Following a landmark decision by the Supreme Court, short-term insurers will be permitted to design and sell medical cover.
Since 1998 this market has been all but barred from selling medical cover because of an interpretation of the definition of “business of a medical scheme” by the Council of Medical Schemes.
Litigation firm Werksmans acted on behalf of its client, Guardrisk Insurance Company, against the Council for Medical Schemes and the Registrar of Medical Schemes. It was an important test case in the long-running battle by the council to stop the insurance industry providing products that the Council deems to undermine the medical-scheme industry.
Neil Kirby, director of health, pharmaceutical and life sciences at Werksmans, says the Supreme Court ruling concluded that medical cover by the insurance industry plugs essential gaps in healthcare provision. The ruling reads: “Practical reality has shown that there exists a need for this type of insurance and there seems to be no reason why it should not be permitted.”
The dispute about the demarcation between medical schemes and the short-term insurance industry stems from the 1998 amendment to the Medical Schemes Act that defined the “business of a medical scheme” by listing three activities deemed to embrace that business.
The council chose to interpret the word “and” used between two clauses in a succession of three clauses to mean “or”, thereby forcing any company undertaking any one of the three activities to register as a medical scheme. This applied not only to insurance companies, but also to any business providing medical services.
This interpretation was rejected by the insurance industry, which believed that all three activities had to be undertaken for a company to be defined as a medical scheme.
It argued strongly that the insurance industry could continue to act in accordance with its own legislation — the Short-Term Insurance Act — and that its insurance policies did not breach the Medical Schemes Act. The industry, including Guardrisk, therefore continued to offer “gap products” not offered by a medical scheme.
The registrar chose Guardrisk’s medical cover policy to attack, instructing Guardrisk either to stop selling the product or register as a medical scheme.
This was more than a year ago and the effect of the judgement of the Johannesburg High Court meant that any type of business providing medical cover as part of a broader product would have to register as a medical scheme and abide by all its regulation.
Guardrisk, acting on Werksmans advice, decided to appeal. The Supreme Court upheld the appeal and dismissed in its entirety the decision of the High Court, holding that the business of a medical scheme must include all three of the points. It defined the word “and” as meaning only “and” and not “or”.
Kirby says the argument might seem pedantic — over an interpretation of the word “and” — but its importance goes deeper than that. “In essence it was about the extent of government intervention, and the government’s right to dictate the terms of a commercial contract between two consenting parties. This judgement is essentially saying to the minister of health that she has encroached too far and the court feels consumers need more freedom. Let market forces govern the choices that are available to them.
“This judgement now opens up an entirely new field of business to the insurance industry,” says Kirby.
The insurance industry seems likely to be cautious in its response to this ruling, fearing a further appeal. ACE Insurance says it does not offer “gap products” and does not intend to in the foreseeable future. Chief executive Michael Durek says the outcome is by no means final, and the company prefers not to flout the wishes of the registrar.
“We would look at entering potentially at a later stage, once this matter is fully cleared,” he says.