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Health Insurance in the UAE and the Concepts of Medical Benefits Trusts

Health Insurance is by far the largest line of risk along side motor insurance in the United Arab Emirates. Both lines of insurance are mandatory, save that health insurance is currently only mandatory in the Emirates of Abu Dhabi and Dubai. With this backdrop, it is important to address whether medical benefits and services can be facilitated through alternative structures to benefit consumers, control costs, create fair market competition, enhance new technologies and remove unnecessary barriers to access good quality healthcare.

Medical benefits trusts are frameworks for providing healthcare benefits and services to defined and collective groups, such as employees, professional associations, and other groups. They are often used by large employers as an alternative to medical insurance. Furthermore, it is possible for medical insurance providers to set up trust arrangements through collective associations and defined membership rules, which arrangements are insured/reinsured with a larger capacity provider under a master policy of insurance.

Medical benefits trusts are, for all intents and purposes, self-funded or self-insured programmes, which is generally prohibited under the current Health Insurance Laws of Abu Dhabi and Dubai when it comes to the mandated health insurance programmes. Notwithstanding, any medical benefits programmes outside the mandated schemes of Abu Dhabi and Dubai could be facilitated through a trust arrangement with the recent promulgation of Federal Decree-Law No. 19/2020 Regarding Trusts (“UAE Trusts Law”) or under the legal frameworks of the DIFC and ADGM, which provides for common law trusts. For example, several employee shares schemes have taken a trust model to facilitate the arrangement under the DIFC and ADGM legal framework.

It may be possible to set up employee benefit schemes under trust arrangements, including health and sickness benefits.

UAE Trusts Law mirrors other legal frameworks, such as common law jurisdictions, incorporating the concepts of “settler, trustee and beneficiary”, although one major difference is that trusts under the UAE Trusts Law have separate and distinct legal personality, unlike common law trusts.

Pursuant to UAE Trusts Law, a trust takes on the form of a legal vehicle through a trust instrument where defined property/assets are settled by a settlor and administered by trustees for a defined group of beneficiaries. These trusts can be general, special, or charitable. UAE Trusts Law sets out the rights and obligations of the different parties to a trust, including the settlor, beneficiary protector and trustees.

Under UAE Trusts Law and the DIFC and ADGM legal frameworks, which provides for common law trusts, it is possible for a UAE employer, association, or other organisation with collective members to set up trust arrangements for medical benefits over and above the mandated medical insurance requirements. For example, larger employers may want to offer a wider employee benefits package to its staff, including benefits that are not standard with a standard medical insurance policy. This might include counselling form mental health services and well-being services.

Medical benefit trusts can save the employer money in the long-term avoiding paying out large premiums, which fund, to some extent the profit margins of insurers, while also taking control and management of the scheme, thereby mitigating unforeseen risks of over claiming benefits and provide a degree of cost control. There is also a degree of flexibility with medical benefit trusts as opposed to conventional medical insurance, where benefits can be changed, reduced, or added without additional underwriting.

A typical medical benefits trust would take the form of a non-discretionary trust, where the trust instrument and rules must confer an absolute right to the beneficiaries to receive payment for the medical benefit subject to the scheme rules. The assets (in this case the employer’s contributions) must be identifiable as a benefit to each of the employees. The trustees (in this case the employer) must not benefit from the trust assets and the contributions must be irrevocable. Generally, as a matter of law, the trust cannot be terminated or cancelled until all medical benefits have been settled, for which the contributions have been settled for those medical benefits.

But why would employers seek to set up these trust arrangements, what might be seen as expensive and unnecessary given the requirements for the local mandated medical schemes in Abu Dhabi and Dubai?

There are several reasons why larger corporate employers might set-up medical benefit trusts in the UAE and indeed, there are several large, self-insured schemes in the UAE that are given a dispensation from the local mandated requirements. These reasons will include flexibility, cost control and an offering of wider medical benefits.

While the UAE Trust Law is a new concept to the UAE legal framework, it maybe some time until organisations embrace the legal framework to facilitate employee benefits through medical benefit trusts. However, with the advancement of technology and on demand insurance, legal trust frameworks may be used in the future by organisations taking control of their risks internally, while relying on third-party administrators to administer the benefits and access medical provider networks using reinsurers to provide a form of stop loss insurance.

Authored by Simon D. Isgar, Partner & Head of Insurance/Reinsurance.
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