Medical Schemes Amendment Bill: finalisation

Meeting report

HEALTH PORTFOLIO COMMITTEE
26 October 2001
MEDICAL SCHEMES AMENDMENT BILL: FINALISATION

Chairperson: Dr A S Nkomo

Relevant Documents
Medical Schemes Amendment Bill [B80- 2001]
Proposed Amendments to the Medical Schemes Amendment Bill (morning session)
Revised Amendments (afternoon session)
[email [email protected] for documents]

SUMMARY
Section 29(3)(c) has been proposed for redrafting to allow for inclusion of waiting periods in the Act instead of having this provision in the regulations. Consequently, section 1 of the Act would be amended to cover waiting periods.

Provisions under section 29 are currently in the regulations but that they are now being legislated to ensure overall consistency of the medical scheme framework. The Committee was informed that the measure is aimed at ensuring that there is no delay in the implementation of the waiting periods.

Some members severely criticised the new move. They maintained that the Council, in a haste to protect scheme members, had created a huge problem for the industry which ran the risk of being crippled by unethical practices by persons who would use adverse selection to hope from one scheme to the other.

A new provision is inserted in section 57 to the effect that Trustees must disclose on an annual basis in writing to the registrar any payment or consideration made by the medical scheme to members of the board on an annual basis. The Committee was informed that this measure would improve accountability on the part of trustees.

There has also been a substantial amendment to section 20 that deals with the issue of reinsurance. The amendments are contained in the ANC revised amendment proposals.

MINUTES
The Chair informed members that the session was a formal deliberation on the Medical Schemes Amendment Bill. He said that the normal procedure is to go into open deliberations immediately and take the vote. He suggested that, in the spirit of promoting consensus on the matter, members go into an informal inter-party consultation to see if they can come up with a unified position.

Dr Cwele (ANC) Dr Ellis and Dr Jassat (ANC) supported the Chair’s suggestion. Dr Ellis said that although the move was unprocedural, it was a constructive one and therefore most welcome.

The Chair said that he would allow the parties 30 minutes to deliberate and thrash out their differences before convening for the formal deliberations.

At 11.30 am members had not reached agreement and the Chair allowed them a further 30 minutes to wrap up their consultations. The meeting eventually convened for formal deliberations. The Chair directed the registrar of Medical Schemes, Mr Masobe, to take the Committee through the ANC proposed amendments.

Briefing by the Council for Medical Schemes on the proposed amendments
Mr Masobe took members through the written amendments proposed by the ANC and on which various parties had deliberated and taken particular positions. He said that the first amendment dealt with waiting periods.

Waiting period
Mr Masobe said that it had been proposed that Section 29(3)(c) be redrafted to allow for inclusion of waiting periods in the Act instead of having this provision in the regulations. Consequently, the Clause 1 definitions would be amended to cover waiting periods.

The proposed amendment provides the definition of ‘condition-specific waiting period’ as follows: ‘A period during which a beneficiary is not entitled to claim benefits in respect of a condition for which medical advice, diagnosis, care or treatment was recommended or received within twelve months period ending on the date on which an application for membership was made.’

The other proposed amendment refers to "‘a general waiting period’ means a period in which a beneficiary is not entitled to claim any benefits".

A new clause has been inserted in Clasue 9: Section 29A (1), (2), (3), (4), (5), (6), (7) and (8) dealing with Waiting periods.

Section 29A(1) provides inter alia:
that ‘a medical scheme may impose upon a person in respect of whom application is made for membership or admission as a dependant, and who was not a beneficiary of a medical scheme for a period of at least ninety days preceding the date of application: -
(a) A general waiting period of up to three months; and
(b) A condition-specific waiting period of up to twelve months.

Mr Masobe explained that these provisions are currently in the regulations but that they are now put in the Act to ensure overall consistency of the framework. He added that the measure is aimed at ensuring that there is no delay in implementation of the waiting periods.

Section 29A(2) has been proposed and it provides that ‘a medical scheme may impose upon any person in respect of whom application is made for membership or admission as a dependant, and who was previously a beneficiary of a medical scheme for a continuous period of up to 24 months, terminating less than ninety days immediately prior to the date of application:
(a) A condition-specific waiting period of up to 12 months, except in respect of any treatment or diagnostic procedure covered within the prescribed minimum benefits;
(b) In respect of any person contemplated in section 29A(2), where the previous medical scheme had imposed a general or condition-specific waiting period, and such waiting period had not expired at the time termination, a medical scheme to which the person has applied may only impose a general or condition-specific waiting period for the unexpired duration of such waiting period imposed by the former medical scheme.’

Mr Masobe explained that in respect of this amendment, the adverse selection is not an important issue for this category of persons, as they would have had access to the prescribed minimum benefits (PMBs) in the scheme from which they are transferring.

Section 29A(3) provides that ‘ a medical scheme may impose upon any person in respect of whom application is made for membership or admission as a dependant, and who was previously beneficiary of a medical scheme for a continuous period of more than 24 months, terminating less than 90 days immediately prior to the date of application, a general waiting period of up to 3 months, except in respect of any treatment or diagnostic procedures covered within the prescribed minimum benefits.’

Mr Masobe explained that this provision applies to persons who have been in the medical scheme for a long time –say for more than two years. He said that such persons should not be subjected to more than the general three months waiting period. He added that this would deal with retrenchment cases where, for instance, one has been a member for long time then suddenly losses his/her job. Such persons should join without having to face waiting periods.

Section 29A(4) provides that ‘a medical scheme may not impose a general or a condition-specific waiting period on a beneficiary who changes from one benefit option to another within the same medical scheme unless that beneficiary is subject to a waiting period on the current benefit option, in which case any remaining period may be applied.’

He explained that this is an existing provision in the regulations, which is now brought under the ambit of the Act.

Section 29A(5) provides that ‘a medical scheme may not impose a general or a condition-specific waiting period on a child-dependant born during the period of membership.’ This is an existing provision in the regulations, which is now brought under the ambit of the Act.

Section 29A(6) provides that ‘a medical scheme may not impose a general or condition-specific waiting period on a person in respect of whom application is made for membership or admission as a dependant, and who was previously a beneficiary of a medical scheme, terminating less than ninety days immediately prior to the date of application, where the transfer of membership is required as a result of:-
(a) change of employment ; or
(b) an employer changing or terminating the medical scheme of its employees.

Mr Masobe explained that this section too, was, previously in the regulations and that it is now incorporated into the Act.

Section 29A(7) says that ‘a medical scheme may require an applicant to provide the medical scheme with a medical report in respect of any proposed beneficiary only in respect of a condition for which medical advice, diagnosis, care or treatment was recommended or received within the twelve-months period ending on the date on which an application for membership was made.’

Again, Masobe pointed out that this provision was a pre-existing one in the regulation but that it is now incorporated into the parent Act.

Section 29A(8) provides as follows: ‘ In respect of persons who change medical schemes in terms of subsection 29(6), where the former medical scheme had imposed a general or condition-specific waiting period and such waiting period had not expired at the time of termination, the medical scheme to which the person has applied may impose a general or condition-specific waiting period for the unexpired duration of such waiting period imposed by the former medical scheme.’

These were the proposed amendments in respect of waiting periods. There were no changes to Clauses 2, 3, 4, 6, 7 and 8. The whole of Clause 5 dealing with reinsurance has been deleted and replaced and he would brief them on this revised amendment too.

Discussion
Ms Kalyan (DP) said that section 29A(2)(b) was difficult because it tends to nullify the conditions of section 29A(1)(a) and (b).

Dr Rabinowitz (IFP) asked how the proposed amendments on the waiting period would stop people from practising adverse selection.

Dr Jassat (ANC), in response to Dr Rabinowitz, said that it is not fair for a person to be penalised for moving from one scheme to the other. He added that it would be unfair for an old member who is a new entrant in the scheme of choice to be made to start from zero.

Ms Kalyan (DP) insisted that subsection (b) of section 29A(2) was irrelevant since the provision is already covered under subsection (a) of the same section.

Mr Masobe said that Dr Rabinowitz’s query would be tackled when he deals with section 26 but explained that the section deals with people who have been in the scheme for some time and need to change voluntarily. He added that as Dr Jassat had pointed out, it would be inequitable for such persons to be treated as completely new entrants in the scheme.

Dr Ellis (DP) said that there were clear inconsistencies in the two clauses as pointed out by Ms Kalyan.

Dr Rabinowitz (IFP) sought for a brief explanation as to why one would want to move from one scheme to another.

The Director General of Health offered to explain that a person would have many reasons to want to shift from one scheme to the other. He said that it could be that such a person is generally dissatisfied with the service provision regime in the scheme and that it need not be the pre-existing condition that would be the only basis to induce a person to move from a scheme.

The DG pointed out that the purpose of the provisions with regard to waiting periods was to protect members by ensuring that new schemes recognise the pre-existing condition of the new member.

He added that there was no contradiction in section 29A and that the section is a general provision, which is applicable to all persons without exception.

Dr Ellis (DP) suggested that the section be revisited later after clarifying other issues in the Bill.

Dr Rabinowitz (IFP) said that the Council in a bid to protect scheme members had created a huge problem for the schemes which run the risk of being crippled by unethical practices by persons who would use adverse selection to hop from one scheme to the other.

Mr Masobe sought to allay Dr Robinowitz’s fears by explaining that adverse selection should be read in its proper context. He added that in a situation where each scheme is obligated by law to provide the same services, adverse selection is irrelevant.

Ms Kalyan (DP) suggested that the period under section 29A(3) be extended to 12 instead of three months.

Dr Rabinowitz (IFP) insisted that arbitrary shifting from scheme to scheme would be detrimental to the stability of the industry and suggested that there be some guidelines for those intending to shift schemes.

Ms Kalyan (DP) concurred with Dr Rabinowitz and said that there should be a clear distinction for those shifting the schemes voluntarily so that the probability of persons shifting schemes capriciously and for self interest is minimised.

Dr Cwele (ANC) said that it was ANC’s firm view that those who choose to leave a scheme should not be penalised solely for that manoeuvre.

Ms Kalyan (DP) said that one must look at both sides and noted that the interests of the medical schemes industry must be protected as well.

Dr Jassat (ANC) said that it would be difficult to define what is voluntary as suggested by Ms Kalayan.

Dr Rabinowitz (IFP) said that it is important for people to act on informed decisions and that certainty is crucial to the survival of the industry. She observed that the current position offered little room for certainty.

Mr Masobe offered to address the concern by suggesting that an appropriate formulation could be crafted to protect both the industry and members of the scheme.

Dr Rabinowitz (IFP) expressed the view that the way provisions have been drafted tend to convey the position that the second scheme is greatly prejudiced where a member is allowed to use conditions from the first scheme to enter the second one. She added that unless there were stringent conditionalities to curb abuse, this scenario would undermine the second scheme and to that extent it is entirely untenable.

Dr Jassat (ANC) said that the section speaks of the ‘expired time’, which connotes that the former conditions have been nullified.

Mr Masobe said that section 29A(8) essentially refers to circumstances where people move because of involuntary reasons. He explained that some employees might join a scheme with pre-existing conditions and the employer subsequently direct them to move to another scheme. He said that imposing new conditions on such people would be inequitable.

The Chair drew the discussion to an end, saying that enough comments had been made on the issue of the waiting period and that parties’ positions had been noted.

Clause 12
Mr Masobe proposed that both 12(a) and (b) exclude ‘consultants’, as the likely implications were not intended. He said that the requirement for disclosure by auditors would adequately address concerns around potential conflicts of interests.

There were no amendments to Clauses 13 - 18, 20 - 26, 28 - 29.

Clause 27
Clause 27(n) allows the Minister to make regulations regarding brokers and said that it is recommended that this section be clarified by removing ‘professional’ before the word conduct and adding the word ‘code’ instead.

It is further suggested that ‘professional’ before ‘provide’ be replaced with the phrase ‘advice and other’. He explained that this would allow the Minister to prescribe in regulations a code of conduct for brokers.

The new clause should read, "the code of conduct of broker, and the conditions under which such person may provide advice and other services to, or on behalf of, a medical scheme, beneficiary or any other person."

Clause 22

Mr Masobe said that a new provision is inserted in Section 57 to the effect that Trustees must disclose on an annual basis in writing to the registrar any payment or consideration made by the medical scheme to members of the board on an annual basis. He explained that this measure would improve accountability on the part of trustees.

Clause 5

Mr Masobe said that there have been substantial amendments to Section 20 that deal with the issue of reinsurance. It was proposed to remove the entire Clause 5 and revise it completely. He referred members to the revised version of the proposed amendments in the ANC document. There was also a change to the definition of ‘reinsurance contract’ in Clause 1.

Ms Kalyan said that she finds fault with subsection 20(5), which makes reference to "whichever is sooner". She asked what happens to the remainder of the term of contract in this case.

Dr Jassat said that if the term has not expired by the end of the grace period, the parties should then review their contractual obligations to be in line with the law.

Mr Masobe explained that the section essentially address the transition period that is necessary for schemes to adjust to the new provisions. He said that he would have no problem if the Committee found a better formulation to take care of the transition period.

The DG said that even in the absence of the provision, there were measures to enable the Council to address the situation in an interventionist way. He noted that the transition clause is a necessary tool that allows dialogue to take place between stakeholders in the spirit of the new Act.

Dr Cwele said that there must be time to allow re-negotiations of contractual obligations to be aligned with the new Act. He asked the Registrar what the practice was with regard to contractual term in schemes.

Mr Masobe replied that most schemes provide for annual contracts that are renewable but that there were exceptions to this practice.

Dr Rabinowitz said that the provision sounds unconstitutional since it interferes with a party’s freedom of contract.

Ms Kalyan (DP) asked whether the constitutionality of this period has been examined.

Dr Ellis (DP) concurred with Ms Kalyan and said that it is important that the Act does not overstep its boundaries and trample on people’s constitutional rights.

The DG expressed serious doubts that there was anything unconstitutional with the provision. He said that all the section says is that the contracts are valid during the transitional grace period. He pointed out that the other option is to allow contracts to run outside the legal provisions which scenarios was obviously untenable. He added that it is common practice to allow stakeholders a grace period to re-orient themselves to the mandate of new legal provisions.

Dr Cwele said that he saw nothing wrong or onerous with readjusting contractual obligations to be in line with new legal dispensation. He said that there is a clear guideline that parties adjust within a reasonable time.

Dr Rabinowitz (IFP) tried to push her position but the Chair ruled that the matter has been exhausted and that it be put to vote at which point Dr Rabinowitz left the chamber.

The legal advisor with the Department, Mr H Smuts, drew the attention of the Committee to section 67 (Clause 27), which empowers the Minister to make rules with regard to waiting periods. He said that the section needs to be amended to be in line with the current position where waiting periods are legislated.

Mr Masobe said that Clause 26 on its own could not do away with adverse selection completely. He asked the Committee to come up with an appropriate formulation.

Dr Cwele (ANC) inquired what the normal practice was with regard to change in schemes.

Mr Masobe replied that people mostly tend to change schemes at the beginning of the year.

Ms Kalyan (DP) said that the caveat here must, surely, be that the section should seek to forestall situations of opportunistic and predatory withdrawals from schemes.

Dr Jassat (ANC) said that the way he understood the provision was that it applies only in situations where an employer terminates membership for reasons other than financial.

The Legal advisor with the Department requested that the committee allow the Department some time to come up with an appropriate formulation in this regard.

The Chair conceded to the request and gave the Department 15 minutes to work on the desired formulation.

The Chair then proceeded to read the motion of desirability on the amendment, which was, moved by Dr Jassat and seconded by Dr Luthuli. He asked parties to isolate areas where consensus had not been reached for purposes of voting.

The rest of the meeting was not minuted. It is known that voting took place on the Bill (passed 9 vs 3) . The Bill was supported (with amendments) by the ANC and the PAC. The IFP abstained and the DA indicated that it would first need to discuss the amendments before coming with its stand on the Bill.