Mind the gap

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The tendency to oversell and under-deliver in medical insurance and gap cover has resulted in the National Treasury stepping in to ensure consumers are safeguarded. “This is where the Demarcation Act entered the fray,” says Gerhard van Emmenis, acting principal officer of Bonitas Medical Fund.

The government was approached to ensure that the business of medical aid and medical insurance is clearly demarcated. The law that sets this out is the Demarcation Act.

The National Treasury communicated the latest version of the Demarcation Regulations (DR) in Parliament for implementation on 1 April 2017. Although the regulations will become effective then, existing health insurance products will only need to comply with the regulations by 1 January 2018.

  • The Demarcation Regulations Underwriting: gap cover will be aligned to the same underwriting requirements imposed by medical schemes, such as open enrolment and 3-month and 12-month waiting periods for various specified conditions.
  • Medical Expense Shortfall: the gap benefit is limited to a maximum of R150 000 per annum per insured life, which is applicable to any copayment and medical expense shortfall.  It should be noted that claims in excesses of over R15 000 only amount to 1% of all historical gap claims.

“We welcome the demarcation as it is designed to protect consumers and will assist in stabilising the medical schemes industry. It will further aid in clearing the misperception that exists between health insurance products and medical aid. We are pleased to note that legislative requirements, particularly with regard to underwriting and gap cover products, have been aligned,” adds Van Emmenis.

Hero or villain?

The advantage of having a gap cover is being insured against some of the additional costs that could be incurred with an in-hospital procedure, in that it will help lessen or cover the shortfall between the rates paid by the medical scheme and the actual charges by the hospital or specialist. But it is also a case of ‘buyer beware’.

Never assume that all costs will be covered as the payment options depend on the product that has taken out, which is subject to limits and exclusions. The onus is on the policyholder to check what is covered, what is excluded and how much will be paid.

Gap cover is an insurance product and the companies that sell them are ‘for profit’ organisations, unlike medical aid which is are not for profit. This also means that contributions are not tax deductible. It is only available to someone who has a medical aid plan. Taking out gap cover is an individual choice based on a range of factors, centred on personal need and the benefits of medical aid plan that they are currently on.

The way forward

Some health insurance companies sell primary healthcare policies that offer limited day-to-day limited cover and hospital cover. This is not to be confused with gap cover. They are often even more misunderstood or misused as they are billed as being equivalent to medical aid, which is definitely not the case. The Department of Health is looking to outlaw these policies. It is envisaged that, once completed, all primary care products operating under insurance companies will migrate into the low-cost benefit option framework within medical schemes.

With the new DR, any product related to the selling healthcare products will be subject to CMS regulations. For this reason, the Department of Health is looking at ways of creating affordable healthcare for all South Africans including the development of low-cost benefit options (LCBO) within the next two years. Medical schemes are also creating more affordable plans for low-income earners. It is recommended that consumers shop around for the best plan that covers their healthcare needs and their finances.