Laura du Preez: Personal Finance,

THE Constitutional Court this week denied the Registrar of Medical Schemes leave to appeal against a Supreme Court of Appeal judgment confirming the right of a short-term insurer to offer gap cover medical insurance policies.

But despite comments from Guardrisk, the short-term insurance subsidiary of Alexander Forbes, suggesting that the matter has now finally been laid to rest, the National Treasury is proposing giving the Minister of Finance the final word on which health policies are legal and which are not.

This has led Patrick Masobe, the registrar, to counterpropose that the amendment should be made via the Medical Schemes Act and that the Minister of Health should be given the right to decide exemptions to the medical schemes legislation.

Masobe told Personal Finance he will meet with the National Treasury shortly regarding its proposal, which is contained in the Draft Insurance Laws Amendment Bill.

The bill, which was released earlier this month, seeks to amend the Long- and Short-term Insurance Acts. The amendment would give Finance Minister Trevor Manuel the right to pass regulations under the Acts to allow certain types of health policies, even if such policies fall within the definition of a medical scheme under the Medical Schemes Act.

Although the bill proposes that Manuel will be obliged to consult Health Minister Manto Tshabalala-Msimang before he deems a policy to be a health one, the final decision will be his.

The finance Minister must take into account the need to ensure the sustainability of medical schemes; the need to ensure access to healthcare services; limitations on the liabilities undertaken by medical schemes; and the extent to which medical schemes are able or willing to provide certain services.

Where the Minister decides that certain types of policies are health ones, they will be subject to regulation under the insurance laws only and not the Medical Schemes Act.

Neil Kirby, the Werksmans attorney who represented Guardrisk, says he does not believe that if the proposed changes to the insurance laws had been in place before the legality of Guardrisk's products was challenged, these changes would have resolved the matter quickly. He says the Medical Schemes Act is a strong piece of legislation, which states that where it is in conflict with any other Act, the medical schemes law will prevail.

Kirby says Guardrisk's legal team was not surprised by the Constitutional Court's ruling, because the court has previously warned that it is not a court that can hear a matter for the first time, and in the Guardrisk case constitutional issues were emphasised only when the registrar appealed to that court.

The Constitutional Court this week dismissed Masobe's application, saying only that it "bears no prospects of success".

Long process

The Constitutional Court ruling ended a process that began at the end of 2006, when Masobe successfully applied to the Johannesburg High Court for an interdict to prevent Guardrisk Insurance from selling its AdmedGap and AdmedPulse policies. These policies offer you cover for the difference between what your medical scheme pays towards your medical bills and what healthcare providers charge you.

Members typically choose schemes that offer to pay providers at lower rates - for example, at National Health Reference Price List rates - and gap cover policies pay the difference between these lower rates and the higher rates charged by doctors and hospitals.

Guardrisk appealed to the Supreme Court of Appeal, and in March this year the court ruled in Guardrisk's favour, saying there was a need for these products.

The High Court and the Supreme Court came to different conclusions on how the definition of the business of a medical scheme in the Medical Schemes Act should be interpreted and, therefore, on whether Guardrisk's policies could be regarded as doing the business of a medical scheme.

Major implications

Masobe then appealed to the Constitutional Court, arguing that the matter has major practical and policy implications for healthcare funding.

He says young and healthy lives will be attracted out of the medical schemes environment (or to less comprehensive medical scheme products).

This will result in costs increasing rapidly for the older and less healthy that remain dependent on registered medical schemes for their cover, because schemes must admit anyone who applies.

But these schemes will see a significant reduction in cross-subsidisation from the young and healthy.

Insurance products are not regulated in the same way as medical schemes and do not have to provide membership to everyone, offer certain minimum benefits or charge everyone the same premiums.

Masobe says the Medical Schemes Act functions to uphold the constitutional principles of promoting access to healthcare, non-discrimination and equality, and these aims will be seriously compromised if the Supreme Court's interpretation of the Act is allowed to stand.

The registrar also says that, based on the Supreme Court of Appeal's interpretation of the Medical Schemes Act, about two-thirds of medical schemes currently registered under the Act would be excluded from its ambit, and this would be rapidly exploited by pro-duct providers. Masobe previously described the Supreme Court's ruling as being "as clear as mud".

He said it was not clear from the judgment on what grounds the Guardrisk products were regarded as okay, and where the boundary lies between these and other products.

Life assurers have had fewer clashes with the medical schemes regulator over their health cover products since they signed a demarcation agreement with the regulator.

What you should you remember when you get health cover

Medical schemes:

• Must charge you the same contributions as other members on the option you choose. A distinction may be made only for the number of dependants you put on the scheme and, possibly, your income level. Penalties may be applied if you join a scheme late in life and have had little or no previous medical scheme cover.
• Must admit you, unless the scheme is restricted to a certain group - say, employees of a company - and you are not a member of that group.
• Must provide you with certain minimum benefits, particularly those that cover essential major medical expenses.
• Can pay your actual medical expenses (as opposed to a lump sum, as is the case with insurers).
• Must offer you cover as long as you continue to pay your contributions and do not defraud the scheme.
• Usually increase their contributions and may enhance or decrease their benefits each year.

Insurance products:

• Allow insurers to charge you premiums according to the financial risk you pose to the insurer. An insurer may even refuse to offer you cover if it considers you to be too high a risk.
• Do not have to provide you with certain benefits.
• Should, according to life assurers, be used to cover unforeseen costs of lifestyle adjustments arising from health problems. These adjustments could include those that arise from being confined to a wheelchair; adjustments to your home or car; payment for employing a caregiver at home; and payment for using assisted living or frail-care facilities. These policies should also be used to cover losses of income for the self-employed or those who need to take unpaid leave.
• Should not, according to life assurers and some short-term insurers, be used in place of medical scheme cover.
• Offer you a predetermined amount of cover for certain "health events". When such an event occurs, the policy pays the insured amount regardless of the actual medical expenses incurred.
• Offer cover for the term of the policy, which, in the case of short-term policies, is generally a year. But short-term policies can be terminated within as little as 30 days, leaving you without cover. If you are older and sicker when this happens, you will either have to take out another policy, if you can get one, at a much higher premium or join a medical scheme, possibly with waiting periods and late-joiner penalties.
• May initially offer premiums on long-term policies at a lower level and then increase the premiums, possibly within a guaranteed scale for a set period. Benefits may also increase annually, but this will involve higher premiums, either initially or on a regular basis.
• Are, in the case of short-term policy benefits and premiums, set for only the term of the contract, which can be just 12 months.