Medical Aid rules re: late joining, further legislation may be needed

Consumer Act

For contravening provisions of the Consumer Protection Act, the National Consumer Commission (CPA) is taking the Council for Medical Schemes (CMS) and four medical schemes, Bonitas, Fedhealth, Medshield and Momentum to the Equality Court.

The Consumer Protection Act of South Africa has been introduced to promote and advance the social and economic welfare of all consumers and seeks to establish a legal framework for a fair, accessible, efficient, sustainable and responsible consumer market.

The Commissioner views medical schemes imposing late joiner penalty fees and waiting periods on members as being unconstitutional.

Medical Schemes Act

As stipulated in the Medical Schemes Act (MSA):

• Medical schemes are within their rights to impose late joiner penalty fees on members older than 35 that have never been a dependant on a medical scheme and have never been a dependant of a registered South African medical scheme on or before the 1st April 2001.
  
• Medical Schemes may impose a three month general waiting period and/or 12 month condition-specific waiting periods, due to certain factors.

Although the MSA was established in 1998, late joiner penalties were introduced in April 2001 after the government granted an amnesty period that ended on the 31st March 2001. This allowed members to join medical schemes without schemes being able to charge late joiner penalties. The reason for the late joiner penalties was to encourage younger individuals to join medical schemes.

This is part of the legal framework to protect the interests of the existing members whereby:

• Medical schemes operate in an environment of open enrolment, which does not allow medical schemes to refuse membership to any applicant
  
• There is a community rating system, which means that premiums are not risk rated (and may differ only based on the option selected, family size and/or income level).

This is essential for their survival as the medical scheme environment works on a cross-subsidisation model where the young and healthy will subsidise the older and unhealthy.

Disadvantages

The Commissioner's view is that members should have access to benefits immediately. However, this could mean that members could join a medical scheme only when they require healthcare benefits and could terminate their membership when they feel that cover is no longer required. This would be akin to allowing motor vehicle owners to insure their vehicles after they had been in an accident. Another scenario is members could terminate their membership during the year once their benefits were exhausted and join another medical scheme to have access to new benefits.

Therefore if medical schemes were not allowed to impose late joiner penalties and waiting periods this would create anti-selective behavior towards medical schemes and would affect the financial stability of the medical schemes, which are already under pressure to control escalating costs.

Discussions needed

It is understandable why the Commissioner is raising these points. However, this matter should be discussed between the two regulatory bodies and, if need be, the necessary acts to be amended accordingly, or for the MSA to be exempted from the provisions of the CPA. With the four medical schemes being cited, they will incur legal costs, which will be paid from the members' reserves, so the members/consumers the CPA is there to protect will ultimately be affected.

The Commissioner also confirmed that it has received complaints from foreigners older than 35 who were subjected to the late joiner penalty when they joined their medical schemes, which is a bit of a challenge because this factor is not within their control. Again, this needs to be discussed between the two regulatory bodies, which could request for comments from the necessary stakeholders on this matter that can then be addressed.

The CMS has requested for an urgent meeting with the Consumer Commissioner to discuss the matter and the industry keenly anticipates the outcome of their discussions.