- Constitutional Court requires more than proof of material non-disclosure before membership can be terminated.
- Medical schemes must now show that the non-disclosure induced the decision to admit a member.
- The judgment raises fresh questions about balancing consumer protection with the practical realities of risk management.
The question of when a medical scheme may terminate membership due to non-disclosure was considered relatively settled in South African law.
However, the Constitutional Court’s decision in Carlo Swanepoel NO v Profmed Medical Scheme has revisited both the duty to disclose and the threshold for material non-disclosure and, for many observers, the Court’s reasoning raises an uneasy question: does it fully reflect the practical realities within which medical schemes operate?
The ability of a medical scheme to terminate membership must be understood within the broader framework of the Medical Schemes Act, 1998, which tightly regulates both access to membership and the terms on which it is granted.
The Act is founded on the principle of open enrolment, requiring medical schemes to admit any applicant who submits a properly completed application. Membership cannot be refused based on age, health status or claims history, ensuring that access is not influenced by medical risk.
How member contributions are determined
The Act further constrains medical schemes through Section 29(1)(n), which regulates how member contributions are determined. Contributions may only be determined based on the chosen benefit option, the number of dependants and, for certain benefit options, the member’s income, or a combination of these factors. These factors must then be applied consistently across all members within the same benefit option who meet the relevant criteria.
Crucially, medical schemes may not differentiate contributions based on age, past or present health, or anticipated healthcare funding needs, nor may they charge different contributions to members on the same benefit option unless the contributions differ because of income or the number of dependents.
A medical scheme is permitted to impose waiting periods
Section 29A addresses the risk of anti-selection, where a person joins a medical scheme in anticipation of imminent medical treatment costs. To mitigate this, a medical scheme is permitted to impose waiting periods in specified circumstances, such as where an applicant has not previously been a member of a medical scheme or has experienced a break in cover.
These waiting periods include a general waiting period of up to three months and a condition-specific waiting period of up to 12 months, depending on the applicant’s prior medical scheme membership history.
If an applicant has not been a beneficiary of a medical scheme for at least 90 days before applying, a medical scheme may exclude cover for prescribed minimum benefits during the applicable waiting period. In all other cases, a medical scheme is required to cover prescribed minimum benefits despite the imposition of waiting periods.
This distinction is significant. Where there has been a break in membership of less than 90 days, waiting periods may only be applied in respect of non-prescribed minimum benefit conditions. Accordingly, even if a prescribed minimum benefit condition is disclosed, a medical scheme remains obliged to provide cover for that condition, whereas cover for non-prescribed minimum benefit conditions may be subject to waiting periods.
Therefore, under these circumstances, only non-prescribed minimum benefit conditions are relevant and material for the purpose of imposing waiting periods.
Historic approach to termination and non-disclosure
In an open enrolment environment and taking into account the limited ability medical schemes have to manage risk and apply traditional underwriting measures, the Council for Medical Schemes historically adopted a pragmatic approach to the non-disclosure of material information. Intention was not considered, and the inquiry was focused narrowly on whether the non-disclosure was material within the narrow scope of the medical scheme’s restricted underwriting ability.
Materiality was assessed with reference to whether the information would have influenced the medical scheme’s underwriting decisions, such as the imposition of waiting periods or late-joiner penalties. If an applicant had not been a beneficiary of a medical scheme for at least 90 days, all conditions, including prescribed minimum benefit conditions, were regarded as relevant and required disclosure for underwriting purposes. In all other circumstances under Section 29A, only non-prescribed minimum benefit conditions were treated as material for underwriting purposes.
The Steyn judgment
Mignon Adelia Steyn applied for membership of Profmed Medical Scheme and was asked whether she or any of her dependants had ever suffered from, or received treatment, advice or medication for gastric ulcers. She answered "no", despite having undergone a gastroscopy and colonoscopy that resulted in a diagnosis of gastritis. Her membership commenced on 1 January 2016 but was terminated in November 2016 for non-disclosure of material information.
Both the Council for Medical Schemes and the Appeal Board upheld the termination, finding that the non-disclosure was material because gastritis was a non-prescribed minimum benefit condition and the failure to disclose prevented Profmed from imposing a waiting period under section 29A.
The Court was required to determine whether a medical scheme needs only to establish that non-disclosure was objectively material, or whether it must also prove that the non-disclosure induced the scheme to enter into the contract.
Disclosure arises only where the undisclosed condition is truly material
On materiality, the Court held that a duty of disclosure arises only where the undisclosed condition is truly material. But the Act does not define material non-disclosure or set out how materiality should be assessed. The Court noted that this gap is left to medical schemes to regulate through their own rules.
Profmed’s rules referred to cancellation for material non-disclosure, and the application form defined material information relating to the disclosure of medical conditions. The court was critical that the rules failed to articulate a clear standard for materiality. The court also rejected the Appeal Board’s rationale that non-prescribed minimum benefit conditions needed to be disclosed in this case as fundamentally flawed.
Crucially, the court rejected the idea that materiality alone is enough. Section 29(2)(e), it held, does not remove the common law requirement of inducement. In other words, a medical scheme must still show that the non-disclosure influenced its decision to grant membership. This approach, the court said, aligns with the Act’s broader purpose of widening access to medical cover.
The court also stressed that Profmed led no evidence of how it would have treated applicants with similar medical histories who had made full disclosure.
This marks a significant shift in that termination for non-disclosure now requires not only proof of objective materiality, but also evidence that the disclosure would have changed the scheme’s decision-making.
The judgment leaves some uncertainty as to the extent to which broader features of the medical schemes' statutory environment, including open enrolment, limits on contribution setting, the interaction between prescribed minimum benefits and waiting periods, were fully factored into the analysis.
How to terminate membership now?
A medical scheme seeking to terminate membership based on non-disclosure will be required to:
- Clearly specify, in its application form and rules, the information it regards as material.
- Establish the materiality of the non-disclosure, including how it was induced to enter into the contract on those terms.
- Demonstrate how it would have treated an applicant with a similar medical history who made full disclosure.
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