Medical Schemes Amendment Bill 2001

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Medical Schemes Amendment Bill 2001

• A Presentation to the Health Portfolio Committee
• 22 May 2001

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Background

• The Medical Schemes Act, 131 of 1998, came into
  operation on 1 February 1999. Most of the
  regulations took effect on 1 January 2000. There
  is preliminary evidence that policy goals (eg.
  access) are being met.
• Practical problems with implementation of the Act
  have given rise to the need for amendments of a
  technical nature.
• In addition, limited policy reform is urgently
  required following ongoing consultation with
  stakeholders and identification of perverse
  activity in the industry.

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Technical amendments
The Mischief The Remedy
Rights of members In many instances, the Act referred to members where the reference was intended to include dependants too A new definition of beneficiary to include members and dependants (s1) Replacement of members with beneficiaries, as appropriate
Demarcation Absence of a clear delineation between medical scheme products and health insurance products Amendment of definition of business of a medical scheme in line with demarcation agreement with Financial Services Board (s1)
Regulatory consistency Alleged inconsistencies between s 29(3)(c) of the Act, dealing with waiting periods, and regulations arising from comments on draft regulations published on 22/9/00 Amendment of section 29(3)(c) to enable waiting periods to be prescribed in a consolidated provision in the regulations (s9)
Government Employees Pension Fund (GEPF) The Act requires staff of the Council to be members of the GEPF, but the short-term contractual nature of staff appointments makes GEPF membership inappropriate Removal of this requirement (s4) pension fund membership requirements rather dealt with in conditions of service of staff
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The Mischief The Remedy
Powers of Council (1) Enforcement of the Act is hampered by lack of locus standi of Council to litigate in the interests of members The powers of Council are expanded to grant it locus standi to litigate in the interests of any person or class of persons whose rights in terms of the Act are affected (s3)
Powers of Council (2) Prior Council approval for every act of encumbrance of assets, borrowing of money etc is cumbersome and unworkable Provision for Council to issue directives to determine limits within these actions may take place (s13)
Powers of Registrar (1) Monitoring of scheme stability and financial performance is hampered by routine submission of statutory returns only on an annual basis Provision for more frequent submission of returns (s15)
Powers of Registrar (2) The need for information on an urgent basis from schemes is hampered by provision for replies within a minimum of 30 days Provision for the Registrar to designate a period for response in a period less than 30 days, where appropriate (s17)
Powers of Registrar (3) Monitoring of compliance is hampered by absence of provision for inspections for routine monitoring purposes Provision for inspections to take place when there is evidence of irregularity or for purposes of routine monitoring of compliance with the Act (s 18)
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The Mischief The Remedy
Complaints Anomalies in the provisions relating to complaints hinder the expeditious and efficient resolution of complaints The definition of complaint is amended to broaden recourse to Council by aggrieved parties (s1) Where alternative more appropriate channels for resolving complaints have not been followed, provision is made for referral of complainants (s19) Provision is made for the issuing of urgent temporary orders where failure to do so may result in serious or irreparable prejudice to the complainant (s20) An anomaly in the Act is rectified to limit appeals heard by Council to those against decisions of the Registrar, while maintaining provision for an Appeals Board to hear appeals against Council decisions (s21)
Age discrimination The specified grounds on which medical schemes may not discriminate inadvertently omitted age Age is explicitly included among the grounds of prohibited unfair discrimination (s7)
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The Mischief The Remedy
Insurance Determination of quantum of fidelity guarantee insurance and professional indemnity insurance is made a function of the schemes auditors, with the concurrence of the Registrar when this is properly a management decision taken by trustees of a scheme on advice of an insurer Removal of the requirement that the schemes auditors must determine the quantum with the concurrence of the Registrar (s26)
Auditors Requirement for the Registrars approval of the appointment of auditors does not extend to their reappointment and the Registrar can therefore not intervene in the case of reappointment of an auditor whose service record was unsatisfactory The exclusion of the Registrars approval for the reappointment of auditors is removed (s14)
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Policy Amendments
The Mischief The Remedy
Inappropriate reinsurance Vast increases in reinsurance premiums over the past 3 years, resulting in a loss to members exceeding R100m. While some reinsurance was appropriate, there is a need to curtail the improper use of reinsurance to strip schemes of reserves Validity of reinsurance contracts made subject to approval from the Registrar, based upon independent assessment of proposed reinsurance and conformity with guidelines published by Council. The provisions take into account industry comments following publication of draft regulations on 22/9/00. Transitional provisions are made in respect of existing contracts. (s1,5,32)
Improper marketing Provision is not made for regulation of marketing of unregistered products or misleading marketing of registered products Creation of an offence for marketing of unregistered products Requirement that marketing materials of registered schemes should be filed with the office of the Registrar (s 6)
Independence of trustees Sound governance of medical schemes is compromised if trustees are not able to make independent decisions Extension of existing prohibition against directors and employees of administrators serving as trustees to brokers and principal officers (s26)
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The Mischief The Remedy
Independence of principal officers Sound operational management of medical schemes is compromised if principal officers are not independent of the administrators of the schemes Requirement that principal officers must be employed by the medical scheme concerned, and not by its administrator or associated company. Transitional arrangements are made for currently employed principal officers. (s26,32)
Brokers The current Act has loopholes that allow for circumvention of provisions regulating broker remuneration, and creating perverse incentives for member churning within the medical schemes environment The enabling provisions are tightened to provide a more appropriate regulatory framework for remuneration and conduct of brokers. (s29,30, 31) Discussions are underway with relevant stakeholders to inform development of regulations.
Managed care The potential exists for managed care contracts to be used to siphon off reserves from medical schemes into a less regulated environment, similar to recent examples of the inappropriate use of reinsurance Provision for regulations to be made in respect of managed health care is extended to allow for the prescription of requirements for managed health care contracts (s31)
Late payment of accounts There is widespread concern among providers over the late payment of accounts by medical schemes via administrators Provision for regulations to prescribe penalties for administrators in respect of the late payment of accounts (s31)