Health insurance products

1. Prof Alex van den Heever Wits School of Governance Alex.vandenhever@wits.ac.za Health insurance products

2. Framework for demarcation

3. Legislative framework for medical schemes and health insurance

5. Demarcation process • Lacks a definable public purpose • When the enabling provisions were passed through Parliament • When a committee was established to evaluate the options • When various sets of regulations were published for comment (only minimal supporting memoranda were provided) • Process characterised entirely by lobbying • No technical analysis performed The National Treasury has unusually indicated that it will seek to implement these exemptions without waiting for the Market Inquiry to assess the options – this despite having performed no independent technical analysis itself

6. The question is… • Why would the National Treasury • Avoid substantial consultation? (Favouring token consultation of no substance) • Produce no technical analysis? • Avoid any independent evaluation of proposals that could have far-reaching consequences? • Noting that National Treasury: • has no competence in the field – actual or demonstrated • Has no mandate to amend or determine health policy

7. Enabling provisions of the LTIA and STIA "The Minister [of Finance], despite the definition of 'business of a medical scheme' in section 9(1) (sic) of the Medical Schemes Act, may make regulations identifying a kind, type or category of contract as a health policy."

8. Enabling provisions contained in the LTIA and STIA Regulations must be made only: "in consultation with the Minister of Health"; "after consultation between the National Treasury, the Registrar and the Registrar of Medical Schemes established under the Medical Schemes Act"; and "after having regard to the objectives and purpose of the Medical Schemes Act, including the following principles entrenched therein— "(A) community rating; "(B) open enrolment; and "(C) cross-subsidisation within medical schemes…".

9. Interpretation • The requirement for joint approval by the MOF and MOH establishes a veto on the publication of regulations by another member of the executive • It is important to note that the regulations to be promulgated, and any further amendments thereto, permit the summary amendment of another act in every instance, the MSA, without the need to go back to Parliament • This is unusual and requires careful review of the regulations and conduct of the government roleplayers concerned

10. On the face of it these regulations could be used to de-factoeliminate the purposes and objectives of the MSA merely by defining classes of for-profit insurance business that can do exactly what medical schemes do without having to comply with the provisions of that MSA

11. Even with the embedded veto requirement, however, it is questionable whether this is sufficient to manage the risk of improperly considered regulations that are able to undermine not just the social protection offered through a related piece of regulation (the MSA) – but its entire existence (through eliminating any requirement for a person doing the business of a medical scheme to register) It would however clearly be irrational for subordinate legislation of this nature to be capable of achieving such an outcome

12. As Parliament has not repealed the MSA, it is plainly not for the MOF and the MOH to do so by way of a broad interpretation of the power of exemption in the insurance acts even were they to choose to do so

13. For the regulations to be lawful they need to ensure the following is not undermined • The purpose of the MSA • The objectives of the MSA • Community rating • Open enrolment • Cross-subsidization within medical schemes

14. Purpose… "The increasing tendency within medical aid schemes to take into account individual risk profile (age, gender, claims pattern, health status) rather than that of the group in which the person belongs deprives cover to many who would otherwise qualify. This occurs through high premiums and largely unaffordable benefit options that some groups face because they are sick and/or old.“ (Minister of Health, 1997)

15. "There are a number of’ features of’ the current situation within the medical schemes sector which underlie the need for new legislation. These include the need to:" "Expand access to medical schemes, especially by the elderly and sickly who currently tend to be excluded, by means of reinforcing a system of community rating and non-exclusion." "Establish an appropriate demarcation between the business of’ community rated medical schemes which effect cross-subsidization from the young and healthy to the elderly and sickly members, and that of other sickness insurance products offered under the Insurance Acts. In order to create a single regulatory framework within which one Act of Parliament will apply to all the organizations which carry on the business of’ a medical scheme, medical schemes which came into operation under other legislation, will be required to register in terms of this Act.“ Explanatory memorandum to the Medical Schemes Bill of 1998

16. Summary of purpose To ensure that all income earners and their families (those of poor health status, the old, anyone requiring essential health care) have access to health insurance for their entire life cycle via regulatory measures applied to all entities doing the business of a medical scheme and thereby to reverse the deregulation implemented by the national party government in January of 1994. The above purpose of the MSA remains intact and has not been qualified by any subsequent policy pronouncements or legislative changes. The enabling provisions to the insurance acts do not alter the purpose of the MSA and the regulations cannot be used directly or indirectly to achieve such an outcome whether intended or unintended

17. Objectives • The objectives of the MSA refer to the set of measures required to achieve the purpose of the MSA • These can be taken from the MSA itself and, to be consistent, include both the measures taken to protect access to schemes and… • those measures taken to ensure that medical schemes are not, as a consequence, rendered unsustainable

18. Defining the business of a medical scheme (section 1) • No person can carry on the business of a medical scheme without registering (section 20) • No person can improperly use the designation medical scheme (section 21) • No person can improperly market themselves as a medical scheme without registering (section 21A(1)) • Prohibition of conditional selling (section 21A(2) and (3)) • Prohibition of unfair and arbitrary discrimination (section 24(2)(e))

19. Proper management of scheme funds for the benefit of scheme members (sections 26) • Prohibition on the distribution of bonuses or profits (section 26(5)) • Requirement that medical schemes only do the business of a medical scheme (section 26(11)) • Local registration of the scheme (section 26(10)) • Medical scheme rules must provide for a complaint or dispute resolution process (section 29(1)(j)) • Requirements for advance written notice provided to members of changes to contributions, benefits or conditions affecting membership (section 29(1)(l))

20. Requirement to call an annual general meetings, special general meetings, and associated quorums (section 29(1)(m)) • Admission and ongoing participation of a member or beneficiary to a medical scheme must be fair and reasonable and cannot be tied to their health status or any other factor correlated with health status (sections 29(1)(n), (r), and 29(3)) • Requirement for a scheme to provide minimum benefits (section 29(1)(o)) • Requirement to reimburse public hospitals in full (section 29(1)(p))

21. Payment of benefits according to scale or tariffs (section 29(1)(q)) • Ongoing participation of any benefit option within a scheme is protected for both members and dependents (sections 29(1)(r), (s), (t), and 20(2) • The cession or attachment of benefits is prohibited (section 34) • Contraventions of the MSA are criminalized (section 66)

22. Implications of failing the test • Where regulations are ultra vires any resulting product class effectively falls outside the insurance acts and can be validly challenged in terms of the MSA as doing the business of a medical scheme in contravention of the Act • Insurance products would only fall under the exclusive regulation of the insurance acts where the regulations themselves are lawful, i.e. where inter alia they do not undermine the MSA • Any product that fails to comply with a lawful version of the regulations is therefore doing the business of a medical scheme in contravention of the MSA and can be pursued in terms of both the MSA, which could attract criminal charges in terms of section 66, and the relevant insurance act for failing to adhere to the regulations

23. Importantly, health insurance product regulation will only be exclusive to the insurance acts where both the regulations and the insurance products themselves do not undermine the purposes and objectives of the MSA

24. Short-term Insurance Act Product Evaluation

25. Medical expense shortfall/gap cover • Type of cover: indemnity • Ceiling benefit: R3000 per day • Compliant with enabling provisions: No • Reasons: Will cause buy-down from comprehensive options and undermine the purposes and objectives of the MSA It will harm community-rating, open enrolment, and cross-subsidization as intended by the MSA

26. Other product categories • Category 2 – lump sum or income replacement policy benefit • Provided the product is prevented from indemnifying health expenses. This does not need to be restricted to medical scheme members. • Category 3 – motor - third party liability • Product should only be sold to non-medical scheme members as it covers a prescribed minimum benefit. This would not apply if the product is non-indemnity in nature and used for income replacement. • Category 4 – property – third-party liability • Product should only be sold to non-medical scheme members as it covers a prescribed minimum benefit. This would not apply if the product is non-indemnity in nature and used for income replacement.

27. Category 5 – HIV and AIDS • Product should only be sold to non-medical scheme members as it covers a prescribed minimum benefit. • Category 6 – international travel insurance • This product need not be limited to medical scheme members. • Category 7 – domestic travel insurance • This covers a prescribed minimum benefit and should be restricted to non-medical scheme members. • Category 8 – emergency evacuation or transport • This covers a prescribed minimum benefit and should be restricted to non-medical scheme members

28. Long-term Insurance Act Product Evaluation

29. Category 1 - lump sum or income replacement policy benefits payable on a health event • Provided the product is prevented from indemnifying health expenses. This does not need to be restricted to medical scheme members. However, it is not clear what the product parameters are. • Category 2 – frail care • It is not clear what the product parameters are. It can be both indemnity and non-indemnity. Its relationship to medical scheme members needs to be clarified. • Category 3 – HIV and AIDS • Product should only be sold to non-medical scheme members as it covers a prescribed minimum benefit. • Category 4 – emergency evacuation or transport • Product should only be sold to non-medical scheme members as it covers a prescribed minimum benefit.

30. Concluding remarks

31. The regulations are in general quite confused with clear errors • Non-indemnity products do not do the business of a medical scheme and should be permitted generally • The STIA category 1 products appear to be ultra vires the Act and are likely to face a legal challenge • No technical analysis has been produced by National Treasury to demonstrate their reasoning for the product structure and why they feel it will not contravene the enabling provisions of the STIA • Other categories appear to mix up requirements for application to medical scheme and non-medical scheme members – in most cases would not be a problem if applicable to non-medical scheme members

32. The most responsible route forward would be for National Treasury to remove the category 1 STIA products from consideration in this round – and defer to the Market Inquiry to properly consider the options

33. THANK YOU