Council for Medical Schemes Budget and Strategic Plan for 2007/08

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05 June 2007
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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report

05 June 2007

Mr L Ngculu (ANC)

Documents handed out:
Council for Medical Schemes Budget and Regularity Plan 2007/08 (available shortly on CMS website)
Council for Medical Schemes website

Audio Recording of the Meeting

The Council for Medical Schemes briefed the Committee on its 2007/08 Budget and Strategic Plan and explained its key strategic issues. The CMS was a statutory body responsible for supervision of the activities of medical schemes, thereby ensuring the protection of the members of those schemes and the public. It was an agency which was accountable to the Minister of Health and whose mandate complemented national health policy. The strategic objectives were outlined and the budget totalling R46 million was presented.

The amendments to the Act in order to pave the way for a social insurance scheme would be ready for approval by Cabinet and introduction into Parliament by mid-July.

Members raised few questions, asking for clarification on some of the budget items and regarding public awareness.

Mr Patrick Masobe (Chief Executive and Registrar) discussed the key objectives of the CMS in some depth. He said twelve persons served on the board chaired Prof William Pick was the chairperson. The strategic objectives of the CMS were:
1. The authorization of medical schemes and the monitoring of their financial performance.
2. Providing support and guidance to trustees, in order that they may understand medical schemes, as far as legislation, environment, responsibilities and obligations were concerned.
3. Fostering compliance with the Medical Schemes Act.
4. Investigating and resolving complaints. The Council dealt with some 2000 complaints per annum.
5. Advising the Minister regarding the nature of the regulatory environment of medical schemes. This entailed research and monitoring operations from a policy perspective.
6. Developing strategic alliances nationally, regionally and internationally, especially with countries where systems were similar to our own or the environment was similar.
7. Fostering continues development of the Council as an employer of choice.

Mr Masobe said the CMS was divided into several units. The first of these was Benefits Management, the core function of which was to ensure that the benefits and contributions of each medical scheme was in alignment with the Medical Schemes Act and if so, to provide approval. All medical schemes had to submit these benefits and contributions for the following year. The CMS then assessed these according to the presiding legal framework. It also assessed the financial stability of each medical scheme. The second function of this unit was being responsible for the approval of constitutions of medical schemes, defining their operation, governance, benefits and contributions.

The unit also monitored whether the marketing material that was distributed by medical schemes was in alignment with actual benefits and contributions as submitted to the CMS. This was a serious issue, which had arisen in the past and had often resulted in members being treated unfairly and being misled by misinformation. Finally, the unit ensured that each medical scheme provided the minimum benefits as required by law. These were known as the prescribed minimum benefits (PMB). They did this by ensuring a better understanding of PMB and developing a positive and negative list of benefits.

The second unit was the Financial Support Unit (FSU) which had a mandate to monitor financial performance and soundness of medical schemes. Mr Masobe said this unit was staffed by about ten chartered accountants, who assessed whether the medical schemes met the financial requirements of the Medical Schemes Act. Where this did not occur, the unit engaged with the scheme concerned. The unit worked very closely with the South African Institute of Chartered Accountants (SAICA), which had defined the standards for financial soundness, as well as compiling an accounting and auditing guide, which was issued to the medical schemes. Medical schemes had to ensure they were in alignment with these standards as per their quarterly and annual reports. Amendments to the Medical Schemes Act were also done in conjunction with SAICA. The unit also looked at solvency requirements as stipulated by regulation 29(4), identifying companies which did not comply with its provisions, of which currently there were about twenty such companies. These companies were placed in so-called ICU, in order to engage with them intensively until their financial health had improved.

The third unit was the Accreditation Unit which provided trustees with support and guidance, in order to promote better understanding of medical schemes. It also extended this service to beneficiaries and the public in general. The unit effected the accreditation of managed care organizations, health care brokers and administrators. Complaints regarding medical schemes were resolved within thirty days.

The Research and Monitoring Unit advised the Minister and recommended policy options based on research and development. Currently one of the issues this unit was researching was the instance of escalating costs of private hospitals being paid by medical schemes and the sense that costs were too high. They were looking into the causes behind this huge cost escalation and possible interventions for implementation. This was necessary in order to contain contribution increases. Mr Masobe said that part of the issue was the lack of competition. A conference was planned in the near future to deal with this issue. He said that South Africa was the only country where private hospitals could charge whatever, whenever to whomever. This was simply not sustainable. The Managed Health Care model had been adopted from America and the unit was looking at whether it was suitable in the South African context and where it could be attuned to our circumstances and requirements. Simply cutting costs by cutting access was not an acceptable solution and needed a different approach.

The Compliance Division had two arms, which were enforcement and education and training. The former, while being the punitive aspect, needed the latter in order to promote good understanding and training. Annual inspections were conducted in accordance with the Inspections of Funds Act. Last year there was the instance of non compliance by the company Prosana, where governance problems had been uncovered by the unit and where the company had been placed under curatorship.

Demarcation compliance looked at the compliance with legislation administered by the Financial Services Board regarding the running of health insurance versus medical schemes. There had been instances where companies were trying to get away with running medical schemes, but calling it health insurance in order to circumvent compliance with the Medical Schemes Act.

Education and training entailed the regular training of trustees. A manual was in the offing. Consumer education through seminars and workshops were to continue, as well as through the medium of radio and various shows.

The Legal Services Unit was responsible for litigation, in order to ensure compliance with the Act and they provided support to the Council itself and the committees within the CMS. This unit dealt with appeals before court and member complaints regarding medical schemes.

Complaints adjudication listed all complaints and aimed at resolving them within sixty days. Mr Masobe said that about 75% of complaints were resolved within this time period. This unit engaged with members and also was involved in consumer education and in raising public awareness.

The Risk Equalisation Fund was a separate project that had been initiated by the Council at the request of the Minister and was looking at the possibility of creating a social health insurance. They were assessing the infrastructure, IT and organizational requirements, as well as doing research on the legal framework in which such a system could become possible. Implementation would also entail amendments to the Act. They were assisting the Department of Health in this. These amendments would hopefully be approved by July 2007.

The remaining units were Training and Development and Internal Finance.

Ms Fikile De Buck (CFO) took the Committee through the budget of 2007/08, which fulfilled the requirements of the Public Finance Management Act. The budget was based on activities which were measured on a per unit basis and which were zero-based and therefore did not necessarily escalate every year.

The Council was funded by levies from members to an amount of R37,164 million. This was based on the cost of running the Council for that year. This year the levy was R12,60 per member, up by 10% from last year’s levy of R10,42. The total budget was R46 million.

Expenses were as follows:
Accreditation costs: R112 250. This function had been largely internalized in order to reduce costs. Accreditation was for a two year period. They looked at the quality of information systems as this directly impacted the ability to monitor soundness of the medical schemes.

Training by the Financial Support Unit and the Accreditation Units cost R105 200. Stakeholders were kept abreast of requirements and this was done in liaison with SAICA.

The amount budgeted for the appeal board was R400 000, although this expense was unpredictable.
- Computer expenses were R128 534, mostly for toners and cartridges.
- Attendance of conferences and seminars was going to cost R587 320. These were conferences hosted by SAICA informing accounting and auditing guidelines, which were changing all the time, as well as health care conferences.
- Consumer education would cost R660 000. Ms De Buck referred again to the occurrence of misinformation by medical schemes to the public and that the education they envisaged would be broad based.
- Council committees, such as the executive, IT and auditing committees would require R346 670.
- Consulting fees required in the Financial Support Unit would run to R190 000.
- Human Resources and organizational strategy would require R358 333.
- The International Partnership program office, which was building national, regional and international alliances, would cost R300 000. They had already engaged in discussion with entities elsewhere and would be exchanging knowledge.
- Legal fees were considerable and unpredictable and estimated at R400 000. Media and promotion cost another R400 000 for the printing of the annual report in June/July. A CMS news booklet would also be sent to stakeholders every quarter.
- Various other costs were highlighted, including the salary bill of R29,336 million for the remuneration of 75 staff members. These included ten qualified chartered accountants, clinical personnel, doctors and lawyers.
- The CMS also paid for the subscriptions these professionals had to pay to their various professional bodies every year in order to remain registered. These subscriptions totalled R41 774.
Ms De Buck mentioned that replaced computers would be donated to schools.

Mr Dan Lehutjo (CMS Finance Manager) went through the budget for the Risk Equalization Fund. The Council had received special grants for this project and they had to provide monthly progress reports to the Department of Health.


Ms N Mathibela (ANC) asked for an explanation of the gaps in the budget. She questioned whether there was any conflict of interest in the process of accreditation and the receipt of levies from the medical schemes. She asked if the introduction of the Government Employment Medical Aid Scheme (GEMS) had had an effect on the amalgamation of medical schemes.

Ms M Madumise (ANC) thanked the Council for the information and asked whether the hitches to the finalisation of the report on the social insurance scheme had been ironed out and whether it would be ready for approval in July.

Mr Masobe said that they were far advanced in the process of moving beyond medical schemes to a framework for social health insurance and that the required amendments to the Bill were in the hands of senior lawyers at present for checking. Thereafter it would go to the Minister. It would then be introduced to the Committee. The deadline for this was 13 July.

Regarding amalgamations, Mr Masobe said that there were many applications in the industry, in order to better provide minimum benefits and community rate benefits, which were not based on race, age or health. Some of the medical schemes would lose public servants because of GEMS. No real conflict of interest occurred where the approval was concerned, as the medical schemes had to fulfil requirements as set out by the Act. This was straightforward. However, the funding model for the Council did mean that its ability and capacity to monitor medical schemes hinged on the funds received from those schemes. The Council was looking at other funding options.

Ms De Buck said that the gaps in the budget were due to no activity taking place in those months. Training in the Financial Support Unit was scheduled for March and therefore the expense appeared in this month only. Printing, on the other hand was staggered across the year in monthly amounts.

Ms F Batyi (ID) asked if the Council monitored whether member of medical schemes were expected to pay the same prices in government hospitals as in private hospitals.

Mr Madella (ANC) asked why the budget items for the Risk Equalization Fund were listed separately.

Ms Mathibela asked for the reason behind the strong relationship between the Council and SAICA and whether they could not make better use of the Auditor General.

Mr Masobe replied that the Risk Equalization Fund was a separate project and therefore not part of the CMS budget and could not form part of the core activities of the CMS until the Amendment Bill had been passed. The project had been funded by a separate allocation from the Department of Health and needed its own infrastructure and incurred its own expenses. This had to be accounted for separately and for which they provided monthly progress reports to the Department.

Mr Masobe said that it was not the function of the Council to supervise hospitals at all and that this was a responsibility of the Department of Health. Government hospitals should charge according to the appropriate tariffs.

Ms De Buck said that all chartered accountants were members of SAICA and that most auditors of the medical schemes also liaised closely with SAICA, which circumvented the problem of accounting and auditing processes being done incorrectly. It was better to know up front what were correct accounting standards and procedures rather than to be informed to redo the work, which could be a costly and time wasting process.

Mr Masobe said that they could not deal with the Auditor General on the same basis, as this was not the mandate of the AG.

Ms Madumise asked whether consumer education occurred in all the official languages in order to promote greater understanding.

Mr Madella referred to two line items and asked what the expenses were regarding Council Committees and Council Member Fees. He wanted to know whether any employees were disabled.

Mr Masobe admitted that education had not been optimal and that they were working on improving the situation. This would include translation of material into several languages. The expense called Council Committees referred to meetings of the various committees in the Council and the cost of people attending those meetings. Council fees referred to the cost of attending various conferences and seminars by the committee members. He said they had one disabled staff member.

Mr Madella asked whether the subscriptions that were paid by the Council on behalf of the staff members were reimbursed by the employees, since this was a cost they would otherwise incur as well in order to remain registered to the various professional bodies.

Mr Masobe said that this was a cost that the Council had decided to incur on behalf of the employees and that in the greater scheme of the budget of R46 million, the amount of R41 774 was not big and the cost warranted the incentive value for the employees.

Mr Ngculu asked if the Amendment Bill would still be implemented this year or only in the following year.

Mr Masobe replied that in all likelihood and if things went according to plan, the Bill would be approved this year and be implemented in 2008.

The meeting was adjourned.



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