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COVID-19: Financial reprieve for members of medical schemes and SMMEs

17 April 2020
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Further to our newsflash on the impact of the Council for Medical Schemes (CMS) Circular on medical scheme contributions by financially distressed employers and employees (available here), on 10 April 2020, the CMS published Circular 28 of 2020 titled ‘COVID-19 Medical Schemes Industry Guidelines’ (Circular).

The Circular is aimed at providing proposals linked to COVID-19 to medical schemes during the national lockdown period. Contribution holidays and financial relief to members of medical schemes are included among the topics covered by the Circular. The CMS advised that it anticipates the lockdown period will not last more than three months

Contribution holidays

The CMS advised that it received requests from industry to grant a blanket exemption to medical schemes and their members from the provision of section 26(7) Medical Schemes Act, 1998 (Act).

Section 26(7) of the Act provides that ‘[A]ll subscriptions or contributions shall be paid directly to a medical scheme not later than three days after payment thereof becoming due’ (emphasis added).

Following careful consideration, including the impact contribution holidays would have on the financial liquidity of medical schemes, the CMS advised that blanket exemptions will not be granted to medical schemes. Instead, the CMS will consider exemption applications from individual medical schemes and assess each application on its merits. 

Accordingly, each medical scheme wishing to be exempted from section 26(7) must apply to the CMS. The Circular sets out the criteria for exemptions, which include amongt others, that the exception period will not extend beyond three months, subject to review as guided by the Regulations to the Disaster Management Act.

Financial relief to members and SMMEs

The Circular sets out options that may be considered by medical schemes. Briefly, the options are:

  • Use of accumulated savings funds to offset contributions
  • Ex-gratia payments
  • Financial relief for SMMEs

Use of accumulated savings to offset contributions

The CMS advised that it would be in the public interest to grant exemptions to medical schemes from compliance with section 26(7) of the Act (quoted above) and Regulation 10(3) to the Act by permitting schemes to use savings in ‘Personal Medical Savings Accounts’ to offset member contributions to the scheme.

Note that Regulation 10(3) prohibits medical savings to be used to offset contributions owed to a medical scheme unless the savings are used to settle any debt owed to a medical scheme upon the termination of membership.

Accordingly, to avoid termination of membership due to non-payment of contributions, where a member has savings in his or her medical savings account, those savings may be tapped into to pay contributions due tothe scheme.

It is important to note that the use of medical savings to pay contributions may impact defraying other medical expenses and medical benefits. That said, as per Circular 25, the CMS confirmed that COVID-19 is regarded as a prescribed minimum benefits condition, and that cases of COVID-19 will be paid in full in line with the published National Institute for Communicable Diseases guidelines. 

The Circular sets out the conditions medical schemes must comply with before using medical savings. One of those conditions is that members must have applied to the medical scheme for relief.

Some members of medical schemes received SMS notifications from their medical schemes that they may qualify to use the balances in their medical savings accounts to pay contributions to the scheme for up to three months.

Ex-gratia payments

Medical schemes may make ex-gratia payments to financially assist their members, however, according to the CMS, ex-gratia payments may not be used to off-set contributions. Instead, the ex-gratia payments may only be used in accordance with section 30(1)(b) of the Act – thus towards health services that were rendered or that will be rendered.
 
Financial relief applications – small, medium and micro-sized enterprises (SMMEs)

A SMME (less than 200 employees) seeking financial relief to protect its employees’ medical scheme membership cover may apply to the relevant medical scheme and demonstrate the financial impact caused to it by the COVID-19 pandemic.

The Circular does not provide details as to the extent of the ‘financial relief’ to SMMEs, however, it appears that where an employer is responsible for the payment of contributions in terms of an agreement between it and the relevant medical scheme, and the SMME cannot afford to do so currently because it is in financial distress, the employer may apply to the scheme for a payment plan to pay contributions due to the scheme when it is financially stable to do so again.

Of course, the payment plan would need to be negotiated as between the employer and the scheme and would need to be assessed by the scheme on a case-by-case basis.

The CMS cautioned that boards of medical schemes, in considering applications from SMMEs, should ensure compliance with the provisions of the National Credit Act (NCA). The NCA deals with, among other things, the responsibilities of registered credit providers and when certain lending arrangements or transactions will trigger credit provider registration requirements under the NCA. 

It does not appear that the intention is for schemes to grant loans or make credit available to employers, but instead to manage and negotiate contributions payable to medical schemes by employers.

Should loans be granted, then it is important to note that if the loan attracts any interest, fees or charges whatsoever (beyond the principal loan amount), the NCA may be triggered and the medical scheme may need to register as a credit provider.

Lending is not the business of a medical scheme and as such, it is likely that any ‘loans’ granted to employers by medical schemes would be interest-free with no additional charges or fees levied on the principal loan amount.