Healthcare has found its way into everyday conversations more so than in recent years. The steadfast movement towards a National Health Insurance has inspired vigorous yet contrary emotions with each side holding their position with equal conviction. On 4 December 2019 a decision by the Registrar and Chief Executive Officer of the Council for Medical Schemes (CMS) inspired similar controversy and debate.

The CMS Circular 80 proclaimed that that none of the demarcation products established in terms of the exemption framework jointly developed by the Department of Treasury, National Department of Health, Financial Sector Conduct Authority and the CMS will be allowed beyond 31 March 2021. No new demarcation products will be permitted and all existing demarcation products must be wound down by the end of March 2021.

The response by insurance providers has been instant with many opting to challenge the decision through the appeal process of the Medical Schemes Act. The appeals, for the most part, record that the decision by the CMS is irrational and does not give consideration to the prejudice which will be suffered by those who make use of low cost insurance products.

Demarcation products were introduced into the market in order to provide an affordable health insurance option to low income earners, with some insurance options costing less than R300. Although limited, the coverage offered gave more than 400 000 South Africans access to private healthcare who ordinarily would have had no cover and thus would have had to utilise the overstretched public healthcare system.

The stated rationale of the CMS is:

  1. The demarcation products provided potentially use the State as a designated service provider without entering into the necessary agreement with the State. The CMS argues that this ensures that the State provides a service without remuneration. Insurers maintain that this is not correct.
  2. The demarcation products do not provide for the Prescribed Minimum Benefits. These are a set of defined benefits that ensure all medical scheme members have access to certain minimum health benefits, for chronic conditions and other procedures that medical schemes are compelled by law to provide. Insurance companies maintain that this is the reason that the demarcation products are affordable to low-income policy holders.
  3. The demarcation products by their nature do not align with the principles of community rating, which provides that everyone pays the same rate to belong to the same medical scheme, and open enrolment, which means anyone can join any medical scheme of their choice. In response insurers have detailed that the CMS has not demonstrated that medical schemes can offer such a product which is still affordable.
  4. The demarcation products provide an opportunity for inferior benefits. Insurers providing the services maintain that these affordable benefits remain better than no benefits.
  5. A Low Cost Benefit Option (LCBO) guidance framework is being established by the CMS that will migrate the products to the medical schemes regulatory environment. In that regard in their appeals insurers have insisted that the demarcation products remain in place until the CMS is able to prove that the LCBOs developed in terms of this guidance framework are in place.

Because demarcation products do not strictly fit within the regulatory framework of the CMS, in the absence of an exemption in terms of section 8(h) of the Medical Schemes Act there would be no choice but to register as a medical scheme. This would result in what some believe to be a diluting of the purpose of these products as registration would inevitably result in additional cost.

The prohibition of demarcation products by the CMS will have far-reaching implications and ultimately place more strain on the already constrained public healthcare system. Given the appeals against the decision and the slow pace of discussions around the development of the LCBO guidance framework it is likely that finality on the prohibition will take time which will come largely at the expense of those who most desperately need the medical care which remains promised by section 27 of the Bill of Rights.


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