Medical Schemes Amendment Bill: briefing

Meeting report

HEALTH PORTOFOLIO COMMITTEE
16 October 2001
MEDICAL SCHEMES AMENDMENT BILL: BRIEFING

Chairperson: Dr Nkomo

Relevant Documents:
Medical Schemes Amendment Bill [B80-2001]
Presentation by Medcheme

SUMMARY
The Committee was briefed on the objects and content of the Bill by Medscheme and the Department of Health. The Bill proposes limiting the purpose for which medical schemes may compensate brokers and provides for the regulation of their professional conduct. The Bill will also regulate the transfer of business of medical schemes to any person and to remove the requirement for staff of the Council to be members of the Government Employees Pension Fund.

The Bill will regulate circumstances under which waiting periods may be applied and also improve the powers of the Council and the Registrar to act in the interest of the beneficiaries. It will regulate the marketing entities doing the business of a medical scheme in order to provide for frequent submission of returns to the Registrar and to determine the circumstances under which inspection may be made.

MINUTES
Background to the Bill
Mr Stephen Harrison (Chief Executive Officer: Council for Medical Schemes) informed the Committee that the Medical Schemes Act, 131 of 1998, came into operation on 1 February 1999 and most of the regulations took effect on 1 January 2000. He said that there is preliminary evidence that policy goals are being met.

Practical problems with the implementation of the Act have given rise to the need for amendments of a technical nature. He said further that limited policy reforms are also urgently required following ongoing consultation with stakeholders and identification of significant incidents perverse activity in the industry.

Objects of the Bill
The Bill seeks to amend the Medical Scheme Act, 1998, so as to extend certain rights of members to their dependants and to broaden the definition of a complaint. It also seeks to explicitly prohibit discrimination on the basis of age and to further regulate the practice of reinsurance.

The Bill will regulate circumstances under which waiting periods may be applied and also improve the powers of the Council and the Registrar to act in the interest of the beneficiaries. It will regulate the marketing entities doing the business of a medical scheme in order to provide for frequent submission of returns to the Registrar and to determine the circumstances under which inspection may be made.

The Bill defines which persons may be appointed as auditors of medical schemes and at the same time defines persons who may serve as trustees of medical schemes thereby clarifying their respective duties accordingly. The Bill will define the persons who may serve as principal officers of medical schemes.

The Bill intends to limit the purpose for which medical schemes may compensate brokers and provide for the regulation of their professional conduct. It will also regulate the transfer of business of medical schemes to any person and to remove the requirement for staff of the Council to be members of the Government Employees Pension Fund.

Finally, the Bill will amend the transitional provisions with regard to certain schemes and to provide for incidental matters thereto.

Technical Amendments
Clause 1
Mr Harrison said that in the current Act "members" are in many instances referred to where reference was intended to include "dependants" as well. In the new definition of "beneficiary" includes both members and dependants. It replaces "members" with "beneficiaries" where appropriate but this substitution is not made where relationship derives ex contractu.

The existing definition of "complaint" is too restrictive and excludes complaints against brokers and care organisations. Clause 1 of the Bill broadens the definition of complaint so that aggrieved parties can have recourse to Council.

Clause 4
The Act requires staff of the Council to be members of the GEPF, but the short-term contractual nature of the Council staff appointments makes GEPF membership inappropriate. Section 4 seeks to remove this requirement and instead places pension fund membership in the condition of service staff.

Clause 11
The Act requires prior Council approval for every act of encumbrance of assets, borrowing of money etc which is cumbersome and unworkable. Clause 11 attempts to addresses this problem by making provision for Council to issue directives to determine limits within which these actions may take place.

Clause 13
He said that in the Act, monitoring of the scheme stability and financial performance is hampered by routine submission of statutory returns on an annual basis only. Clause 13 make provision for quarterly submission of returns which he said would increase efficiency in monitoring.

Clause 15
The need for information on an urgent basis is hampered by the Act’s provision for replies within 30 days. Clause 15 cures this problem by making provision for the registrar to designate a period less than 30 days, where appropriate.

Clause 16
He added that monitoring of compliance is further hampered by absence of provision for inspection for routine monitoring purposes. Section 16, therefore, makes provision for inspection to take place when there is evidence of irregularity or for purposes of routine monitoring of compliance within the Act.

Clause 12
Provision is made for the registrar’s approval of the appointment of auditors but does not extend to their reappointment which means that the registrar can therefore not intervene in the case of the reappointment of an auditor whose service record was judged unsatisfactory. Section 12 intents to remedy this situation by removing the exclusion of the registrar’s approval for the reappointment of auditors.

Clause 22
The determination of the level of fidelity insurance is left to the discretion of the trustees of the medical scheme. Clause 22 of the draft Bill removes the requirement that the scheme’s auditors must determine the quantum with the concurrence of the registrar.

Clause 28
The Auditor-General identified an anomaly with SARS in which portions of funds paid to MEDCOR and POLMED since the passage of the Act in February 1999 was taxable due to the transitional clause deeming these entities to be registered as medical schemes. To avoid such absurdities in future Clause 28 of the draft Bill exempts these schemes from the Act until actual registration of schemes, which has since happened in respect of both MEDCOR and POLMED.

Other Amendments
Clause 9
He said that there are inconsistencies between Section 29(3)(C) of the Act dealing with waiting period and regulations arising from comments on the draft regulation published on 22 September 2000. Clause 9 of the Bill amends Section 29(3)(c) to enable waiting periods to be prescribed in a consolidated provision in the regulation. The powers of the Minster to regulate are circumscribed by need to protect the scheme against adverse selection he added.

He said further that there have been vast increases in reinsurance premiums over the past 3 years, which have resulted in huge losses to members. He said that while some reinsurance was appropriate, there was need to curtail the improper use of reinsurance to strip schemes of reserves.

Clauses 1, 5 and 29
Clauses 1, 5 and 29 make provision for the validity of reinsurance contracts to be made subject to approval from the registrar based upon independent assessment of the proposed reinsurance and conformity with the guidelines published by Council. He clarified, however, that transitional provisions are made with respect to existing contracts.

Clause 6
Provision is not made in the Act for the regulation of marketing of unregistered products. This scenario, he added, create a potential indirect risk-rating and prejudice to members through selling of medical scheme products conditional on purchase of non-medical scheme product for say funeral policy or vehicle insurance. He said section 6 of the draft Bill creates an offence for marketing of unregistered products and prohibits the tag of conditional selling.

Clause 26
He observed further that sound governance of medical schemes is compromised if trustees are not able to make independent decisions which is why, he added, there was an extension of the wording of Clause 26. The clause prohibits directors and employees of administrators serving as trustees and it also excludes brokers as well.

Clauses 12, 22 and 29
The Act does not provide for the independence of principal officers and auditors which is necessary for sound operational management of medical scheme or indeed the possibility of conflict of interests say for brokers. In this regard, he said Clauses 22 and 29 prohibit principal officers from acting as brokers or in the employ of the administrator or associated company. He added that transitional arrangements are made for currently employed principal officers and that Clause 12 prohibits employees of the scheme or administrators from serving as the scheme’s auditors.

Clauses 25 and 27
Mr Harrison observed further that the Act has loopholes that allow for circumvention of provision on broker remuneration and creates perverse incentives for member churning. He said Clauses 25 and 27 tighten the enabling provisions to provide a more appropriate regulatory framework for remuneration and the conduct of brokers.
As for managed care, Mr Harrison revealed that in terms of the Act contracts could be used to siphon off reserves from medical schemes into a less regulated environment, similar to recent examples of the inappropriate use of reinsurance. There was an urgent need for specific protection for service providers and scheme members.

Clause 27
Finally Mr Harrison said that Clause 27 of the draft Bill makes provision for regulation to be made in respect of managed health care which is extended to allow for the prescription of requirements for managed health care contracts.

He noted, too, that there is widespread concern among providers over the late payment of accounts by medical schemes via administrators. He said provision has been made in Clause 2 of the Bill for regulation to prescript penalties for administrators and schemes for the late payment of accounts.

Dr Ayanda Ntsaluba (Director General: Department of Health)
Dr Ntsaluba said there were two major obstacles standing in the way of the Bill when it was first mooted two years ago. One was that the Department did not have enough information on the areas of concern that were to be addressed by the Bill.

Dr Ntsaluba said that the work done by the Council over the last two years has now put the Department at the core of the issues to be addressed. The Department is properly appraised on the goings on in the field to be able to authoritatively leverage on issues.

Secondly, he added, the managed care facility is still that much problematic as it was two years ago. He noted that there were suspicious contributions to reinsurance schemes and the unexplained escalating administrative costs were a matter of grave concern.

He noted that some managed care intervention manifested significant levels of unethical conduct. The proposed regulatory framework would hopefully help cure some of these weaknesses in this area.

Dr Ntsaluba said that the minimal managed care provision was currently under review to remedy some of the weakness areas. He urged the Committee to finalise legislation on the Bill before end of the current year so that the new measures could take effect without further delay.

Discussion
Dr Gous (NNP) asked why administrative costs were high in these instances a fact, which Mr Harrison acknowledged saying that indeed administrative costs in open schemes were far higher than those of closed schemes. He said that the draft Bill attempts to address this situation.

Dr Gous (NNP) asked why it is so difficult for members to have their Bills settled promptly and why practitioners were being interrogated over many flimsy issues. He also wanted to know why the number of visits to doctors was so much restricted.

Mr Harrison agreed with Dr Gous that there have been some concerns on the prompt settlement of claims and the curtailment of the number of visits to medical facilities. He said that the delay in payment was caused by many factors which had nothing to do with the medical scheme itself. He said the Council was looking at these issues carefully to see what intervention mechanism would remedy the situation.

Ms Rabinowitz (IFP) asked whether regulation would provide for the way in which the managed health care is to be paid.

Mr Harrison replied that one of the aims of the Bill is for governmental structures to be independent from the way schemes are managed and that trustees should take more interest in the way schemes are managed but that the Minister’s powers of regulation have been extended.

Ms Rabinowitz (IFP) observed that insurance schemes appear to be self-interested money minting outfits, which seem to care less for the welfare of the members.

Dr Luthuli (ANC) asked whether there was provision for people moving from open to closed schemes.

Mr Harrison replied that the waiting period under Section 29(3) C does not make a distinction between open and closed schemes. He said it applies to members who move from one employer to the other but that it has a very restrictive application.

The meeting was adjourned.