Discriminatory health insurance products and prescribed minimum benefits

Out of concern for the possible dilution of the right of health protection through medical schemes, a letter has been sent by civil society organisations, in the form of SECTION27, the Helen Suzman Foundation, and the Chair of Social Security at Wits University, to the Ministers of Finance and of Health (see below). The letter warns of the possible consequences that will arise due to damaging regulations that may soon be published in terms of the Insurance Acts (short and long-term). These provisions would seek to allow unregulated insurance products to be sold as parallel insurance coverage to medical schemes. 

This will, through the back door, undermine those explicit protections that prohibit medical schemes from discriminating against the old, sickly, and those with pre-existing medical conditions. This will occur as a result of the switching of coverage by the young and healthy into insurance products, thereby destroying the risk pooling that keeps the vulnerable covered by medical schemes.

Reinforcing this outcome, the proposed regulatory framework also seeks to permit a regulator of insurance products unfettered discretion to decide which products are harmful to the system of medical schemes, despite having no competence to make any such determination, and having no mandate to supervise health care policy.

The simultaneous downgrading of prescribed minimum benefits (PMB) protections, heavily lobbied for by vested industry interests on the grounds that they increase costs, will in fact destroy equitable coverage in favour of discriminatory coverage. The driving commercial imperative to remove or diminish PMBs actually seeks to establish contrived markets for the sale of for-profit health insurance products (medical schemes are by law not-for-profit) into benefit gaps, designed for this purpose, within medical schemes. Health insurance companies often work in close collaboration with medical scheme administrators and brokers to engineer these lucrative outcomes.

To date the related government processes to consider parallel health insurance products (to medical schemes) and to cut PMBs have involved bilateral discussions between industry interests and government officials, to the exclusion of any party able to represent the interests of consumers of health care. These discussions are in fact only happening behind closed doors.

The signatories to this letter consequently call on the Ministers of Finance and of Health to enter into a properly constituted inclusive dialogue on the role of health insurance products and PMBs to ensure that the interests of the right to health care is protected. This is especially important where the technical complexity of the policy area provides a ready-made natural barrier to public participation from the most affected parties. Under such circumstances, where the obligation to consult is increased rather than diminished, government needs to adjust accordingly to ensure that policy is based on informed engagement and evidence.

JOINT LETTER TO THE MINISTERS OF FINANCE AND HEALTH FROM SECTION 27, THE HELEN SUZMAN FOUNDATION AND CHAIR OF SOCIAL SECURITY AT THE UNIVERSITY OF THE WITWATERSRAND

Honourable Minister of Finance Mr Pravin Gordhan
Tel: (012) 315 5372
Fax: (012) 323 3262
40 Church Square
Pretoria, 0002

Honourable Minister of Health Dr Aaron Motsoaledi
Tel: 012 395 8086
Fax: 012 395 9165
Civitas Building 
Cnr Thabo Sehume and Struben Streets 
Pretoria, 0002

14 September 2012

Dear Ministers Gordhan and Motsoaledi

RE:  The Demarcation Between Medical Scheme Cover and Health Insurance Products

On 2 March 2012 regulations were published for public review regarding the demarcation of health insurance products from coverage offered by medical schemes. Within the proposed regulations various product categories licensed in terms of the Long and Short-term Insurance Acts were given permission to operate outside of the Medical Schemes Act No.131 of 1998. The product categories were wide ranging and in some instances involve important forms of care, such as frail care and HIV and AIDS. Certain products deemed harmful, such as gap coverage, were excluded from the regulations.

With respect to these regulations a number of serious concerns have arisen which need to be remedied prior to these regulations being considered and enacted by Government.

1.     The legislation creates risk for the stability of Medical Schemes and therefore healthcare: The enabling legislation underpinning the regulations allows for exemptions to be made to the Medical Schemes Act irrespective of the harm that may be caused to medical schemes. While the legislation requires consideration of the implications for open enrolment, community rating, and risk pooling, it does not obligate the Minister of Finance to only approve products that do no harm. Medical schemes are a crucial policy instrument required to ensure effective social protection for health care, while health insurance is not. As such, the Medical Schemes Act has several provisions that provide beneficiaries with rights related to coverage. Our concern is that these legislative provisions allow for the arbitrary withdrawal of the rights provided by the Medical Schemes Act, through the approval of substitutive products that have the real potential to systematically exclude from coverage people with pre-existing medical conditions or the elderly; the very groups who need medical cover the most. The fact that the removal of these rights is indirect and invisible does not make the predictable effect less real.

2.     Concern of adjudication by registrars of insurance: We are particularly concerned that the adjudication of products that may be harmful to medical schemes is given to the registrars of insurance. This situation is irrational and potentially dangerous as it enables regulators of insurance to make decisions regarding the viability of a health system over which they have neither expertise nor jurisdiction. This provides wide and arbitrary discretionary powers to the insurance registrars and could have detrimental impacts on the health system. The consequences may also have serious constitutional implications. Given these considerations such a regulatory configuration should not be permitted to proceed.

3.     Insufficient consultation: The processes to date used to modify the legislative environment fall short of the obligations imposed on Government to act in the public interest. Both the process for modifying the underlying legislation and the regulations have been dominated by industry interests with no efforts made to expand consultation to parties able to represent the public interest. In terms of these regulations, interested parties had one and a half months to make submissions about the regulations. Given the importance of the regulations, the impact on medical schemes, and the number of parties potentially affected by these regulations, the time for submission and the advertising of the publication of these regulations for comment was inadequate.

4.     Lack of clarity over public interest benefits of regulations: The regulations themselves are supported by superficial explanations regarding the issues. No analysis has been made public of the implications of any of the regulations on existing rights to social protection or the public interest rationale for the proposals. The entire process thus far appears to be the outcome of industry lobbying. Given the complexity of the insurance markets and their interactions with medical schemes, Government is obligated to ensure that there is informed engagement with all affected parties. However, to date, this has not occurred.

5.     Related lobbying and concern over industry behaviour: We have serious concerns over what appears to be an unacknowledged relationship between the approval of these gap cover products and industry lobbies to undermine prescribed minimum benefits within medical schemes. Prescribed minimum benefit provisions as they stand eliminate any rationale for gap cover. The coordination between medical schemes (and their administrators), gap cover providers, and brokers, allows them to structure gaps in schemes which only the young and healthy can cover through separate insurance. We therefore wish to raise our concerns over what appears to be this evident and possible collusion in the market which could have a detrimental impact on the right to health. Importantly the public interest is not at the forefront of these issues, and no process established to elicit public interest views apart from closed door sessions with vested interests has occurred.

The above provide just some of the serious concerns regarding lapses in policy processes that seriously impact on the public interest. Both the processes regarding insurance products and prescribed minimum benefits subvert the very idea of proper consultation, impoverishing the quality of the policy frameworks under consideration. Given this, the following is requested:

1.     A process of open and public engagement be established regarding both the demarcation and prescribed minimum benefit processes. These processes should be substantive and sufficient to adequately ventilate all the relevant public interest issues.

2.     National Treasury and the Financial Services Board should provide a list of meetings held regarding the demarcation issues in respect of both the 2008 legislative amendments and the draft regulations published in March 2012.

3.     Until a proper process has occurred to discuss the demarcation and prescribed minimum benefit issues, no regulations should be published on either.

We would like to request an urgent meeting with both the Ministers of Finance and of Health to discuss the various matters raised in this letter. Given that privileged access has been provided to vested interests to make their case, we request that this request for a meeting be given priority.

Yours sincerely,

SECTION 27
Mark Heywood, Executive Director

HELEN SUZMAN FOUNDATION
Francis Antonie, Director

CHAIR OF SOCIAL SECURITY SYSTEMS ADMINISTRATION AND MANAGEMENT STUDIES, Graduate School of Public and Development Management, University of the Witwatersrand
Alex van den Heever

Issued by the Helen Suzman Foundation, September 18 2012

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