Scheme hides behind law to levy penalties
Profmed Medical Scheme has been ordered to stop giving its members the false impression that it has no discretion in imposing late-joiner penalties on members who join the scheme late in life.
Recently the registrar for medical schemes said in a ruling on a complaint that it was "improper" of the scheme to "try and hide behind a non-existent statutory obligation" when it refused member Errol Horwitz's request that it waive the penalty.
Horwitz, an attorney, joined the scheme in September 2014 after living abroad for 36years.
At the time, Profmed imposed the maximum late-joiner penalty of 75% of his contributions as he had not previously been a member of a South African medical scheme.
The Medical Schemes Act stipulates that schemes "may" apply late-joiner penalties to the contributions of members who join a scheme after the age of 35 and who have not belonged to a South African medical scheme before, or who have had an extended break in membership.
The rationale for the penalties is that these members should contribute more to a scheme's risk funds than members who have been consistently contributing for an extended period.
The penalties are levied as an additional percentage of the contributions up to 75% of contributions for members who have not been a member of a medical scheme at all when they join.
The act allows for late-joiner penalties to be levied as long as the member remains with the scheme, which many deem to be unfair.
But nothing in the act compels the scheme to impose a late-joiner penalty on any member, and once imposed, the scheme has full discretion to waive or reduce the penalty at any time.
In his complaint to the Council for Medical Schemes, Horwitz said he had asked Profmed on three occasions to waive his late-joiner penalty, and each time Profmed had told him it had neither the power nor discretion to waive or reduce it, claiming to be "statutorily mandated" to impose it.
When he found out that wasn't the case, Horwitz accused Profmed of falsely representing the position to him, and asked the registrar to compel Profmed to refund all or at least part of the late-joiner penalties he had paid.
After initially refusing to change its stance, the medical scheme stopped imposing the penalty on Horwitz's contributions from March this year, citing his low claims pattern as the reason.
Horwitz said in his complaint that when he had requested the scheme to cancel or reduce his late-joiner penalty in January last year - 17 months after joining the scheme, giving it ample time to assess his claim pattern - his request had again been refused.
"The issue which arose for adjudication is not Profmed's right to impose the late-joiner penalties or the quantum of the penalty imposed, but the manner in which Horwitz's requests for reconsideration were dealt with, as well as the alleged misrepresentation of the scheme's discretionary powers," acting registrar of medical schemes Dr Sipho Kabane said in his finding.
"The regulations are specific about the conditions under which the penalties may be imposed and the formula for calculating the correct penalty percentage," he said.
'In bad faith'
If a medical scheme elects to impose a late-joiner penalty, members do not have an automatic right or entitlement to a waiver or a reduction of it, and that decision cannot be reversed by any third party.
But Profmed's "continued false representation of the reasons why the penalty could not be waived" was problematic, the registrar said, "and gives credence to Horwitz's contention that Profmed acted in bad faith".
He said: "Such misrepresentation cannot be countenanced as it has the potential to breed more detrimental forms of falsehoods against beneficiaries of medical schemes.
"Profmed must henceforth desist from perpetuating false information regarding the extent of its prerogative to impose late-joiner penalties and its discretion in that regard." The registrar added that the matter would be referred to his office's investigation and compliance unit.
Kabane noted that the scheme had not disputed the allegations that it had misrepresented the truth about the discretionary nature of late-joiner penalties.
But while the registrar was "astounded" that Profmed sought to misrepresent the facts to Horwitz, particularly when legislation supported the imposition of the
late-joiner penalty, he could not, as a "creature of statute", direct the scheme to refund the late-joiner penalties, or impose "punitive penalties".
Horwitz plans to appeal the decision.
Graham Anderson, Profmed's principal officer and CEO, denies any bad faith or dishonesty in dealing with Horwitz or any other member, and says the scheme will also appeal the decision.
He says the scheme informs members that it has a statutory obligation to impose late-joiner penalties, saying members are informed that the penalty is imposed in terms of statutory provisions.
Legislation provides for late-joiner penalties to be "indefinite", he says.
"Once they are imposed, they remain in place, even if the member moves to another medical scheme."
Horwitz "was informed that the late-joiner penalty cannot be waived as he was unable to provide the scheme with proof of additional South African medical scheme cover".
Anderson says late-joiner penalties are one of the only ways in which schemes can mitigate the risks they face of consumers waiting until they need cover before joining a scheme.
"Profmed reviewed Mr Horwitz's claims to assess his risk to the scheme with a view to waiving the late-joiner penalty as a concession to the member. This was a goodwill gesture on the part of the scheme and is not standard practice or procedure."