Hospital cash plan vs medical aid: the legal difference

A hospital cash plan is an insurance contract that pays you a fixed amount for days in hospital. A medical aid is a registered medical scheme that pays for healthcare costs under its rules. Different laws govern them, different regulators supervise them, and a hospital cash plan must say it is not a substitute for a medical scheme.

Olvian is a lead-referral service, not a scheme, insurer, broker or adviser. This guide describes how the law treats each product and does not say which one anyone needs.

What is the legal difference?

A medical aid is a medical scheme registered under the Medical Schemes Act 131 of 1998 and supervised by the Council for Medical Schemes. Its members pay contributions, and the scheme pays for relevant health services under its rules and the Regulations.

A hospital cash plan is an insurance contract. The Regulations under the Short-term Insurance Act list it as non-medical expense cover as a result of hospitalisation. National Treasury's media statement of 23 December 2016 says the Regulations specify which contracts are regulated as health insurance policies and, as a result, "are excluded from the Medical Schemes Act ... despite such contracts meeting the definition of the business of a medical scheme".

So the plan sits outside the Medical Schemes Act only because the Regulations permit it, and on conditions. The Treasury says those conditions are meant to let insurers provide such policies "in a manner that complements medical schemes".

What does each one pay, and to whom?

National Treasury describes the hospital cash benefit as "unrelated to the actual cost of any medical service" and "aimed at covering incidental costs, such as loss of income". A scheme, by contrast, pays for the service. Our guide on what a hospital cash plan pays goes through the limits.

Does the law treat age and health the same way?

Not quite, but there are similarities.

• Contributions. Section 29(1)(n) of the Medical Schemes Act says a scheme's admission terms must base contributions on income or the number of dependants, and "shall not provide for any other grounds, including age, sex, past or present state of health", other than as prescribed. The prescribed exception is the late-joiner penalty. Our guide on the late-joiner penalty explains it.
• Premiums. For a hospital cash plan, regulation 7.3(2) requires group underwriting and bars discrimination on age, state of health and other grounds. Regulation 7.3(4) allows one exception: a higher premium for those who enter after a specific age, if all entrants after that age in the product line pay the same.
• Refusal. A hospital cash insurer may not refuse a person unless they previously committed an insurance fraud (regulation 7.3(3)).

Do waiting periods work the same way?

The ceilings match. Section 29A(1) of the Medical Schemes Act allows a general waiting period of up to three months and a condition-specific one of up to 12 months for someone with no scheme cover in the previous 90 days. Regulation 7.3(5) allows a hospital cash contract the same ceilings.

The detail differs. The Medical Schemes Act ties the length to your history of cover and exempts prescribed minimum benefits in some cases. The Regulations bar a new condition-specific waiting period if you completed one on a materially similar earlier policy and held that policy for at least 90 days (regulation 7.3(6)). Our guide on medical aid waiting periods covers the scheme side.

When can each be cancelled?

A medical scheme may not cancel or suspend a membership except for failure to pay fees, failure to repay a debt to the scheme, fraudulent claims or acts, or non-disclosure of material information (section 29(2) of the Act).

A hospital cash insurer may terminate only for non-payment of the premium, fraudulent claims or acts, or because it will no longer offer the product line, after giving every policyholder in it 90 days notice (regulation 7.3(10)). Non-renewal counts as termination (regulation 7.3(11)).

How must a hospital cash plan describe itself?

Marketing must display the statement: "This is not a medical scheme and the cover is not the same as that of a medical scheme. This policy is not a substitute for medical scheme membership." It may not create the perception that the plan is a substitute for medical scheme membership, or that it indemnifies medical expenses (regulation 7.5(1)).

It may also not be described as "medical" or "hospital" except as the regulation allows. For this product, "hospitalisation" may be used only when always preceded by the words "non-medical expense cover as a result of".

Can someone hold both?

Nothing in the Regulations stops it. Regulation 7.4(1) says a hospital cash contract may not require scheme membership, which means the plan can be held without a medical aid, and it does not forbid holding one alongside a scheme. They pay for different things: the scheme for care, the plan a cash sum to you. If a person has a scheme, the bill is still the scheme's and theirs to settle.

Whether a household needs either, or both, is a matter for the licensed adviser or registered broker who speaks to you. Olvian is not in a position to say.

Where do I complain?

The routes are different.

• Medical scheme. Use the scheme's own dispute process, then lodge a written complaint with the Council for Medical Schemes under section 47 of the Act. A decision on it can be appealed to the Council within three months under section 48.
• Hospital cash insurer. Use the insurer's complaint and claims review process, then the National Financial Ombud Scheme, which says its service is free to complainants and that it can look at a complaint only after you have first lodged it with your insurer. Our guide on hospital cash plan claims and complaints explains the claim rules.

What should I ask the provider who calls me?

Olvian does not advise on whether anyone needs either product. These are factual questions:

1. Is this a contract with an insurer or a medical scheme membership?
2. What does it pay, to whom, and on what event?
3. Which waiting periods apply, and are there exclusions?
4. Can it be cancelled or not renewed, and on what grounds?
5. If I already have a medical aid, will you need any information from it?
6. How do I complain, and to whom?

Sources

• Regulations under the Short-term Insurance Act, 1998, Part 7, Government Gazette 40515, 23 December 2016: regulations 7.2 to 7.5. https://archive.treasury.gov.za/legislation/regulations/FinalDemarc2016/GG_ST%20Demarcation%20Regs.pdf
• National Treasury, media statement on release of the final Demarcation Regulations, 23 December 2016. https://archive.treasury.gov.za/legislation/regulations/FinalDemarc2016/2016122301%20-%20Demarcation%20press%20statement.pdf
• Medical Schemes Act 131 of 1998, as consolidated by the Council for Medical Schemes: sections 29(1)(n), 29(2), 29A, 47 and 48. https://www.medicalschemes.com/files/Acts%20and%20Regulations/MSACT19DEC2003.pdf
• National Financial Ombud Scheme. https://nfosa.co.za/how-to-complain/