In a surprising move, the Council for Medical Schemes has announced that all Low-Cost Benefit Options (LCBOs) used by low-income earners in the country will be scrapped by March 2021. In a Circular to medical schemes, insurers and other interested parties, the CMS says the decision also includes products based on the Demarcation Exemption Framework and/or the Medical Schemes Act.
“This decision is to align such products with the broader health policy discussion that seeks to ensure adequate access to care, irrespective of the economic status of the population”, the CMS explains. It says the concept of a Low-Cost Benefit Option was intended to increase the affordability of medical schemes and membership through the development of a product targeted to a specific group of the population, mainly low-income households. However, the Council says it has observed that products targeted at lower-income earners present an opportunity for inferior benefits.
“Mainly, such products potentially use the state as a Designated Service Provider (DSP) without entering into the necessary agreements with the State and lack prescribed minimum benefits (PMB).”
Business Day points out that without an alternative, the scrapping of LCBOs products could leave hundreds of thousands of families without access to private healthcare. It says the move will not only affect consumers but also impact on medical schemes and insurers that have been developing cheap products aimed at low-income workers. Many of these products are subsidised by employers and, at a few hundred rand a month, cost a fraction of traditional medical scheme cover.
But according to the CMS, the current economic situation and high unemployment level, make it difficult for low-income earners to afford LCBOs.
The CMS previously outlined two possible LCBO models, both with more emphasis on primary healthcare (PHC) services than the current Prescribed Minimum Benefit (PMB) package. The CMS and the PMB Advisory Committee then developed a PMB package that still needs to be costed with a strong focus on primary healthcare.
“In addition, the CMS considers the proposed PHC package as a basis for the discussions that will lead to the development of an affordable and quality healthcare financing package to citizens of South Africa,” the Council notes.
The controversial Insurance Industry (Demarcation) regulations came into effect on 1 April 2017. They identified health and accident policy contracts that may conduct the business of a medical scheme and remain insurance contracts outside the regulatory provisions of the MS Act. In 2016, the Ministry of Health published the Demarcation Regulations in the Government Gazette. This prohibited short-term and long-term insurers from providing financial services products which included PHC insurance policies. Transitional provisions in the Demarcation Regulations allowed time until January 2018 or upon renewal, for amendment of health and accident policy contracts to become compliant with the Insurance Act. However, the Ministers of Health and Finance realised that some health and accident policies could not be amended without regressing access to healthcare services from private healthcare providers for the part of the population that relies on these policies. They then agreed to a two-year exemption period, from 1 April 2017 until 31 March 2019, while a Low-Cost Benefit Package was being developed.
Due to the LCBO guideline not being finalised by 31 March 2019, the CMS consulted with National Treasury, Financial Sector Conduct Authority and the Prudential Authority on the extension of the current exemption period by another two years, to 31 March 2021.
“The continuation of the exemption process is seen to have created regulatory arbitrage opportunities which are not in the best interests of members and policyholders of the products. Continuing to conduct business and offering financial products outside of the Medical Scheme Act would continue to encourage opportunistic product design that undermines the principles of the medical schemes environment – open enrolment, community rating and prescribed minimum benefits,” the Council says.
It warns that no exemptions will be granted for LCBO products within the medical scheme and healthcare insurance environments. All products which do not comply with the MS Act must be wound down before March 2021 and will be deemed to be illegal after March 2021.