Hospital Cash Back Plans
…between then, now and the future lies many kilometers…..
According to the South African Bill of Rights every citizen has the right to basic healthcare. The funding of health care in South Africa has a long and complex history. Private medical schemes, regulated by the Medical Schemes Act of 1998, offer not only greater protection to members but also provides networks to designated service providers. Private schemes are significantly more expensive excluding the best part of 84% of citizens not supported by basic healthcare.
In addition to health insurance products offered by medical schemes, long- and short-term insurers also offer health insurance products based on a risk-rated approach. These products offer health cover at an affordable premium to lower income groups. Long- and short- term insurers are governed by the Long-Term Insurance Act no 52 of 1998 and Short Term Insurance Act no 53 of 1998, respectively, whilst administratively governed by the Financial Services Board (FSB). The Insurance Acts, however, do not permit insurance companies to be involved in the business of a medical scheme.
The dilemma is where to draw the line between medical scheme products and health insurance? After extensive consultation between the Ministers of Finance and Health as well as the Council of Medical Schemes (CMS), the Financial Services Board (FSB) and affected stakeholders, the final Demarcation Regulations were published on 23 December 2016 with the main objective to clearly separate health insurance products from medical schemes.
The Regulations allow, among other, insurers to continue with the provision of Hospital Cash Back Plans (HCBP) in a manner that compliments medical schemes although subjected to strict marketing and underwriting conditions. Although HCBP are developed to mainly focus on a specific market segment who is unable to afford medical schemes, the reality exists that more often than not, medical scheme members are targeting HCBP products to gain, among other benefits, from the daily payout proceeds offered.
Although there exist good arguments in support of the effectiveness of HCBP, it is also true that this product is more prone to fraud and abuse. HCBP is the catalyst in health care fraud as it occurs at all levels along the healthcare delivery chain. It involves employees, medical scheme members, providers of services and healthcare service providers.
Fraudsters are sophisticated and are more than aware of the newly published Regulations and the impact thereof on existing policies and future HCBP products. Whether a hospital cash back product is taken out with the intention to mislead the insurer or if a policy owner becomes more educated during the policy lifetime and on claim stage exaggerates his injuries or illness to claim for a longer period, or blatantly lie about his injuries or illness, the product remains vulnerable to abuse. Due to the nature of the product it can influence people to participate in fraudulent activities within the delivery chain.
Hospitalisation is the trigger for proceeds to pay out and the financial value is not related to the cost of health care. These products are mainly less expensive than a medical scheme due to lesser benefits available if compared to a medical scheme.
With reference to the Regulations, the maximum daily benefit limit is R3 000 irrespective of the number of days hospitalized. Current underwriting practices will change to a more cross-subsidy model allowing more risk related individuals entering the market.
Medical schemes on the other hand are equally susceptible to fraud and in South Africa it is estimated that medical schemes lose between R8 billion to R19 billion every year due to fraud, abuse and waste.