Demarcation exemption process guidelines

The Council for Medical Schemes has published guidelinesfor insurers and intermediaries to apply for a two year exemption from aspects of the demarcation regulations.

Bear in mind that the exemption process does not apply to products which comply with the demarcation regulations. It applies to other policies that defray medical expenses in exchange for a premium.

Application process

There is a two-stage application process.

The first is to submit a basic application before 31 March 2017. This is an absurdly short period seeing the guidelines were published on 15 March, 11 business days before the deadline. There is also no basis for the short deadline for existing policies because short-term policies are valid until 1 January 2018, and new policies can be introduced at any time.

Details required in the basic application are in paragraph 7.1 of the guidelines.

Within 30 days of submitting the basic application, the applicant for exemption must submit what is rightly called an “extensive application” containing highly detailed information regarding the product and the business of the applicant including confirmation regarding members per product line which are unlikely to be available for standard products such as average family size, income profiles and chronic profiles.

Basis of exemption

The exemption will only be granted in a manner that the “interests of existing policyholders/customers are protected”. One would think this is obvious because to draw a line through insurance product lines before the CMS have developed a Low Cost Benefit Option is obviously not in the interests of policyholders.

The exemption can be granted subject to consumer warnings on products. Extraordinarily the paramount consideration is the application of the principles of community rating, open enrolment and cross-subsidisation. It must also be obvious that existing products do not comply with these requirements and the intention would seem to be to draw a line through the existing rights of policyholders and potential policyholders. The unfairness to existing policyholders contained in the process is contrary to TCF principles.

CMS becomes insurance regulator

In addition, insurers who get exemption will be required to pay an additional levy on the same basis as the levies they already pay underBoard Notice 81 of 2016 dated 1 June 2016.

Complaints by policyholders/members will be adjudicated by the Council for Medical Schemes in accordance with the Medical Schemes Act which means insurers will now have two regulators because this does not override the complaint process under insurance laws.

The exemption will not be given for a period beyond 31 March 2019. This presumably means that the Low Cost Benefit Option will be developed within those two years which would seem to be the only good news in the guidelines for policyholders themselves.

None of this gives any rights to policyholders whose rights are being taken away by the demarcation regulations if the insurer does not go through this onerous exemption process.

If you want to pursue the exemption process you better start with the preliminary application by 31 March 2017 even though this would appear to be irrational. As is usually the case, it is unlikely that the irrationality and illegality of the requirement will be challenged by anyone because of the time, cost and consequences involved.