Constitution / discrimination / equality CR375

Allegation of marital status discrimination

Background – the facts and argument

1. The complainant and his wife were members of a health plan (a medical scheme) associated with the insurer, and they each also had a life policy with the insurer.

2. For such persons the insurer offered a health integrator plan. In addition to normal annual premium increases on the policy, premiums might increase or decrease by an additional percentage, depending on claims submitted against the health plan, determined with reference to a personal health matrix. The health integrator also allowed for the possibility of refunding a portion of life policy premiums every five years, also depending on claims made against the health plan, and determined with reference to a personal refund matrix.

3. These matrices have seven levels of annual aggregated health claims in rands (eg R0 to R1 050, R1 051 to R2 200, etc) on the vertical axis, and four levels for status on the insurer’s programme awarding points for various wellness factors such as gym attendance, healthy eating, etc, on the horizontal axis. The lower the claims level, and the higher the status, the higher will be the percentage of premiums paid back after a 5-year cycle, and the lower will be the premium increase, with the converse obviously also applying.

4. The complainant was unhappy with the computation of his premium refund benefit and his annual premium increases, to the extent that medical claims and expenses of his spouse had been included in the computation, which he alleged was unlawful and/or unenforceable as being contrary to public policy.

5. The relevant clause in the contract reads as follows:

“The claims taken into account on your Health plan include:

• Medical expenses accumulating towards the threshold and the Above Threshold Benefit attributable to you and your spouse on your Health plan, with the exception of the following
– optometry claims
– dentistry claims, and
– childbirth claims without complications

• Chronic medication and in-hospital benefits attributable to the principal life, spouse and children insured under the Life Plan. In the case of the Priority Plan, the claims taken into account include the amount of the hospital deductibles payable by the member.” [my emphasis]

6. The complainant asserted that this provision, stipulating that the spouse’s expenses are taken into account as well as those of the policyholder, was unlawful and thus unenforceable, as it offended against the constitutional right to equality. He referred to Section 9(3) of the Constitution, which states that no person may discriminate directly or indirectly against anyone on prohibited grounds, including marital status. Such discrimination is presumed to be unfair unless proven otherwise.

7. The complainant maintained that it was discrimination against him on grounds of marital status to include his spouse’s expenses, when this would not be done in the case of a single person. Such discrimination was, he alleged, unfair, and a limitation of his right to equality, a limitation not reasonable and justifiable (as contemplated by Section 36 of the Constitution). His argument was that the purpose of the limitation (indicated by the insurer) “was originally to compensate for unreliable data resulting in claims for one spouse often not being allocated correctly, or at all”, that the insurer had indicated that the reliability of the health systems had improved over time, and that the current purpose appeared to be “that it saves [the insurer] certain expenses and effort associated with a perceived necessity to ‘redesign’ its product”. In his view such a purpose could not render the limitation of his right to equality reasonable and justifiable. He asserted that his and his wife’s claims experiences should be assessed independently, and that there should be no double counting of health claims, in the calculation of the respective pay-backs and premium increase determinations on his and his wife’s policies.

8. In response the insurer furnished an opinion from counsel. The opinion argued that what the complainant described as “double counting” was more aptly described as “aggregating and averaging”; the insurer “partially attributes each spouse’s claims to the other”. (The insurer’s more detailed explanation of its methodology is set out below, at paragraphs 15 to 21.)

9. The opinion set out the relevant legal principles: discrimination on grounds of marital status is one of the specified prohibited grounds of unfair discrimination in terms of Section 9(3) of the Constitution. If differentiation between categories of people is based on a specified ground it is presumed to be unfair, but the presumption is rebuttable.

10. Counsel for the insurer then sought to rebut the presumption that the discrimination on grounds of marital status on the facts of this case was unfair. He addressed factors which must be taken into account in examining the impact of the discrimination on the victim (Harksen v Lane 1997 BCLR 1489 CC). He summarised these factors as follows:

“- The position of the complainant in society and whether he or she has suffered discrimination in the past. If the complainant is part of a group that has suffered discrimination in the past then it is more likely that the discrimination will be unfair;

– The nature of the provision and the purpose sought to be achieved by it. If its purpose is manifestly not directed at impairing the complainant but is aimed at achieving a worthy and important societal goal, such as furthering the equality of all, this may have an important bearing on whether the complainant has suffered the impairment in question.

– The extent to which the discrimination has affected the rights or interests of complainants and whether it has led to an impairment of their fundamental dignity or constitutes an impairment of a comparably serious nature.”

11. The opinion argued that spouses (the group of married persons in society) were not a vulnerable group, and had not suffered from past patterns of discrimination.

12. The general nature of the provision and its purpose was, according to the opinion, to offer members better premiums based on a more accurate assessment of risk, and to influence and encourage people to look after their health. Regarding the purpose of the discrimination, it was stated: “The purpose is manifestly not to impair [the complainant’s] dignity. The aggregating and averaging effect means that one spouse stands to benefit by the low claims history of the other spouse. Therefore within a marriage the one spouse benefits and the other experiences a marginal disadvantage. This is not designed to impair the dignity of the fortunate healthy spouse… In the relevant period the complainant has received a slightly lower payback than he would have received if he was not married or if his wife had not suffered illness. There is clearly no fundamental impairment of his dignity or other impairment of a comparably serious nature”.

13. Counsel for the insurer argued that in entering into the contract with this provision, the complainant had exercised his freedom to contract, even to his own detriment. He argued that freedom to contract was a fundamental aspect of the right to dignity, and the complainant’s “agreement to be treated differently is the decisive factor that leads to the conclusion that the potentially discriminatory or differentiating outcome is not unfair”.

14. The complainant responded to the insurer’s submission (the opinion), maintaining his position that there was double counting, and pointing out (quite correctly) that the “aggregation and averaging” was not explained in the opinion. He maintained that both he and his wife were being discriminated against, in the same way. He referred to the insurer’s stated rationale for combining spouses’ health claims, being the difficulty of separating out-of-hospital claims for each member from health plan records which were composite for a family, and he stated his view that because the insurer had indicated that this unreliability of data was less of a problem than previously, the only remaining rationale was not to inconvenience itself by having to re-design its product. He considered that the opinion confused the overall purpose of the payback and discount system with the purpose of the discrimination “ie not to inconvenience [the insurer]”.

The insurer’s explanations about its methodology

15. At this stage the insurer provided our office with a document entitled “Overview of Integration”, and we provided the complainant with a copy. This document explained the insurer’s model and methodology of integrating data from the health scheme with life cover, to devise incentives that result in clients managing their health better, allowing a more accurate and tailored assessment of risk for its policyholders. A section in this document, under “Common queries” is entitled “Why are spouse claims taken into consideration?” I quote it in full:

“The reason why spouses’ health claims are included is that at the point of the product’s development it has been difficult to separate the out-of-hospital claims for the Principal and Spouse on the health plan as pharmacists for example would often put the claims through under the incorrect spouse.

While the recording has improved over time the practice still exists and more importantly the product was priced taking the combined health claims into account. Within the health claim bands of the PayBack matrices we take into account that we consider both the Principal and Spouse’s out-of-hospital claims (claims that accumulate towards and above the above-threshold-benefit). If we did not do this then the bands in the matrices would be lower to ensure clients remain in the same position. Hence while health claims recording has improved over time, we have maintained this practice as we would otherwise have to retrospectively adjust the benefits of our clients which we do not think is in their best interest.” [our emphasis]

16. We clarified with the insurer that the purposefully wide bands on the matrix were part of the product design from the outset, and that the same matrix was, and had always been, applicable to both married and single policyholders. It appeared that the bands were determined with some consideration of the likely average claims volume of two people, aggregated, in setting the bands wide, so as to diminish any prejudice to married policyholders.

17. The insurer has explained the averaging effect thus:

“This meant that on average clients would not be negatively affected by the inclusion of the spouse’s health claims in the matrix because the health claim bands are wider than if spouse claims were not included in the product design.

Obviously, as with any calculation methodology that uses ‘averaging’, there will be years where individual policyholders will fall into a lower [ie worse, or less advantageous in terms of percentage premium refund or premium increase] health claim band in the matrix as a result of their spouse having high health claims (as is the case with the Complainant) however there will be many policyholders where the opposite is true and they fall into a better health claim band as a result of the methodology. Even the Complainant may find that in future years, he will benefit from this methodology if his spouse has years with lower than average health claims”.

18. It is worth setting out parts of the insurer’s further explanation at some length:

“Insurance pricing is based on pooling of risk and the ability to accurately assess the risk for a pool of lives… Traditionally the insurance industry prices insurance dividing the population into smaller risk pools by using rating factors such as age, gender, smoking status etc (the traditional rating factors) which are known to have a quantifiable impact on mortality and morbidity risk. [We however are] in the unique position of having access to an enormous amount of health and wellness data on an ongoing basis… This data allows us to subdivide these risk pools by two additional rating factors – …[wellness status and level of health scheme claims]. The general insurance principle here is that the more rating factors you can use … the smaller the risk pools can become and the lower the level of cross subsidy that will exist in each risk pool. This allows a more accurate assessment of risk which ultimately results in a better value proposition for clients”.

19. In response to our question as to how a married policyholder would ever fall into a better health claim band as a result of the methodology, the insurer explained that what was meant was that if a policyholder’s spouse had lower than average claims relative to what would have been the case if the methodology of wider bands had not been used, the policyholder could find himself in a lower health claim band than would have been the case if the insurer had not used this methodology.

20. The insurer provided a worked example illustrating this. Thus, assuming the first health claims band would have been R0 to R2 000 without the inclusion of spouse claims, a member with R2 500 in claims and spouse claims of only R200 (or no spouse claims) would have fallen into the second health claim band. However with the inflation of the first band to R0 to R3 000, with spouse claims combined, he will fall into the first (better) health claim band, with its greater rewards.

21. The insurer stated:

“Obviously claimants whose spouses had years with higher than average claims may end up being pushed into a higher band as a result of this methodology and likewise claimants where the spouse has lower than average claims may end up being in a lower health claim band than they would have been had we not used this methodology, but on average, this should even out throughout the lifetime of the policy duration and over a large number of policyholders and hence work well as a methodology for defining health claims and subdividing the book into smaller segments of homogenous risk pools”.

Discussion

27. The question we had to consider was whether the schema and the clause (set out in paragraph 5 above) offended against the constitutional right to equality and was therefore unlawful and unenforceable, as alleged by the complainant.

28. The insurer had explained that the reason or purpose for the discrimination, ie taking the health claims of single policyholders on their own while aggregating spouses’s claims on a joint health plan, was the practical difficulty of readily separating spouse claims on the health plan. This was a rational purpose, but the question must still be asked whether it was unfair, given that the discrimination was on the basis of marital status, a specified ground, and therefore presumed to be unfair unless shown otherwise.

29. The insurer was cognisant from the outset, in designing the discount system, of the possible disadvantage to some married policyholders (only those who were on the same health plan), sometimes, of aggregating spouses’ health claims. It accordingly widened the bands in the matrix of “rewards” for all policyholders, as explained above, to reduce any such effect. The effect of averaging also operated to remove any prejudicial effect over the longer term. It must be remembered that the marital status of policyholders may change over the years, from single to married, or from married to single again. Similarly, a spouse who is healthy for a period of time, with low health claims, may for a whole host of reasons, including accidental injury for example, later have a period of higher claims and vice versa. For this reason, the same matrix, with widened bands, is used for everyone. The product is designed to be a practical, if not perfect, device which has the dual benefit of giving the insurer more accurate risk information, allowing for more accurate pricing for risk, while also affording the possibility of offering discounts to its policyholders, this being the overall purpose of the methodology.

30. The discrimination was clearly not designed with the purpose of impairing the complainant’s dignity as a married person. We agreed with the statement of the insurer’s counsel that “There is clearly no fundamental impairment of his dignity or other impairment of a comparably serious nature”.

31. We accepted the insurer’s argument that the product had been priced in accordance with the methodology outlined above (the matrices, which are disclosed in the contract), and that changing the product now in such a way that spouse claims were not included would mean the reduction/narrowing of the health claim bands for all clients. The insurer argued that this would not be treating its customers fairly, “as the clients have taken out the product with the expectation that spouse claims are included and that health claim bands will increase roughly in line with medical inflation each year”. Clients would not expect that the bands could be narrowed at a later date.

32. In our view any occasional disadvantage suffered by a married policyholder (which would effectively only be applicable in years when claims of both spouses were higher than average, given the widened bands) was of such a trivial nature that the discrimination, considered in the context of the overall design, could not be considered unfair. Any disadvantages to an individual married person as compared to a single person are reduced over time by the effect of averaging and are outweighed by the advantages of the system as a whole to all policyholders.

33. In our view the presumption of unfairness had been successfully rebutted by the insurer in this case.

Result

34. We made a provisional determination to this effect. The complainant thanked us for the comprehensive determination. He stated that he accepted the findings, and the case was closed.

SM
October 2017