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PRIVATE MEMBERS LEGISLATIVE PROPOSAL AND SPECIAL PETITIONS STANDING COMMITTEE
19 June 2002
DISCUSSION OF PROPOSALS BY MS KALYAN TO AMEND THE MEDICAL SCHEMES ACT AND PATENTS ACT
Documents handed out:
Proposal by Ms Kalyan to amend the Medical Schemes Act 1998 Act No 131 1998
Proposal by Ms Kalyan to amend the Patents Act 57 of 1978
Department of Trade and Industry Submission on proposed amendments to the Patent Act [Appendix 1]
Letter from Mr TP Masobe (Registrar MSC) to Director General, Department of Health [Appendix 2]
Letter from Mr Stephen Harrison (Head of Research and Monitoring MSC) to Dr Cachalia, MP [Appendix 3]
The Medical Schemes Council was invited by the Committee to make a presentation on the proposed amendments to the Medical Schemes Act of 1998. The Council felt that the intentions behind proposal were merit worthy because they were trying to address the financial difficulties experienced by pensioners after their retirement however they could not support these amendments.
The Department of Trade and Industry could not support the amendments to the Patent Act because they believed it creates unnecessary duplication as the Act currently provides for the State to access patented articles in three different provisions. The Committee requested that both submissions be forwarded to the Committee for further deliberations with Ms Kalyan who was not present in the meeting.
Proposed amendments to the Medical Schemes Council
Ms Kalyan (DP) had proposed an amendment to section 29(1) of the Medical Schemes Act, which allows medical schemes to offer a discounted contribution rate to members who retire from employment due to retirement age or ill-health. This discounted rate would continue to be applied to the member's spouse on the death of that member.
Mr Matshidze (Medical Schemes Council) said they could not support the proposed amendments to Medical Schemes Act because, amongst other things, they believe it shifts responsibility for funding post retirement liability for the medical scheme coverage from the employer, where it really belongs, to the medical scheme.
They believe the current state of affairs where there is a decline in provisions for post-retirement medical expenses needed to be addressed and they suggested a joint process between Health and Labour.
The Medical Council raised a number of reasons for not supporting the proposed amendment. They believe it would cause instability in the medical scheme environment as it advocated the discrimination with regard to younger people having to pay for older people after.
Proposed amendments to the Patents Act
Ms Kalyan had proposed certain amendments to the Patents Act. The proposed amendments recommend the introduction of compulsory licensing for non-commercial use of patented articles, as well as for compulsory licensing in the case of a national emergency. Essentially, the amendments seek to promote easier access to the mechanisms contained in the Act by introducing an administrative procedure rather than the judicial process currently in place.
Ms Astrid Ludin (Department of Trade and Industry) said the Department could not support the amendments proposed by Ms Kalyan because it duplicated the intentions of the current Act and there were concerns about the practical implementation of the proposed amendments to the Act. The Department also thought that the introduction of a provision on national emergencies may be of little practical use.
The Chairperson, Mr Hendrickse, noted that the view created by the proposal was that the proposed amendment to the Medical Schemes Act does not seek to discriminate but rather intended to be all inclusive. He could therefore not understand why the Medical Schemes Council did not support the proposed amendments.
Mr Hendrickse asked Dr IM Chachalia what his view was on the submission made by Mr Matshidze.
Dr Cachalia responded that it might be a problem for the medical scheme industry but it would help pensioners a great deal after retirement. He also said that labour legislation could help shed light on many issues raised by the proposal.
Mr Da Camara (DP) wanted to know how the proposal counters the objectives of the legislation as it currently stands, because it was his understanding that the proposal did not intend to alter the rest of the Act. Instead, the primary aim of the proposal is to have a flat rate for all members regardless of the age and sex of those members.
He said the other concern the proposal wanted to address was the question of pensioners' fears about their life time contributions to the medical schemes, after they have retired and therefore could no longer contribute to the medical scheme.
He expressed concern about Mr Matshidze's statements and asked the Medical Schemes Council to record their concerns in writing.
A Member said he appreciated the fact that the Medical Scheme Council has looked at the matter of people who are working but are not covered by the scheme. The presentation from the MSC, in perspective, was quite technical and needed to be looked into more carefully he therefore asked that the MSC give the Committee their precise concerns about the proposed amendments in writing.
He also wanted to know whether the Act, as it currently stands, was strictly enforced with respect to retirements. If it is enforced would it not result in thousands of workers being excluded and therefore directly undermining the underlying policy objective of government in trying to get as much people covered by the scheme as possible.
Mr Matshidze replied that their objections would be forwarded to the Committee.
Secondly, he explained that the Act as it currently stands was strictly enforced. He agreed that it was excluding close to seven million currently employed people. There were currently 100 regulated medical schemes and the Council was attempting to bring stability within this industry hence he believed that the financial implication of this proposal could not yet be assessed.
However he did mention that it could destabilise the medical scheme environment by discriminating against younger people who would feel that they are subsidising pensioners, which instead could lead to many of them leaving their medical schemes.
He also mentioned that they have a complaints unit, which deals with the complaints of members against their medical schemes and also those members who falsely claim from their medical aid.
In the past members of the schemes were actuarially charged, currently there is a community based rate which is applicable to all members. He therefore assured the Committee that the Medical Schemes Council was fully in charge of the industry.
He mentioned that the MSC supported a community rating system that is open for enrolment to all individuals who want to be part of the scheme. He said that while he did not totally disagree with the spirit of the proposal, the Medical Scheme Council could not support the amendments to the current Act.
Mr Matshidze felt that it was important that both the Department of Health and Labour initiate a joint process were the critical issue of declining provisions for post retirement is dealt with.
Mr Hendrickse asked that Ms Ludin furnish the Committee with their submission in writing so that they might take the matter further with Ms Kalyan, who had proposed the amendments but could not be present at the meeting.
An ANC Member was concerned whether Ms Kalyan had consulted the relevant stakeholders on the matter before proposing the amendments. He said his perception of the proposals was that Ms Kalyan did not properly consult.
The Chairperson thanked both the delegates for their submissions and the meeting was adjourned.
SUBMISSION THE PROPOSED AMENDMENT TO THE PATENTS ACT
THE DEPARTMENT OF TRADE AND INDUSTRY
Presented to the Standing Committee on Private Members' Legislative Proposals and Special Petitions on 19 June 2002
The Department of Trade and Industry wishes to express its concerns about the proposed amendments to the Patents Act. The concerns do not primarily relate to the principles and implicit policy contained in the proposal, but rather to the unnecessary duplication that would result, as well as to the practicality of the proposal.
The proposed amendments recommend the introduction of compulsory licensing for non-commercial use of patented articles, as well as for compulsory licensing in the case of a national emergency. The proposed amendments essentially seek to enhance existing provisions in the Patents Act and to promote easier access to the mechanisms contained in the Act by way of introducing an administrative procedure rather than the judicial process currently in place.
It is the view of the Department that the Patents Act currently provides for the State to access patented articles in three different provisions:
- Section 4 of the Act provides that a Minister of State may use an invention for public purposes on terms and conditions agreed upon with the patentee. The section stresses that if agreement cannot be reached between the patentee and the State, a Commissioner of Patents (a Judge of the High Court) may grant permission to use such invention on terms and conditions determined by him or her.
- Further provision is also made in Section 56 of the Act for the issuance of compulsory licenses under certain circumstances. The honourable member pointed out the limitations pointed of these circumstances in her submission.
- Finally, section 78 provides that a Minister may acquire any invention or patent on such terms and conditions, as may be agreed upon.
Thus, the Patents Act currently provides various mechanisms by which the State may acquire the rights or the technology to produce goods for public purposes, essentially the same as for non-commercial purposes. While only Section 56 makes reference to compulsory licensing, the other two provisions give the State broader, more general access to patented rights, arguably more useful than the limited application of compulsory licensing. As such, the Act is already in line with Article 31 of the TRIPS Agreement. Furthermore, the proposed amendments, therefore, do not represent a departure from current policy, but rather in the duplication of policy already contained in the Act.
The process by which rights may be acquired by the State involve a Commissioner of Patents (a Judge of the High Court) in all three provisions. This process, it is averred, is cumbersome and costly, which the Department concedes may be the case. However, the alternative proposed is problematic from a number of perspectives.
Firstly, it is proposed that the Board of Trade, which it is assumed is a reference to the Board of Trade and Tariffs (BTT), fulfill the function of adjudicating whether a patent right can be acquired in the case of a dispute and sets a fair price for the use of such rights. The BTT is the body that evaluates anti-dumping claims and that regulates the implementation of tariffs. It is not clear from the honourable member's motivation why this would be an appropriate administrative body. Furthermore, in the new legislation that will create a Commission for International Trade Administration (CITA) in the place of the BTT, it is envisaged that CITA will have a wider role in Southern Africa. It is thus questionable whether a body with transnational responsibility for anti-dumping actions should be tasked with the adjudication of compulsory licenses for patented rights.
Secondly, taking the decision about the remuneration for the use of patented rights away from the courts in cases where there is no agreement will not ensure that matters are addressed outside of court, as they will almost certainly be referred to the courts on appeal or review. In essence, therefore the introduction of an administrative procedure may only result in further prolonging of disputes. Furthermore, it is questionable whether a body that forms part of the State should adjudicate matters in cases where there is a dispute between the State and a third party.
The Patents Act does not currently provide for the compulsory licensing of patent rights in cases of national emergency. The term "national emergency" is not defined in the proposed amendment and would therefore revert to the provisions in the Constitution on national emergencies. In terms of the Constitution, a (State) national emergency may be declared for a maximum of 21 days and may be extended only 3 times. The 84 days provided therefore through the Constitution would not yield any benefits to the State. Thus, the introduction of a provision on national emergencies may be of little practical use.
The Department is currently involved in preparations for the next round of WTO negotiations. The TRIPS Agreement is one of the aspects that will be negotiated. The recent DOHA Declaration provides that member states of the WTO should implement strategies, policies and laws that promote access to health. However, the exact nature of these efforts still needs to be negotiated and may result in changes to the TRIPS Agreement that can be implemented once negotiations have been concluded. Efforts to implement changes in line with the DOHA Declaration would be premature at this point in time. Furthermore, the provisions relating to parallel importation in health legislation needs to be implemented and may be of greater use than the introduction of further compulsory licensing provisions in the Patents Act.
In conclusion, therefore, it is the view of the Department that the proposed amendments would result in unnecessary duplication of provisions currently contained in the Act, that there are provisions that would be more easily implemented rather than resorting to the declaration of a national emergency and, finally, that the proposed amendments may undermine the position of South Africa in WTO negotiations. The Department, however, acknowledges the concern by the honourable member that access to patented rights through the courts may be a complex and costly process and will examine this concern within a broader review of the Patents Act and research that is being conducted on compulsory licensing in other jurisdictions.
The Director-General: Health
Fax: 012-323 0093
Dear Dr Ntsaluba
PROPOSED AMENDMENT TO MEDICAL SCHEMES ACT: PRIVATE MEMBERS' BILL
The Standing Committee on Private Members in the National Assembly has proposed an amendment to section 29(1) of the Medical Schemes Act, which allows medical schemes to offer a discounted contribution rate to members who retire from employment due to retirement age or ill-health. This discounted rate would continue to be applied to the member's spouse on the death of that member.
- Such arrangement would at present be inadmissible under the Medical Schemes Act, which allows for premiums to be differentiated only on the basis of income or number of dependants (section 29(1)(n)).
- The proposed amendment can regrettably not be supported, for the following reasons:
- The proposal shifts post-retirement liability for medical expenditure from the employer to the medical scheme. Post-retirement provision for medical expenditure is an employee benefit, and the appropriate avenue to correct declining provision being made for this by employers is through labour relations legislation rather than through placing additional financial burden on medical schemes.
- A medical scheme is in the business of receiving contributions, and paying claims (short-term liabilities) - and is not designed as a vehicle for prefunding post-retirement liabilities. The appropriate vehicles for putting away funding to meet future liabilities of this nature are through a range of annuity or insurance vehicles which are available to employers, which can then be used to pay contributions of retirees to medical schemes.
- Permitting schemes to apply discretion as to application of a discounted rate for retires opens new avenues for indirect discrimination, in the sense that it is possible that the non-application of such discounted premiums to certain persons could be used to discriminate against people with poor risk profiles.
- The financial implications of this proposal for schemes and the industry as a whole have not been assessed to determine the impact of this proposal on the contributions of younger members - and the consequent potential impact on enrolment and drop-out of younger members from the medical schemes environment (and the resultant impact on capacity for cross-subsidisation within the industry).
- Nevertheless, the identified issue of declining provision for post-retirement medical expenses of employees is a critical issue, and it is recommended that the opportunities for addressing this through appropriate changes to labour legislation (e.g. Basic Conditions of Employment Act or the Labour Relations Act) be fully explored.
Medical Schemes Council
Dear Dr Cachalia
PRIVATE MEMBERS' LEGISLATIVE PROPOSAL
- Your letter dated 11 June 2002 refers. Thank you for the opportunity to comment on this proposal.
- The intentions behind this proposal are meritworthy, in that they seek to address the financial difficulties experienced by pensioners in maintaining medical scheme coverage after retirement. This issue is becoming of utmost concern given the trend over recent years among employers to terminate post-retirement benefits of their employees.
- Whereas previously employers typically provided medical aid subsidies for their employees which extended until after retirement, there is now a growing trend among employers to contain their post-retirement financial liability by providing employees with "total cost to employer" annual packages, which provide very limited employee benefits.
- In relation to contributions payable to medical schemes, the existing Medical Schemes Act makes no distinction between the employment status of individuals. Medical schemes are only permitted to differentiate premiums on the basis of income or number of dependants - and so are not, for example, allowed to give certain categories of members such as pensioners a discounted rate.
- If an employer provides a medical aid subsidy to its employees, the employer subsidy and the member's portion together would constitute the total contribution paid to the medical scheme. If the employer terminates that subsidy upon retirement, the member would have to pick up the whole portion.
- The proposed amendment seeks to allow medical schemes to offer a discounted contribution rate to members who retire from employment due to retirement age or ill-health. This discounted rate would continue to be applied to the member's spouse on the death of that member.
- Although the intentions behind the amendment are supported, the amendment itself can regrettably not be supported by our office, for the following reasons:
- It shifts responsibility for funding post-retirement liability for medical scheme coverage from the employers, where it really belongs, to medical schemes. Post-retirement provision for medical expenditure is an employee benefit, and the appropriate statutory avenue to correct declining provision being made in this regard is through labour legislation (e.g. Basic Conditions of Employment Act), rather than placing additional financial burden on medical schemes.
- A medical scheme is in the business of receiving contributions and paying claims (short-term liabilities) - and is not designed as a vehicle for prefunding port-retirement liabilities. The appropriate vehicles for putting away funds to meet future liabilities of this nature are through a range of annuity vehicles available to employers, which can then be used to pay contributions of retirees to medical schemes.
- Permitting medical schemes to apply discretion as to application of a discounted rate for retirees (as provided in the proposed amendment) opens new avenues for indirect discrimination, in the sense that it is possible that the non-application of such discounted premiums to certain persons could be used to discriminate against people with poor risk profiles.
- The financial implications of this proposal for medical schemes and the industry as a whole have not been assessed, but could potentially be significant. For example, it could result in further inflation of contribution rates for younger people, which could lead to lower enrolment of young persons and increased drop-out of younger members from medical schemes. This could result in destabilization of the environment, as the potential for cross-subsidisation (crucial for the stability of medical schemes) could be undermined.
- Nevertheless, the identified issue of declining provision for post-retirement medical expenses of employees is critical - and it may be appropriate to suggest a joint process between Health and Labour to identify potential solutions to this problem, including possible amendment to legislation concerning employee benefits.
I trust that this will be of assistance to you.
HEAD: RESEARCH AND MONITORING
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