National Treasury recently released the final demarcation regulations to the Long-Term and Short-Term Insurance Acts.  The purpose of the regulations, first published in draft form in 2012, was to clearly differentiate between medical schemes and health insurance products.  The key implication of the regulations is that it is only products that satisfy the requirements contained in the regulations that qualify as health insurance products – all others (including most “sick funds”) will be regarded as conducting the business of a medical scheme and therefore required to register as a medical scheme in terms of the Medical Schemes Act.  Many “sick funds” exist in the workplace (to provide financial assistance for the medical treatment of employees) and are underwritten in terms of health insurance policies.  Such sick funds are not designed to generate profits, but rather to benefit  employees within the scope of the fund.  Many of these policies will not comply with the strict requirements in the regulations and will, accordingly, be required to register as medical schemes.  For many of the sick funds, this could amount to a death knell because of the onerous requirements imposed on medical schemes (particularly with regard to the solvency and minimum benefit requirements).

There may be a light at the end of the tunnel.  The impact of the regulations on existing health insurance policies, specifically in relation to bargaining council schemes, was given consideration by National Treasury in its response to the final set of comments to the regulations.  It was noted that “the Department of Health together with the CMS [Council for Medical Schemes] will be undertaking further research into the development of a Low Cost Benefit Option (LCBO) guideline.  It is envisaged that the existing primary healthcare insurance policies will be required to transition into a LCBO framework once finalized”.  It was further noted and widely reported in the media that Minister of Health, Aaron Motsoaledi, has directed the Council for Medical Schemes to devise a two-year exemption framework for health insurance providers who will be affected by the demarcation regulations.  The Council for Medical Schemes has indicated that this exemption period will run from 1 April 2017 (the effective date of the regulations to the Long-Term Insurance Act) but that affected parties should not apply for the exemption until such time as the appropriate exemption framework is implemented.  Sick funds and their health insurance providers that are affected by the changes must carefully monitor that exemption application process and ensure that they obtain the necessary professional legal advice in order to enable them to lodge their applications for exemption within the required time frame before 1 April 2017.

An interesting legal point that arises is the battle for prominence between the Labour Relations Act and the Medical Schemes Act in relation to these changes.  Some individuals may be lulled into a false sense of security by thinking that the prominence of the Labour Relations Act (which specifically empowers parties to establish sick funds in terms of collective agreements) over other legislation, where a dispute arises between the Act and any other legislation, will negate the implications of the regulations.  This would be an incorrect assumption.  The prominence of the Labour Relations Act does not apply where another Act specifically amends the Labour Relations Act and that is exactly what the Medical Schemes Act does by expressly providing that medical schemes established in terms of section 28(g) of the Labour Relations Act will be subject to the ambit of the Medical Schemes Act.

It is hoped that the Council for Medical Schemes duly establishes an appropriate Low Cost Benefit Option in terms of the Medical Schemes Act, as it has been directed to do, in other to lessen or ideally completely negate the impact of the regulations on the thousands of workers who benefit from sick funds.  The resistance from these individuals, should the Council for Medical Schemes fail to do so, would be understandably significant.