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Source: Ministry of Health
Title: The Medical Schemes Amendment Bill
SPEECH BY THE MINISTER OF HEALTH DURING THE SECOND READING DEBATE
ON THE MEDICAL SCHEMES AMENDMENT BILL
Madame Speaker, Honourable Members.
The Medical Schemes Amendment Bill, 2002, is a small yet critically
important piece of legislation from a health policy
It signifies our determination to systematically break the barriers
to access to affordable care.
It demonstrates that we shall be resolute in picking up conduct and
behaviour that threatens to re-introduce the perversities that have
led us to a dangerous and unsustainable cost spiral.
But in doing so, we shall combine ruthless determination with
wisdom and judgement, which derives from the knowledge that to deal
with the specific, you need to also understand the general.
We are consciously aware that the Medical Schemes Act regulates a
multi-billion rand industry. This is not an insignificant part of
We also are painfully aware that there are many inter-linkages in
what constitutes our financial services sector, and so an
intervention in one area may have ramifications well beyond a
It is this understanding and logic that informed our painstaking
engagement with my colleague - the Minister of Finance, in defining
the parameters of this piece of legislation.
Together with amendments that were made to the Financial Advisory
and Intermediary Services Bill (commonly referred to as the FAIS
Bill), this Bill creates a basis for the development of a sound
regulatory framework for health brokers.
We share the concern of the Ministry of Finance that consumers will
be best protected if minimum standards of conduct apply to
financial advisors across all sectors, including health
We therefore fully endorse the need for health brokers to be
subject to a common code of conduct applicable to other financial
advisors, and hence the Medical Schemes Amendment Bill deletes
reference to a specific code of conduct for health brokers to be
promulgated under the Medical Schemes Act.
Similarly, we fully endorse changes to the FAIS Bill, whereby
health brokers, once accredited under the Medical Schemes Act, will
be regarded as licensed under the FAIS Bill and will also be
subject to the provisions of that legislation.
At the same time, the conduct of health brokers is an issue of
considerable significance from a health policy perspective.
The capacity to effectively regulate this sector of the private
health financing industry is an essential component of ensuring
that health policy objectives underpinning the Medical Schemes Act
Some of the major objectives of the Medical Schemes Act
* Promoting non-discriminatory access to private health care;
* Improving governance of medical schemes in the interests of
* Ensuring greater financial strength in the medical schemes
* Protecting medical schemes and members against abusive and
unlawful practices; and
* Bringing greater stability to a historically under-regulated
Health brokers have the potential to significantly contribute
towards these health policy objectives through:
* Providing independent, best advice to members or potential
members of medical schemes, thereby guiding them to make the best
possible decisions to meet their health care needs;
* Growing the total number of beneficiaries of medical schemes, and
thereby reducing unnecessary burden on the public health sector,
through focusing their activities on the employed but currently
* Contributing to the stability of risk pools by advising against
unnecessary fragmentation of employer groups; and
* Resisting and reporting discriminatory and unlawful practices
which threaten to undermine the policy intentions of the Medical
On the other hand, health policy objectives could be severely
jeopardized if even a small proportion of the 7000 or so brokers
operating in the health care environment failed to act in a manner
consistent with the implementation of health policy.
Two examples will suffice.
a. First, the greatest barrier to entry to the medical schemes
environment is the rapidly escalating cost of medical scheme
contributions. The high cost of medical scheme coverage not only
results in differential access to private health care based upon
income, but also on related issues such as health status. The
Registrar of Medical Schemes, in his Annual Report of 2001, again
identifies non-medical costs as being a significant driver of the
inflation of contributions.
b. A progressively smaller percentage of member contributions is
being spent on purchasing medical care, while an increasing
proportion of contributions is being spent on non-medical items.
This trend cannot be allowed to continue.
Clearly, there are many components of this non-health care
expenditure, and we are looking critically at each of them. One
component, however, is amounts paid to brokers, either directly by
medical schemes as commission or indirectly through the payment to
brokers of so-called co-administration fees by administrators, and
that figure is difficult to attempt to quantify. It is therefore
worth noting that R290 million was spent on broker commission in
Commission paid to brokers is a legitimate medical scheme expense,
but there needs to be an appropriate regulatory framework to ensure
that there is not uncontrolled expenditure on brokers contributing
to the spiral of non-health care expenditure of schemes and that
compensation is appropriate for genuine value added by brokers to
medical schemes. Within the context of the medical schemes
environment at present, this is an important regulatory
Secondly, I have already said that brokers have the potential to
significantly contribute to a more stable medical schemes
environment, and to expand medical scheme coverage to previously
uncovered individuals. However, if motivated by perverse financial
incentives rather than the best interests of members and the
medical schemes environment as a whole, health brokers can
potentially significantly contribute to the instability of the
For example, while advising members or employer groups to move from
one medical scheme to another may be the best advice in particular
circumstances, if motivated purely by financial incentive, it could
contribute to large-scale churning in the medical schemes
environment which significantly undermines administration process
and adds to administrative cost for medical schemes.
Clearly this is a concern especially in an environment where that
has been very minimal growth in overall number of beneficiaries
It can also exacerbate the concerning trend which has developed
since 1994 of a shift of members out of the more protected
restricted medical schemes environment into the open schemes
environment. This is of concern because the risk pool and the
future claims experience in a restricted scheme are more
predictable. This is demonstrated by the overall solvency ratios of
restricted schemes that are considerably higher than that of open
Again, without the capacity to regulate broker conduct in a manner
consistent with the development of health policy, our capacity to
realize the crucial health policy objective of ensuring stability
and sustainability in the medical schemes environment would be
The importance of regulatory oversight of health brokers, from a
health policy perspective, resulted in the important function of
accreditation of health brokers remaining a function of the Council
for Medical Schemes, and retention in the Medical Schemes Act of
the provision for the Health Minister to make regulations regarding
broker remuneration and the conditions under which a broker may
provide advice and other services.
Clearly, regulatory interventions from a health perspective, over
and above the common framework provided by FAIS, will be exercised
only in so far as such additional intervention is necessary and
appropriate for the implementation of health policy.
An important change introduced by the Amendment Bill, however, is
that, for the first time, the Medical Schemes Act will provide
explicit recognition to the role of health brokers in providing
ongoing service and advice to members of medical schemes - as
opposed to existing wording in the Act being restricted to services
relating to introduction of members.
This was a necessary amendment to prevent regulatory arbitrage of
brokers between the Council for Medical Schemes and the Financial
Services Bill, in light of provisions in the FAIS Bill, which
included ongoing advice in respect of health products as a function
of financial service providers in terms of that Bill.
In the absence of this amendment to the Medical Schemes Act, with
the implementation of the FAIS Bill, brokers would effectively have
been able to "opt out" of the regulatory jurisdiction of the
Medical Schemes Act by structuring their service in such a way to
exclude so-called introductory services and provide only ongoing
Explicit recognition in the Bill of the role of brokers in
providing ongoing services, as reflected in the expanded definition
of a 'broker,' has been welcomed by industry stakeholders, and
particularly by organizations representing health brokers.
In its presentation to the Portfolio Committee in public hearings
on the Bill, the Financial Planning Institute, for example,
indicated its support for the Amendment Bill in general and
welcomed the recognition of the ongoing role of the broker in the
They, and other commentators, have urged that the statutory
recognition for the role of brokers in providing ongoing services
to members should also be reflected in the regulations under the
Medical Schemes Act, in so far as those regulations provide a
framework for the regulation of remuneration of health
These comments have been taken into account in the reformulation of
the amendments to the regulations under the Medical Schemes Act,
which are due to be promulgated shortly.
I believe that the debate on the appropriate regulatory
jurisdiction for health brokers, which surrounded the passage
through Parliament of the FAIS Bill, and has given rise to this
Amendment Bill, was a necessary and fruitful debate and has given
rise to an optimal framework for the regulation of health
In the implementation of this framework, I look forward to healthy
cooperation between the Council for Medical Schemes and the
Financial Services Board - which will result in an environment in
which consumers are optimally protected.
In conclusion, let me express my infinite gratitude to the
Portfolio Committee for the work they did on this Bill, and again,
for reaching unanimous consensus on the amendments to be made to
This is getting too much for me. I don't know whether it has
anything to do with the floor-crossing legislation that was
recently given the thumbs-up by the Constitutional court.