulation, to decide which health insurance policies will be allowed. A draft of these regulations, which banned gap cover and severely limited hospital cash plans, was published in March. The draft regulations were severely criticised and 343 submissions were received.
Treasury says that a second draft of the regulations will be published before the end of this year with a view to finalising them by April next year so they can take effect in 2015.
The Financial Services General Laws Amendment Bill provides for the revised definition of a medical scheme to take effect on a date to be determined by the Finance Minister.
The date on which the amended definition takes effect will be aligned with the date on which the health insurance regulations take effect, Momoniat says.