National Treasury has issued the release of the final Demarcation Regulations in the Government Gazette. The Regulations are the outcome of the consultative process between the Minister of Finance, the Minister of Health, the Council for Medical Schemes (CMS) and the Financial Services Board (FSB). The final draft was published and will take effect from 1 April 2017.
The Regulations specify which types of contracts are regulated under the Long-term Insurance Act and Short-term Insurance Act as health policies, as well as accident and health policies. The Regulations therefore specify which contracts are excluded from the Medical Schemes Act.
The Regulations establishes the responsibility for supervision of medical schemes and health insurance products – to ensure that health insurance products do not undermine the medical scheme environment.
Categories of health insurance products affected by the Regulations:
Medical Expense Shortfall Policies (GAP cover plans) – these are policies which cover the shortfall between medical scheme benefits and the rates charged by private medical service providers.
- Non-medical expense cover as result of hospitalisation policies (Hospital Cash Plans) – These policies pay out a stated benefit upon hospitalisation – usually per day spend in-hospital. These stated benefits are not related to the actual cost of any medical service. Its aim is to cover incidental costs such as loss of income while being in hospital.
- Primary Healthcare Insurance Policies – These policies provide limited medical service benefits, often through employee groups or bargaining councils. These services include GP visits, acute & chronic medication, emergency medical care, dentistry and optometry.
Effect of the draft Regulations on these Categories
The Regulations will allow insurers to continue to provide GAP cover plans and Hospital Cash Plans. These plans must however be structured in a manner that complements medical schemes and will be subject to strict underwriting and marketing conditions. The Regulations will not allow insurers to continue to provide Primary Healthcare Insurance Policies. From 1 April 2017– these types of benefits will have to be provided in accordance with the MSA. The Minister of Health has requested that CMS grant a two-year exemption for primary healthcare insurance policies, while further research will be done in terms of developing a Low-Cost Benefit Option (LCBO) guideline. It is foreseen that the existing primary healthcare insurance policies will be required to transition into a LCBO framework once it is finalised.
Effect for FSPs
Advisors who sell Gap cover policies may continue to do so. A policy limit of R150 000 per insured person per year must however be applied across all gap cover product ranges. The limit must be applied to new policies starting from 1 April 2017 as well as to existing policies that are upgraded or reinstated after 1 April 2017. The limit must be applied to the policy itself regardless of the benefit limits making up the policy. This means where a benefit is currently unlimited or exceeds R 150 000, it will be limited to the overall annual policy limit of R 150 000 per insured person per year as from 1 April 2017. Policies that are upgraded or reinstated after 1 April 2017 will also be subject to the new policy limit. The policies of clients with existing cover must be aligned to the new requirements at renewal stage or when a change will be made to the policy.
The commission which advisors will receive will also be adjusted. The new Regulations provide a sliding scale with 5% being the lowest commission level and 20% the highest commission level. The 20% will apply to monthly premiums less than R300. Advisors must therefore consider the impact of the change in commission structure on their businesses.
In terms of Treating Customers Fairly, clients must be provided with clear information of their product. Advisors must therefore inform clients of the changes and how and when such changes will impact their policies.
Click on the links below to download the documents: