Question NW606 to the Minister of Health

Reply:

a) The current status of the specified circulars, as provided by the Council for Medical Schemes (CMS) is as follows:

(i) The Council for Medical Schemes issued circulars 80 and 82 in December 2019 based on two sets of research results at its disposal at the time. The main message contained in these circulars was a message to the industry that was indicating that the exemption that had been granted to the primary insurance products that had applied to the CMS, previously may not be granted again at the end of March 2021, if there were no significant improvement and changes made to them. The exemption that had been granted to these products at the time was done in April 2017 and was expiring in March 2019. The responsibility for the granting of these exemptions lies with the governance body of the CMS upon advice from the Registrar and team and is based on the Exemption Framework that was developed between the Council for Medical Schemes, National Treasury and the National Department of Health.

(ii) The first set of research results is based on a study that was commissioned by the CMS and was conducted by a group of economists. The results of this study were released by the CMS in a circular at the end of March 2019 indicating the undesirability of these primary insurance products and the Low-Cost Benefit Option in the medicals schemes industry. These results can be briefly summarised as follows:

• These products are targeting individuals that are already tax-exempt based on their low income. Expecting these individuals to spend more of their remaining disposable income contributing to health products with thin benefits did not make sense;

• The introduction of the Low-Cost Benefit Option and related products will be adding yet another set of benefit options in an industry with too many options that are already making rational purchasing choices difficult for the consumer. This goes against the Health Market Inquiry recommendations;

• The Low-Cost Benefit option will also require some tax subsidies and credits and further burden the fiscus during a period of economic constraints;

• There is no evidence that these options will ensure that relief is provided to the over-burdened public health system, given the fact that their beneficiaries still largely rely on the state for the provision of the greater part of their health benefits.

(iii) The second set of results indicated that the primary health insurance products that were subjected to an analysis had serious structural shortfalls. These can be summarised as the following:

• The greater part of the contribution made by policyholders was spent on broker fees and administration instead of the relevant health benefits;

• The marketing of these primary insurance products was clearly misleading, promising unlimited GP consultations when in fact the entitlements are no more than 3 per annum;

• These products were experienced very low claims simply because their members were not aware of the extent of their benefit entitlements.

(iv) The impact of circulars 80 and 82 on the primary insurance products that are in the market has been minimal as no product was discontinued as a result of these circulars. The facts are:

• The CMS undertook an extensive stakeholder roadshow following the issuing of circulars 80 and 82. These engagements took place in the greater part of January and February 2020;

• The agreement with the key stakeholders was that further engagements were necessary and that a Low-Cost Benefit Framework will need to be developed that will assist these primary insurance products to migrate into the medical schemes’ environment;

• There was also an appreciation that the regulator cannot perpetually exempt these primary insurance products from complying with the Medical Schemes Act and its Regulations as this is the only legislation that is at its disposal for regulatory purposes.

• The engagements in these Advisory Committees are proceeding well and have included 3 workstreams:

• Schemes and administrators
• Insurance providers and brokers
• Service providers, policyholders and consumers.

(v) Circular 56 of 2015 provides a summary of input received on the classification of managed care services. This circular has no bearing on the ability of low-earning households to have access to quality medical care other than providing a guide for medical schemes to report better-managed services. However, a more relevant circular to low-earning households' affordability of care is circular 56 of 2020;

(vi) The objective of Circular 56 of 2020 was to provide an overall update regarding establishing the LCBO Advisory Committees and developing the Low-Cost Benefit Guidelines and notice of extension of exemption period to 31 March 2022. The Advisory Committees were tasked with addressing the challenges faced by primary health insurance providers in complying with the Medical Scheme Act:

• The need for medical schemes to develop options for low-income earners;
• They would also develop a roadmap leading to the end of March 2022;
• Provide inputs on the LCBO framework before the CMS submits it for approval to Council and final approval by the Minister of Health;
• The Charter and Code of Conduct were issued to nominees during June/July 2020;
• A regulatory workshop with the National Department of Health, National Treasury, Prudential Authority, Financial Sector Conduct and the Council for Medical Schemes was held on 29 September 2020;
• Introductory workshops were held with interested parties and nominees during October 2020, whereafter the Charter and Code of Conduct was adopted.

(vii) The Advisory Committee's work entailed the establishment of four technical workstreams that provide technical support to the advisory committees in the development of an LCBO framework and guideline. The scope of work for each workstream is summarised below:

• Workstream 1 - Market / Affordability

• Needs assessment/Quantity market/affordability issues;
• The market needs assessment report issued on 8 September 2021 for comments by committee members

• Workstream 2 - Benefit, Product and Pricing

• Benefit design, package and price;
• Key discussions on the minimum products considered against the GEMS Sapphire option has been started as a reference point; key factors need further discussion: Direct access to healthcare nurse with GP, mediation EDL approach or diagnostic definition conditions, dentistry, and optometry are significant affordability constraints and the question on whether private honour should be excluded.

• Workstream 3 - Compliance & Legislative requirements

• Enabling environment and legal framework;
• Key policy considerations: Medical Schemes Amendment Bill; Health Market Inquiry; NHI
• A legislative comparison indraft has been done to identify which legislative framework would be the best outcome for insurers conducting the business of a medical scheme

• Workstream 4 - Implementation Plan & Risk

• Development of a risk matrix/roadmap for LCBO
• Risk framework discussion, Timeline and Risk matrix discussion workbook developed

(b) Herewith the summary of engagements that took place between 2020-2021:

1. February 2020- LCBO Engagements with Industry
2. March 2020- Engagements with NT on LCBO & Demarcation
3. October 2020 - 1st Joint Advisory Committee meeting
4. December 2020 - 2nd Joint Advisory Committee meeting
5. January 2021 – 3rd Joint Advisory Committee meeting
6. June 2021 – 4th Joint Advisory Committee meeting
7. November 2021 – 5th Joint Advisory Committee meeting

All the above stakeholder engagements and Advisory Committee consultative processes emanated from the concerns raised by stakeholders following the publications of Circulars 80 and 82.

• The current engagements on the LCBO stem from the regulatory non-compliance with the provisions of the MS Act, section 20(1), given the implementation of the Demarcation Regulations;

• The technical workstreams have developed position papers that will form a basis of an LCBO framework and guidelines and will be submitted to the Registrar and Council once finalised;

• The exemption period of insurers conducting the business of a medical scheme, which was granted from 1 April 2019 to 31 March 2022 will terminate on 31 March 2022. Input from the National Department of Health, National Treasury, Financial Sector Conduct Authority, and the Prudential Authority was sought to allow for extending the exemption period by a further two years, from 1 April 2022 to 31 March 2024. Further details are contained in Circular 9 of 2022;

• This extension was granted to ensure continued cover for members currently covered by the existing exempted insurance products. Furthermore, to allow for the finalisation of the LCBO framework and recommendations.

The recommendations will be submitted to the National Department of Health for final approval.

END.