Honourable Members,
Thank you for the opportunity to present the Medical Schemes Amendment Bill.
Many of you will recall that we passed the Medical Schemes Act in 1998 as a response to significant challenges faced by the medical schemes industry.
The principal Act aimed to achieve four main objectives:
At the time the Act was passed, there was considerable opposition in the medical schemes industry. Sceptics predicted that the Act would not achieve its objectives and would instead compromise the viability of many medical schemes.
Although the Act has been in operation only since January 2000, I believe that there are already signs that our critics over-reacted. The audited returns provided to the Council for Medical Schemes are beginning to show the early impact of the Act.
Firstly, membership has not decreased as the prophets of doom had suggested it would. More importantly, there is evidence that the proportion of members from vulnerable groups - such as the elderly - has actually increased. It is difficult to say precisely which features of the 1998 Act had this effect, but it is likely that the amnesty provision played a part. This allowed members to join schemes at an advanced age without higher premiums being imposed.
Of course, the success of our legislation must be measured not only in terms of the growth of membership, but also in the composition of membership. Medical schemes are rooted in the notion of cross-subsidisation between members who are young and healthy and those who are older and have much greater need of health care. And we will be watching this aspect very keenly over the next few years.
Secondly, analysis suggests that the greatest pressure on medical scheme costs is not from claims, but from spending on administration. In 2000, income from contributions increased by 7% and claims went up by just 6%. But administration costs grew by a whopping 26%. This evidence dispels the myth promoted by the industry that the introduction of the Prescribed Minimum Benefits would result in an increase in claims.
It is a matter of concern that there is a significant difference between open and closed schemes when it comes to the level of administration costs. The open schemes have much higher administration costs and we need to understand the reasons for this so that we can institute appropriate action to curb this trend.
Furthermore, the solvency ratios of schemes have not taken the nosedive predicted by those opposed to the Act. In fact, the average solvency level for all schemes was 20,5% in the year 2000, which is far higher than the statutory requirement of 10%. But again we see significantly different patterns in the open schemes from those that prevail in the closed schemes. The solvency level for open schemes averaged out at 13% last year and about one-third of these schemes were below the statutory requirement. We are monitoring this situation extremely closely with a view to possible intervention.
Honourable Members, experience with the Act has not only vindicated our policy position, but also taught us some valuable lessons. The Amendment Bill I am presenting to you today is a response to some of these lessons.
The Bill seeks to strengthen the Medical Schemes Act of 1998 in a number of ways.
Inevitably amending legislation does some tidying up of definitions and clumsy phrasing and eliminates duplication. This Amendment Bill is no exception.
Honourable Members, it is impossible in the time allotted to cover every detail of what it fairly technical legislation. So I am going to be selective and to highlight the thinking behind some of the provisions.
Firstly, the question of waiting periods
Waiting periods refer to the period between joining a scheme and enjoying the full benefits of that scheme. They were permitted in the principal Act in order to protect schemes against adverse selection - that is, opportunisitic behaviour by some medical scheme members who may delay joining a scheme until they require expensive medical treatment, and - having had the treatment - simply leave the scheme afterwards.
The clause in the principal Act is flawed in that it goes beyond protecting schemes from adverse selection. In some instances it has resulted in schemes imposing waiting periods on members who are not necessarily engaging in opportunistic behaviour.
We have inserted two definitions of waiting periods in the Amendment Bill and these stipulate the circumstances in which general and condition-specific waiting periods may be imposed on members. The underlying principle, is to consider the member's history of membership in other schemes and to use this as a basis for determining whether waiting periods may apply.
In addition the Bill stipulates that members who transfer from one scheme to another may not face waiting periods in respect of the Prescribed Minimum Benefits. It also provides that members who change schemes because of a change in employment or because their employer changes or terminates the scheme may not face waiting periods.
These provisions aim to strike a fair balance between protecting schemes from adverse selection and protecting new members from inappropriate use of waiting periods. Turning to the question of reinsurance, I am sure every member of this House has come to appreciate in the last week the heat that this issue generates in the industry.
Undoubtedly, this issue has been the most contentious provision in our Bill. We believe that the formulation we have now agreed on is a significant improvement on previous versions. It not only satisfies all our policy concerns, but it also addresses the concerns expressed by the industry about the need to strengthen the powers and responsibilities of medical scheme trustees.
We have tried to include in the law a mechanism that would prevent inappropriate reinsurance arrangements, rather than simply seeking to deal with the consequences of such arrangements.
Accordingly, Clause 5 stipulates that the Board of Trustees of a scheme must furnish particular information to the Registrar of Medical Schemes before entering into a reinsurance contract. The Registrar must express any concerns he/she may have with the proposed contract within 30 days. The Board of Trustees, in turn, is obliged to address any concerns so raised and to make full disclosure of the re-insurance contract, failing which the whole contract will be null and void.
This formulation allows the Registrar to keep track of all reinsurance contracts and raise concerns where such contracts are not in the best interests of scheme members. However, the final decision on whether or not to reinsure is left in the hands of the Board of Trustees, who after all must take full fiduciary responsibility for the financial position of their schemes. The interaction between the Registrar and the Trustees is intended as a process in which the two parties complement each other and where the expertise of the Registrar serves as a resource for the Trustees.
The regulation of brokers was another matter which was vociferously debated by some stakeholders during the hearings on the Bill. The Portfolio Committee supported and enhanced the draft formulation, which empowers the Minister to make regulations regarding the conduct and remuneration of brokers. This tightening up of remuneration of brokers relates to a growing situation where members shift between schemes without any clear gains in terms of benefits. The question therefore arises whether perverse incentives enjoyed by brokers are responsible for this unnecessary movement that pushes up administration costs.
The Bill strengthens consumer protection by restricting the marketing of medical schemes to those individuals and entities that are actually registered as medical schemes in terms of the Act. It also prohibits the conditional selling of medical scheme products.
The consumer is further protected by additional powers that are assigned to the Minister in terms of the Bill. These include:
In the area of promoting good governance of medical schemes, the Bill firmly introduces the principle of ensuring the independence of principal officers, trustees and auditors of medical schemes. It does this by prohibiting any broker or any person employed by the schemes' administrators from taking on any of these positions.
It further promotes transparency and ensures the independence of Trustees by requiring that Trustees must disclose on an annual basis any remuneration or benefits accruing to them.
The Bill recognizes that the power of the Registrar to act constructively in resolving problems that threaten the stability of schemes and the assets of members depends to a great degree on effective monitoring and early detection of problems.
It is with this in mind that the Bill empowers the Registrar to request financial statements from the schemes as frequently as once every three months and to determine the degree of urgency that applies in getting responses to his or her queries.
It is also vital that the Registrar has the power to order inspections of schemes in order to monitor compliance with the Act. But we recognize that the Registrar's powers in this regard must be limited in accordance with the fundamental rights enshrined in our Bill of Rights.
Our renewed emphasis on sound governance and fair administration carries a certain price and sometimes creates additional work. We need to be sure that these additional processes are justified. Where they are not, we must have the courage to do away with them. I am pleased to say that, on review we have found a few instances in the principal Act where we have over-regulated. We have attempted to correct these in the amending legislation. So, for instance, the process of exempting entities from the provisions of the Act has been simplified and medical schemes are no longer required to get prior approval from the Council for Medical Schemes in order to undertake a number of fairly routine activities.
Honourable Members, I cannot conclude this presentation without thanking the Department of Health and the Council for Medical Schemes for the sterling work they have put in to prepare this Amendment Bill. The amendments clearly show that they have not lost sight of the ultimate goal of our health system, to improve access to health care while making it affordable, efficient and effective for all South Africans, irrespective of their income level.
The Portfolio Committee has provided essential guidance and support in seeing this Bill to this stage, and their valuable input is reflected in this last version that I have presented to you. The passing of this Bill would be a reflection of the confidence that this House places on this guidance.
THANK YOU
Dr Manto Tshabalala-Msimang
Minister of Health