The Medical Aid Conundrum

21 May 2020
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In less than twelve months, hundreds of thousands of South Africans are to be stripped of their private insurance cover. No private primary health insurance products will be allowed beyond March 2021. The development of a low-cost benefit option (LCBO) is to be scrapped. This was announced by the Council for Medical Schemes (CMS) in December last year, which stunned the private health insurance market. This further shocking manifestation of government meddling has forced short-term insurers to cancel their clients' very valuable accident and health policies, adversely affecting the lives of thousands of individuals who are in possession of life and illness policies.

Poor and middle-income South Africans cannot afford this form of social engineering where they are forced to suffer the consequences of ill-informed government decisions. Consumers are rightfully feeling aggrieved. In both instances, their constitutional rights to freedom of association and the right to private property have been violated.

In terms of the Insurance Act, in force since 1 July 2018, insurers are no longer permitted to conduct life and non-life insurance under the same licence. Since certain polices are deemed to meet the definition of a "life policy" as defined in the Insurance Act, insurers who do not have a life insurance licence are not allowed to provide this cover, and, by law, are therefore forced to cancel any of these policies still on their books.

Naturally, consumers who feel that they have been unfairly treated are demanding their premiums back and for the insurers to provide alternative cover. However, there is no basis for a premium refund if the insurers were on risk throughout the duration of cover. In other words, whilst the policyholders were paying their monthly premiums, they enjoyed being covered and insured against potential risk events materialising and as such there is no build-up of funds. With regards to providing alternative cover, the new Insurance Act prohibits insurers not licensed for life insurance to provide alternative product offerings of this nature. Insurers who have cancelled such policies cannot be blamed for merely adhering to the law – the fault lies squarely with the regulator.

The response from the Financial Services Conduct Authority (FSCA), who is responsible for regulating this sector, has been callous to say the least: "The FSCA empathises with the policyholders who are on the receiving end of these cancellations, however, in the circumstances, and considering alternative options, it is not possible for the insurer to continue with these product offerings. The FSCA urges affected policyholders to engage their intermediaries, where applicable, and to consult the insurance market for alternative offerings".

The fundamental questions that have yet to be adequately addressed are: Why, after decades of providing this sort of cover, has the regulator decided to take such an extraordinary step? What was the empirical evidence that required these policies to be cancelled or altered so fundamentally? And why can insurers not continue providing cover to those already on their books and allow the policies to wind-down naturally?

Similar questions can be asked of last December’s decision by the Council for Medical Schemes, which is responsible for regulating the private medical schemes market. The CMS's decision to do away with primary health insurance products without saying what will replace them and how much it will cost, is without doubt a violation of Section 27 of the Bill of Rights. The government must respect the right of access to health care services by not unfairly or unreasonably getting in the way of people accessing existing health care services. It must promote the right by creating a legal framework to allow individuals to realise their rights on their own.

Banning private health insurance options represents a flagrant disregard for individuals' rights to enter into voluntary private contracts to protect themselves from unforeseen out-of-pocket payments when catastrophe strikes. The entirely predictable consequences of the regulators’ actions is an increased burden on an already over-stretched public healthcare sector, precisely at a time when the country is not only in fiscal crisis but also faced with a great deal of uncertainty surrounding the trajectory of the Covid-19 Coronavirus and whether the public healthcare system will be able to cope with a potential epidemic of this magnitude. 

To minimise the risks when catastrophe strikes, those who can afford to pay for their own private health insurance and avoid the vagaries of an overburdened and largely dysfunctional public healthcare sector must be permitted to do so. This would not only be good for the health of the individuals concerned but will also be the fiscally responsible action of freeing up scarce taxpayer resources for those who truly require assistance.

This article was first published in Med Suite Media on 01 March 2020

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