council may seek law change after insurance defeat 
22 May 2008

The development has important implications for medical schemes and the short-term insurance industry. It gives clarity to the industry about the legal status of gap-cover policies, but does little to assuage the council’s fears that the appeal court’s decision could exclude up to two-thirds of medical schemes from its jurisdiction.

“We are very disappointed with the appeal being declined,” said the council’s senior strategy adviser, Stephen Harrison. “Gap-cover products create an incentive for members who are young and healthy to buy down to less comprehensive options and top up their cover with insurance coverage, thereby reducing the cost subsidies for older and less healthy people who benefit from the community rating of the medical schemes environment,” he said.

“We will be engaging with the health department and the ministry to explore solutions such as legislative amendments,” Harrison said.   The legal row between Guardrisk and the council centred on a dispute about whether or not Guardrisk’s gap-cover policies, AdmedGap and AdmedPulse, do the business of medical schemes and whether Guardrisk therefore needed to be registered as a medical scheme with the council and comply with the provisions of the Medical Schemes Act. The policies cover the difference between what medical schemes pay for services and what doctors and hospitals charge.

The Johannesburg High Court agreed with the council that Guardrisk products did the business of medical schemes, and interdicted it from marketing and selling gap policies as they were not registered in terms of the act. Guardrisk successfully appealed against this ruling.

Argument turned on a technicality: whether three paragraphs in the Medical Schemes Act defining the business of a medical scheme should be read disjunctively or conjunctively.
Guardrisk MD Herman Schoeman yesterday welcomed the Constitutional Court’s decision.  The council’s fears that gap-cover policies would undermine the medical schemes industry were unfounded, he said.

The Supreme Court ruling provided clarity to the insurance industry about gap-cover products and confirmed Guardrisk’s view that such policies were distinct from medical scheme membership, he said.

Tamar Kahn, www.businessday.co.za