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SOCIAL SERVICES SELECT COMMITTEE
30 October 2001
MEDICAL SCHEMES AMENDMENT BILL: BRIEFING
Chairperson: Ms L Jacobus
Medical Schemes Amendment Bill [B80B-2001] as of 1/11 not in place but here shortly
Medical Schemes Act
Summary of Presentation Power Point Version
An impact study carried out after the implementation of the 1998 medical schemes bill has revealed that there had been a membership growth of 7.7% for open schemes and 16.4% for closed schemes. The overall growth in the industry is put at 0.6%. In addition to this marginal growth factor, significant increments in contributions were recorded.
Among the measures in the new Bill is provision for routine inspection to ensure compliance monitoring the inspected schemes.
Schemes have been allowed the much needed flexibility to determine in their unrestricted judgement the level of indemnity insurance that is appropriate for them. Procedures have been extended to enable schemes, in pursuance of legitimate business purposes, to transfer business to entities other than schemes.
On the contentious question of waiting periods, clause 29 has been introduced to remove waiting periods from the regulations to the main Act. This measure would ensure that reviews are taken when necessary and the oversight role of Parliament would be brought to bear accordingly.
The amendment seeks to address the perennial problem of conflict of interests. It would remedy instances where some schemes have had to reinsure themselves against risk as this practice is unethical.
Briefing by Ms Brenda Khunoane – Director Social Health Insurance
Ms Khunoane commenced her briefing to the Committee by stating that the Medical Schemes Act, 1998 covers four main areas namely; Community rating, Prescribed Minimum Benefits (PMB), Open enrolment and Financial management and governance component.
When the Bill was enacted in 1998, there was a lot of concern raised by the industry that, among other things, the cost of insurance would increase and many firms will close done due to solvency problems. She noted that following an impact study carried out two years later, these concerns were found to be unwarranted.
The impact study revealed that there had been a membership growth of 7.7% for open schemes and 16.4% for closed schemes. She added that overall there had been a growth of 0.6% in the industry.
In addition to the growth factor, there had been significant increments in membership contributions. She said that contribution income grew by 7% while claims grew by 6%. She noted that the only negative factor was the administrative costs, which increased by 26%.
Ms Khunoane said that these developments have vindicated the Department’s resolve that it is on the right path. Whilst the solvency requirement is 10% for 2000, open schemes had an average of 13%. She noted that the overall average in the industry was 20.5% and that only 16 out of 47 open schemes had below the 10% mark.
Refer to attached document for further details.
Medical Schemes Amendment Bill
Clause 1:Amendment to Section 1 of Act 131
On technical amendments, Ms Khunoane said that the Amendment Bill, 2001 covers the definition of complaint, reinsurance matters, waiting periods, marketing and conditional selling, submission of financial returns, Scheme of governance, Broker regulation, Transfer of business and Transitional provisions.
Clauses 2, 10, 11, 14, 18, 19, 20, 21, 23, 24 and 27
She said that for section I the definition of Beneficiary, Broker, Reinsurer and Reinsurance contract should be inserted. The clause 1 amends the definition of Complaint and Dependant. The other clauses that deal with the adjusted definition of Beneficiary were clauses 2, 10, 11, 14, 18, 19, 20, 21, 23, 24 and 27.
Clause 3, 4 and 5
Ms Khunoane said that clause 3 allows Council to grant exemption to entities other than medical schemes while clause 4 removes Council staff from membership of the GEPF and clause 5 deals with reinsurance issues discussed below.
She continued to state that clause 6 enhances consumer protection by prohibiting marketing of unregistered schemes and conditional selling by insurance schemes. Clause 7, on the other hand prohibits discrimination on the basis of age which practice is unconstitutional and one that was overlooked when the Act was formulated in 1998. The clause corrects the position.
Clause 8, 9 and 11
Ms Khunoane informed the Committee that clause 8 does no more than to clarify that the insurance contract is between the member and the scheme and not between the scheme and dependants. Clause 9 relates to waiting periods as discussed below whilst clause 11 eliminates the otherwise onerous requirement for Council’s approval for routine business activities conducted by the schemes.
Clause 12 and 22
Ms Khunoane pointed out that clauses 12 and 22 dealt with governance issues in relation to the independence of Principal Officers, the Boards of Trustees and Auditors. The two clauses take cognisance of the latent weaknesses in the governance of the schemes and thereby attempt to inject the appropriate level of accountability and code of good practice.
Clause 12 makes provision for a necessary two year transitional period to enable the schemes to build the necessary manpower capacity to take up these governance responsibilities.
Ms Khunoane continued to state that clause 13 allows the registrar to request for financial statements on a quarterly basis which is aimed at improving monitoring and accountability.
She said that clause 15 creates flexibility for the registrar to specify other time frame for responses to his queries unlike the current position where the registrar is limited to a 30 day maximum period which impedes swift action where one is called for.
Ms Khunoane pointed out that Clause 16 allows for inspection and routine compliance monitoring to be investigated regarding the health of the inspected schemes. Past inspections have been associated with insolvency, which should not be the case given that an inspection is an important monitoring tool.
Clause 17, 22 and 24
Clause 17 makes a grammatical correction while clause 22 allows schemes the much needed flexibility to determine in their unrestricted judgement the level of indemnity insurance that is appropriate for the scheme. She added that clause 24 on the other hand extends procedures for transfer of schemes, in pursuit of legitimate business purposes, to entities other than schemes.
Clauses 25, 26, 27 and 28
Ms Khunoane said that clauses 25 and 26 deal with brokers whilst clause 27 empowers the Minister to make regulations relating to managed health care. Clause 28 amends the provisions deeming POLMED and MEDCOR as medical schemes to forestall the serious tax implications that the section portends and clause 30 is the short title.
Clause 10: Section 29 Amendment
On the contentious question of waiting periods, Ms Khunoane said that section 29 has been introduced to remove the whole regime of waiting periods from the regulations to the main Act. This measure would ensure that reviews are taken when necessary and the oversight role of Parliament would be brought to bear accordingly.
Waiting periods deal with adverse selection which is an opportunistic practice by people who when critically sick join a scheme purely for purposes of benefiting from the scheme by lodging a huge claim shortly after before vacating.
The new amendment is crafted to ensure that those who are involuntarily forced to move from one scheme to the other are not penalised by being subjected to extra waiting periods. The whole essence of the waiting period regime is, therefore, to protect the schemes against adverse selection while at the same time extending protection to members who are forced by circumstances beyond their control to move schemes.
Clause 5:Amendment to Section 20
The other sensitive policy issue that is addressed under section 20 is that of reinsurance. The Department has proceeded on the premise that the reinsurance facility is appropriate for the industry especially those industries that operate within the volatile markets.
The amendment seeks to address the perennial problem of conflict of interest that has plagued the industry for such a long time. There have been instances where some schemes have had to reinsure themselves against risk and this practice is improper.
Some of the reinsurance schemes have been turned into veritable conduit pipe through which member’s contributions have been siphoned out.
Ms Khunoane continued to state that a new definition for reinsurance contract has been crafted so as to give it the desired meaning of a contract for the purchase of insurance in terms of clause 22.
Clause 25 and 26
The last policy issue, said Ms Khunoane, deals with brokers at Clauses 25 and 26. The conditions of brokerage have been tightened to eradicate malpractice by brokers who keep shifting members from scheme to scheme solely for purposes of earning a commission.
She clarified that the amendment is not meant to drive brokers out of business but that to the contrary, it was a necessary measure to regulate the conduct of brokers. The Minister has been empowered to make regulations to govern brokers. The current Act already requires accreditation and that the brokers’ remuneration is subject to a statutory limit.
Ms Mafiyane (PA) enquired on the issue of the waiting period. Do dependants automatically become members of the scheme?
Ms Khunoane stated that it is for the same reason that the definition of a ‘beneficiary’ has been refined to cater for dependants.
The Chair asked if a person who moves from a scheme for reasons other than a condition specific is subject to a waiting period.
Ms Khunoane replied that such a member would be subject to the general waiting period of three months.
Dr Nel (NNP) asked if reference to condition specific covers all chronic ailments.
Ms Khunoane replied in the affirmative. She said that all chronic ailments are subject to the 2-year waiting period.
Rev Moatshe (ANC) asked how a member’s medical bill would be settled where such a member has not made enough contributions to the bill.
Ms Khunoane replied that all members are entitled to the same benefits for which they have applied for irrespective of the contributions made so far. It was only a situation where the scheme had a saving component that one would be paid according to contributions made.
Mr Tlhagale (UCDP) asked why doctors subject patients who have a medical to cover exorbitant charges and if there were any interventionists measures from the Department.
Ms Khunoane agreed that doctor’s charges have been a source of grave concern. However, it was a member’s responsibility to ensure that the doctor’s bill is justified. He said the scheme always make a point to supply the patient with the payment slip and that the member should check to ensure that such payment corresponds to the treatment received.
The Chair asked if the administrative cost component had impacted the medical schemes negatively or positively.
Dr Nel (ANC) also wanted to know why the administrative costs had spiralled that far and asked if this spiral effect had anything to do with managed health care.
Ms Khunoane said that the Department has over time tried to investigate the issue of administrative costs but to no avail. She concurred with Dr Nel that part of the problem has to do with the managed health care. This facility was meant to improve on efficiency in the management of medical schemes but it has ended up drawing heavily on the scheme’s resources.
She said that the managed health care was apparently not yielding the results it was meant to achieve. The other problem has been traced to hidden costs to brokers. The direct consequences of increased costs are the ever-increasing contributions borne members. The Department is poised to focus more investigations on the activities of the schemes.
Rev Moatshe (ANC) said that it seems there were schemes that were not registered and asked if the law allows them to operate without registration.
Ms Khunoane replied that all schemes are required to registrar. Some schemes had been exempted initially but that under the 1998 amendment all schemes are required to registrar except small union schemes that provide primary health care to members.
The Chair advised members to examine the Bill in preparation for debate on Tuesday next week. She said that the second agenda item on the programme would not take place because the Minister was engaged elsewhere.
The meeting was adjourned.
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