The back story

Way back in December 2016, the Demarcation Regulations were jointly published by the Minister of Health and the Minister of Finance, making it clear that certain insurance policies have elements of the business of a medical scheme and are classified as “health policies” and/or “accident and health policies” while excluding primary healthcare products and hospital indemnity products.

These regulations came into effect in April 2017. The Council for Medical Schemes (CMS) together with the National Department of Health, National Treasury and the then Financial Services Board (now the Financial Sector Conduct Authority), engaged and concluded an exemption framework, providing protection for existing policyholders of medical insurance products. However, the exemption has been extended every two years and currently runs to the end of March 2024. This is likely to continue until such time as the Prescribed Minimum Benefits (PMBs) minimum basket of cover is reviewed or reduced. 

According to Damian McHugh, chief marketing officer at Momentum Health Solutions, about 1 million low-income workers are now covered by health insurance products offered by 12 licensed providers operating in the open market, along with schemes restricted to people working in the road freight and security industries. 

The CMS seems to be kicking the can down the road until there is some certainty around the National Health Insurance (NHI) plan, at which point medical insurance products may be booted out the door. But at the same time, as long as there are medical insurance products to “fill the gap”, so to speak, there is no urgency to move forward with proper planning and implementation of NHI.

Why medical schemes are unhappy

While medical schemes can offer a spread of benefits from comprehensive healthcare plans, to simple hospital cover, these benefit options must all include the minimum PMBs. The average cost of providing these PMBs was R886 per beneficiary in 2020, according to the CMS. Subsequently, these are not cheap in comparison to the health insurance products currently offered by certain insurers as there is no need to include PMBs in the health insurance schemes. 

Younger earners with good health on their side are more inclined to take out cheaper health insurance rather than opt for costly medical schemes. As per the National Treasury explainer document, this practice, if left unchecked, could result in increasing costs for the older and less healthy who remain dependent on medical schemes for their cover. 

Currently, pooling healthier, younger individuals with older, sicker individuals facilitates a form of cross-subsidisation which improves the affordability of medical schemes. It is likely to become less affordable if the pool of younger members shrinks as they all dive into medical insurance products.

According to the CMS Report of 2022, only 14.95% or 8.9 million South Africans are covered by medical schemes. More than 50% of these beneficiaries are dependent on either their spouse’s or parents’ cover. That means that about 4.5 million principal members, which is only 25% of the 16 million economically active South Africans, buy medical scheme cover. 

Where things stand now

The Board of Healthcare Funders took the CMS and the Minister of Health to court to get them to provide proof and documentation of their decisions around low-cost benefit options. The court case was successful, resulting in the CMS being ordered to provide all the requested documentation.

Jill Larkan, head of healthcare consulting at financial advisory firm GTC, says that in the interim, the short-term healthcare insurance market had come up with primary care plans which offer limited, less expensive cover for lower-income earners. 

“However, there is often fine print limiting the conditions for which reimbursement is due,” she warns. 

Larkan points out that while medical schemes offer cover for extensive treatment and conditions, insurance products are often – of financial necessity – more limited and conditional. DM