INSURANCE LAWS AMENDMENT BILL Finance Portfolio Committee Parliament 30 May 2008 Council for Medical Schemes Alex van den Heever (Technical Advisor to the Registrar) Finance Portfolio Committee Parliament 30 May 2008 Council for Medical Schemes Alex van den Heever (Technical Advisor to the Registrar)

Focus of Presentation Demarcation between medical schemes and ordinary insurance business If not resolved the policy to implement National Health Insurance will be severely undermined and Vulnerable risk groups presently dependent on medical scheme cover WILL be forced out of cover

National Health Insurance It is the general consensus, from the political level to health policy experts, that South Africa move toward a system of National Health Insurance based on the principles of “inclusion” rather than the “exclusion” of any vulnerable person or group The reform of Medical Schemes to ensure that the environment fully conforms to social solidarity requirements forms an essential part of the National Health Insurance policy framework No rational public purpose can be served by allowing any person or organisation to discriminate against anyone on the basis of their health status and by so doing to earn a profit

Contents Background on Medical Schemes and their position in the strategic policy framework Central issues requiring resolution in the three pieces of legislation –Medical Schemes Act –Long-term Insurance Act –Short-term Insurance Act Concerns with the Legislation as Proposed Recommended provisions to replace those presently in the Insurance Laws Amendment Bill

Medical Schemes - What are they? Provide insurance for healthcare Regulated in terms of the Medical Schemes Act, No.131 of 1998 –Introduced social security principles into a regulated private market Mandatory community rating Mandatory minimum benefits Open enrolment Accreditation requirements for intermediaries

Characterization of the Medical Schemes Sector Number of schemes and turnover (2007): –Restricted schemes: 80 (R19 bn) –Open schemes: 41 (R45 bn) –Total schemes:121 (65 billion) Claims paid (2007): R55 billion Beneficiaries: –Q4 2007: 7,477,243 –Q4 2006: 7,114,693

Cost Variation for Prescribed Minimum Benefits by Age Source: Risk Equalization Fund cost analysis (2007) Risk Rate (ave cost) Community Rate Risk Rate to Exclude Sicker People

Medical Scheme Beneficiaries by Age Band Will be uninsurable in a Risk-rated Environment Any person of any age that has a serious health condition will be excluded from cover in a normal insurance market

Trajectory of Medical Scheme Reform Insurable Risk Groups Covered Only Insurable + Uninsurable Conventional insurance market Regulated: Community rated Mandatory minimum benefits Open enrolment Risk equalization Post REF If demarcation between medical schemes and normal insurance is not resolved – health reforms will be undermined Conventional insurance market must be kept separate from regulated medical schemes to achieve lifetime cover

How is Demarcation Achieved? Through the definition of the “BUSINESS OF A MEDICAL SCHEME” Where unproblematic health insurance is possible, but which does the BUSINESS OF A MEDICAL SCHEME, this should be permitted through a carefully considered EXEMPTION PROCESS

Workable Demarcation Framework “Business of a Medical Scheme” Indemnity Cover (coverage of actual medical expenses incurred) “Business of a Medical Scheme” Indemnity Cover (coverage of actual medical expenses incurred) Normal Insurance Health policies Non-indemnity Unproblematic products (require exemption framework)

Unworkable Demarcation Framework “Business of a Medical Scheme” Normal Insurance Definitions overlap to such an extent that objectives of the Medical Schemes Act cannot be met, and exemption framework is irrelevant – as ANY INSURANCE PRODUCT would be permitted to do the “business of a medical scheme”

Problem Statement Supreme Court decision has blurred the distinction between the “Business of a Medical Scheme” and normal insurance Provisions dealing with demarcation in the proposed Insurance Laws Amendment Bill: –Provides too much discretion for the Minister of Finance to exempt insurance products without sufficient consideration of any party with responsibility for health policy or the bodies assigned by law the authority to ensure the stability of medical schemes –Provides for too much discretion for the insurance regulators to make determinations on what products are doing the “business of a medical scheme” –Makes no provision for the fact that insurance products are not approved by the insurance regulators – allowing rogue products to operate until discovered

Recommended Framework Insurance Acts: –Prohibition: Insurance Acts must prohibit any normal insurance product from “doing the business of a medical scheme” (presently contained in the Bills) –Exemption: Minister of Finance with the Concurrence of the Minister of Health may make regulations specifying exempted products and product types that will not undermine Medical Schemes and Health Policy –Product approval: Individual products must then apply for approval (certification) to the Registrars of Insurance and medical schemes to ensure compliance with the regulations –Product removal: Where products ultimately prove harmful to the medical scheme’s environment, a process of removing them, even if certified, must be allowed for

Recommended Framework Medical Schemes Act –Consequential amendment to the definition of the “business of a medical scheme” removing any uncertainty created by the Supreme Court decision, ensuring that it applies to “indemnity cover” for healthcare services Note: –This framework (which provides for the framework to be substantially provided for in the Short- and Long-term Insurance Act) is an alternative to the recommendations in our written submission (which provided for the legislative framework to be substantially provided for in the Medical Schemes Act)

Demarcation Framework “Business of a Medical Scheme” Indemnity Cover (coverage of actual medical expenses incurred) “Business of a Medical Scheme” Indemnity Cover (coverage of actual medical expenses incurred) Normal Insurance applicable to health policies Non-indemnity cover + Exempted indemnity cover Exemption Framework

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