Council for Medical Schemes and Low Cost Health Cover Option
In terms of Section 50 of the Medical Schemes Act
The Council for Medical Schemes (CMS), the statutory body that regulates all medical schemes, issued two important and far reaching Circulars on 4 December 2019 and 13 December 2019, and we shared information on this at the time. As they stand, these Circular’s will have a direct impact on the ability for industry to provide low-cost primary health insurance products.
Where We Are Now
In summary, Circulars 80 and 82 have given a direct instruction to all the insurers of these low-cost products that they must be shut down by 31 March 2021. The CMS clarified in Circular 82 that this decision was taken jointly with the National Department of Health in order to align with national health policy and, more specially, the impending plan to implement National Health Insurance (NHI).
Dr Sipho Kabane, the Registrar of the CMS, provided an invitation to various stakeholders as a collective to engage and discuss a way forward in the future. These sessions took place towards the end of January and Alexander Forbes Health attended with other industry stakeholders. Whilst the sessions appeared to indicate that the Council may have softened their views, there has been no official decision forthcoming from the CMS to indicate that they may reconsider or retract their decision.
Given that full implementation of the NHI is still many years away and that there is no feasible alternative product structure available, a number of affected insurers have decided this past week to make both individual and joint appeals to the Appeal Board of the CMS against the shock decisions within Circulars 80 and 82. The Appellants feel aggrieved by the Registrars decision and in terms of Section 50 of the Medical Schemes Act they have requested that an Appeals Board be set up to address their concerns. In addition indications are that if the Appeal is not favourably considered, then the Appellants may apply to the High Court for relief.
The History Behind This
In order to give some background on the regulatory process that has led to this point, below is the history leading to this decision.
The process started when the Demarcation Regulations (‘DR’) were being drafted sometime between 2014 and 2016. The DR were required because of a fundamental change to the definition of doing the business of a medical scheme, which meant that any insurance product that covered healthcare services was technically doing the business of a medical scheme - and hence needed to register as a medical scheme.
It was obviously not practical for all such insurance products to become medical schemes. Hence two parallel regulatory frameworks were created to decide which products could remain in the form of insurance, even though they appeared to be doing the business of a medical scheme, and which ones would need to make the transition to register as a medical scheme. This process became effective on 1 April 2017, and is explained as follows:
Regulatory Framework #1 - Products remaining as insurance products would be incorporated into the DR. There were several product categories created, but the main categories were Gap cover and hospital cashback plans. There were also specific rules that they were required to operate under. The DR and their products have been successfully regulated by the Financial Sector Conduct Authority (FSCA) within National Treasury since April 2017 and will continue as such in the future. Circulars 80 and 82 do not affect these products.
Regulatory Framework #2 – The insurance products needing to transition had to subsequently register as medical schemes. These products were, by default, all health insurance products not included in the DR product categories, and they automatically fell under the control of the CMS.
However, as at April 2017, the CMS had not yet created a regulatory framework to incorporate these products. The CMS had changed the law in order to obtain regulatory control of these products but there was effectively nowhere to place them.
In order to allow them to continue until such time as the CMS had created an appropriate framework for them to transition into the medical scheme environment, the CMS issued these insurance products with a 2-year interim exemption, up to 31 March 2019. The interim measure took longer to develop than expected and was extended to 31 March 2021.
These interim measures were agreed to between the CMS, the FSCA and National Treasury, with the overriding obligation that the CMS would then develop what has become known as the Low Cost Benefit Option (LCBO) framework.
There is a wide array of these exempted products in the market, currently covering a total of ±500,000 lives. Typically, they offer lower benefits than traditional medical schemes such as limited cover for doctors, medicines, basic dentistry and optometry and/or limited hospital cover - usually for accidents only.
However, they offer lower income citizens an affordable alternative to the more expensive medical scheme cover so that at least they have some ability to access the quality care available within the private sector.
The Way Forward
As we noted above, a number of insurers have lodged appeals against these circulars. These appellants have raised the valid arguments that the decisions within the circulars are in contravention of a number of regulatory and constitutional laws.
Given the substantial negative reaction to the circulars by a wide variety of affected stakeholders, we believe that the CMS will seriously need to reconsider their decisions within Circulars 80 and 82.
We await any such reconsideration or, failing which, further communication as to how the CMS wishes to proceed with this matter.
Alexander Forbes Health remains committed to actively engaging and monitoring developments as they unfold and we will ensure that you are appraised of these developments.
The Alexander Forbes Health team
Alexander Forbes Health is a licensed financial services provider (FSP 33471)
CMS registration number ORG 3064