It is a fundamental principle of insurance law
that there is a duty of utmost good faith upon an
applicant to disclose material information to an
insurer. Health insurance contracts, as offered by medical schemes to their members, are subject to this same duty of absolute good faith. This duty is recognized in section 29(2)(e) of the Medical Schemes Act No. 131 of 1998, as amended (MSA), which permits a medical scheme to cancel or suspend a member’s membership due to the nondisclosure
of material information to the scheme.
All scheme membership application forms contain a section where applicants are required to list and provide details of all their existing medical conditions and prior medical treatment as well as those of their dependents who will be joining the scheme. What most people fail to take cognizance of is a general clause contained in the admission application form, which is stated along the following lines – “The Scheme and Administrator may (at any time and on
an ongoing basis) obtain your personal information from other relevant sources, including medical practitioners, contracted service providers, financial advisors, credit bureaus or industry regulatory bodies and further process such information to consider your membership application, to conduct
underwriting or risk assessments, or to consider a claim for medical expenses. We may (at any time and on an ongoing basis) verify with the relevant sources that your personal information is true, correct and complete” (emphasis added).
Accordingly, once the scheme has issued its letter of acceptance confirming one’s membership with the scheme, the mistaken belief is that a member will be covered for all medical expenses applicable to their particular chosen benefit option but this may not necessarily be the case. The practical reality is
that medical schemes do not verify the medical
information detailed in the applicant’s membership form before granting them membership – they rely on the member’s good faith in completing the form and they only verify the information once they receive a request for authorization for medical treatment. It is at this stage, once an authorization request is received, that the medical scheme sends out a Personal Medical Assessment form (PMA) to be completed by the member’s medical practitioners requesting the practitioners to disclose all conditions for which the member sought medical treatment within the previous 12 months. In accordance with the provisions of section 29A(7) of the MSA, a medical scheme may
require an applicant to provide the medical scheme with a medical report in respect of any proposed beneficiary only in respect of a condition for which medical advice diagnosis, care or treatment was recommended or received within the 12 month period ending on the date on which an application for membership was made. Should the scheme find that any medical conditions or prior medical treatments were not disclosed in the member’s application form, it may immediately terminate a member’s membership.
a duty of good faith falls upon an applicant to disclose material information
I dealt with a matter in my practice where the
dependent of a member of a scheme who had
joined the scheme six months prior suffered a
brain hemorrhage and was admitted to ICU. She had to be transferred to another hospital in order to receive life-saving medical treatment. The medical scheme advised my client (the main member) that before the scheme could authorize the requisite medical treatment, it would be sending a PMA to the patient’s general medical practitioner, which it did.
Not even 24 hours later, my client received a letter from the medical scheme advising that the scheme would not fund the required medical treatment and furthermore that the dependent’s membership
with the scheme had been terminated due to nondisclosure – the PMA detailed that the patient had consulted with her general medical practitioner for anxiety within the year prior to her admission to the scheme which had not been disclosed on the application form. What makes this situation even more deplorable is that the scheme had.
received prescriptions and been paying for her
chronic medication for anxiety since the start of
her membership six months prior but only chose
to investigate her health status and cancel her
membership for non-disclosure once the request
for urgent and expensive medical treatment was
received.
Disputes regarding the cancellation of membership usually arise within the context of what constitutes “material” information. The widely-held misapprehension is that medical information is only considered to be material and a medical scheme may only terminate a member’s membership if there is a connection between the current medical condition for which treatment is required and the medical condition which was not initially disclosed. This is however, not the case. The argument that has been advanced by all medical schemes in
cases held before the Council of Medical Schemes (CMS) is that all non-disclosures are material insofar as all medical information is pertinent and relevant to a medical aid scheme in order to enable the scheme to assess its overall exposure and risk liability posed by a prospective insured who is applying for membership. This argument has been unequivocally accepted by CMS in all its rulings on non-disclosure cases. Accordingly, all
cases in which members failed to disclose medical information of whatsoever nature have been found by CMS to be a justified reason for the scheme to terminate their memberships.
The courts however have adopted a different
interpretation of what constitutes a “material” nondisclosure in a recent judgement handed down by the Western Cape Division of the High Court in 2021. Whether this argument will be accepted by CMS remains to be seen. However, in light of what is set out above, it is imperative that every medical condition and prior medical treatment, no matter how trivial or irrelevant it may seem at the time, must be disclosed to the medical scheme at the time of completing an application for membership, in order to guard against a subsequent termination for non-disclosure.
