Demarcation Regulations: What do they mean for your healthcare planning?

In December last year the National Treasury promulgated the latest version of the Demarcation Regulations (DR) in Parliament, for implementation on April 1. Although the regulations will have become effective on that date, existing health insurance products will need to comply with the regulations only by January 1, 2018.

The DR will provide much-needed clarity on the role of a medical scheme (regulated by the Medical Schemes Act of 1998) and health insurance products (regulated by the Long-term and Short-term Insurance Acts of 1998).

What is of significant benefit to South African consumers is that the DR gives the green light for the insurance industry to provide both gap cover and low-cost primary care products that co-exist with medical schemes.

“Newly developed gap policies will have to comply with the new regulation as from April 1, while clients with existing gap policy products can be assured that there will be no changes to their existing gap policies for this year,” explains Jacqui Nel, healthcare business unit manager at Aon South Africa.

Aon highlights the following key changes under the DR:

• Underwriting: Gap cover will be aligned to the same underwriting requirements imposed by medical schemes, such as open enrolment and three-month and 12-month waiting periods for specified conditions.

• Medical expense shortfall: The gap benefit is limited to a maximum of R150 000 per annum and per insured life, which is applicable to any co-payment and medical expense shortfall.

• Hospital cash plans: Pay-outs are limited to a daily limit of R3 000 and a maximum of R20 000 per insured life, per annum or per hospital stay.

• Primary healthcare insurance products: These will be outlawed and insurers have a two-year exemption period while the Department of Health rebuilds its Low-Cost Benefit Option (LCBO), which was stopped in 2015.

• Broker commission: This will work on a sliding scale starting at 20 percent down to a minimum of five percent aligned to the monthly member contribution.

“It will be interesting to see what will happen to occupational healthcare products, as they are clearly offering cover similar to that of an envisaged LCBO-type product, with the exception of in-hospital care offerings,” explains Nel.

“However, it is important to remember that the LCBO framework is still being developed and, in order to accommodate LCBO products, it will require an amendment to the Medical Schemes Act, which is normally a process that could take years,” he adds.

Aon views the changes in a positive light for consumers, as it demonstrates the government’s realisation that it is crucial to bring necessary primary care to the uninsured population in a more regulated environment – which, in turn, provides greater consumer protection and balanced cover. Essentially the government is acting on its constitutional obligation to do as much as it can to make healthcare available to all citizens.

“The good news is that, regardless of whether or not future primary care products are delivered via the insurance industry or via the government’s LCBO, primary care products are here to stay. Millions of South Africans who have previously been denied access to private-sector cover, because of affordability constraints, will now be able to enjoy private healthcare at an affordable price,” says Nel.

“This is particularly good news for employer groups who found themselves hamstrung in providing healthcare benefits to lower-income employees due to the high cost of private healthcare.”

The task of assessing your healthcare financial planning is a role best undertaken with the guidance of a professional healthcare broker, who can do a thorough needs-analysis and investigate the benefits options that are right for your budget and personal circumstances.

The 2017/18 Budget has the following impact on healthcare:

Tax credits on medical scheme contributions have been increased by six percent. The new tax credits are as follows:

• R303 each for the individual who paid the contributions and the first dependant on the medical scheme; and

• R204 for each additional dependant.

“It was noted that reducing this medical subsidy in future is being considered as part of the financing framework for National Health Insurance,” concludes Nel.