Hospital insurance appeals to a segment of the market, research shows, and fills an important gap.
Qualitative analysis released last week suggests that health insurance products such as hospital cash plans are not cannibalising South Africa's medical aid market.
The research, conducted on behalf of the Finmark Trust, was designed to examine the demand side of the hospital cash plan insurance market, namely how consumers use these plans. It follows a 2012 review of the market by the Finmark Trust.
Researchers examined a sample of consumers earning between R6 000 and R12 000 a month, including those with hospital cash plans, as well as potential plan owners. A small number were on a medical aid, typically through an employer.
The research revealed that, although many in this market aspire to private healthcare, it is out of their reach, according to Corette Haf of the Corporate Research Consultancy, which carried out the work for the Finmark Trust.
Furthermore, it was found that payouts from hospital cash plans usually go towards non-medical expenses, typically to substitute income lost during hospitalisation.
"There is, indeed, no competition in practice between what a hospital cash plan provides and what a medical aid provides," said Christine Hougaard, the engagement manager at the Centre for Financial Regulation and Inclusion, which managed the research on behalf of the Finmark Trust.
A totally different ball game
"It's a totally different ball game. People use payouts for non-medical expenses or to replace income while hospitalised; it's not primarily used to fund medical care and especially not in the private sector."
In the rare cases in which participants had both medical aid and a hospital cash plan, a small proportion did use some of their payout to meet the shortfall between medical expenses and what medical aid would cover, noted Haf.
This was seen as a "nice supplement", however, and most of the money was used to pay non-medical expenses.
In these instances, participants did not consider cancelling their medical aid in favour of a hospital cash plan, Hougaard said.
"There was a clear understanding that a hospital cash plan would not cover their medical costs and that plan ownership did not open the doors to a private hospital," said Haf.
The rise of insurance products such as hospital cash plans has caused alarm among regulators and other industry players.
Undermining the principles of social solidarity
They are believed to undermine the principles of social solidarity that govern medical aid schemes whereby younger, healthier individuals pay for the care of the elderly and the sick.
Private healthcare is unaffordable for the majority of South Africans, as only 17% are able to afford medical aid. Many who use state healthcare facilities can still rack up significant medical and other costs, however, especially if they earn more than R6 000 a month, making them ineligible for free state healthcare.
A proliferation of products such as hospital cash plans has sprung up to meet this gap, offering cash payouts, typically after three days in hospital.
These insurance products do have limitations, however. For instance, unlike medical aids, they are not required to offer prescribed minimum benefits, and there is concern about the level of fraudulent claims.
The research also noted that many participants were aware of claims of hospital cash plan fraud, particularly in KwaZulu-Natal.
The rise of these products — they now cover an estimated 2.4-million people — has led to debate regarding the regulatory demarcation between medical aid schemes and health insurance products.
Draft demarcation regulations
In a bid to address these concerns, the treasury released draft demarcation regulations for comment in 2012. These potentially placed severe limitations on hospital cash plans and did away with other insurance products such as gap cover.
In response to numerous public comments, the treasury is to issue a revised second draft of the regulations that will "acknowledge that, while health insurance products have a role in the marketplace, these products must operate within a framework whereby they complement medical schemes and support the social solidarity principle embodied in medical schemes".
The release of the revised draft regulations is eagerly awaited, with final implementation expected in 2014.
"We don't believe hospital cash plans are a panacea," said Hougaard.
"[But], taking the current situation [into account] that medical aid is too expensive for the bulk of the population, we believe there is a role to be played by hospital cash plans in at least providing some cover, especially since those who use the public system can still incur expenses that will leave them out of pocket."