This Legislative Update focuses on the Medical Schemes Act, 131 of 1998. It complements and should be read together with PHILA’s Legislative Update on the Regulations in Terms of the Medical Schemes Act, 1998.

The Medical Schemes Act was passed in November 1998. The new Act repeals in full the Medical Schemes Act, 72 of 1967, and all the Amendments to that Act which followed. The new Act has been in effect since January 2000.

The Medical Schemes Act and Regulations aim to widen access to private health care. At the moment, only about 20 percent of South Africans have regular access to the private sector. The Act also aims to help re-vitalize public sector hospitals, and to maintain the solvency of medical schemes. The Act prohibits any unfair discrimination, either directly or indirectly, against any person based on their age, gender, claims experience, or past or present state of health. This means that medical schemes cannot exclude people for being HIV-positive. Exceptions to these prohibitions are found in the Regulations (Chapter 4) and are aimed at protecting against opportunistic behaviour.

The new legislation is based on the principles of open access and community rating. This means that medical schemes have to accept all individuals irrespective of their state of health and premium rates have to be determined on the same basis for everyone. As an incentive for the young and healthy to join a medical scheme, the state allows for up to two thirds of contributions to be tax deductible. The main benefits expected to result from the system of community rating are:

The Act’s provisions are mainly about the ways and means of establishing oversight and regulatory mechanisms and structures to better monitor and control the activities of medical schemes. Provisions in this respect are concerned with broadening the capacity, functions and powers of the Council of Medical Schemes; appointing a Registrar and Deputy Registrar; and providing for stricter terms of reference for auditors and brokers. The Act also sets out all the mandatory procedures for the registration and operation of individual medical schemes. The Regulations in Terms of the Medical Schemes Act, 1998 deal more specifically with provisions for contribution and benefit structures of medical schemes.

The new medical schemes legislation suggests a greater commitment on the part of the Department of Health to take responsibility for the private health sector.

The main objectives of the Act are to establish the Council for Medical Schemes; to appoint the Registrar for Medical Schemes; and to consolidate the laws relating to registered medical schemes. A key objective is to protect the interests of members of medical schemes. The Act provides for the registration and control of specific activities of medical schemes; and it provides measures for co-ordination of medical schemes. 

The Act provides for the Minister of Health to appoint a Council for Medical Schemes consisting of 15 members. Appointments will be based on promoting the interests of members of medical schemes and the interests of medical schemes. Prospective members will be competent in one or more of the following fields: law, accounting, medicine, actuarial sciences, economics, consumer affairs. Appointees will serve on the Council either on a full-time or part-time basis.

The Minister will appoint the Chairperson from amongst the members, and the members will elect a Vice-Chairperson from amongst themselves. The names and length of office of each Council member will be published in the Government Gazette. A member will serve for three years, but may be re-appointed for one further term.

The Council will operate as a parastatal. It is expected to have a total staff of up to 40 people, and will be accountable to the Minister of Health. Funding for the Council’s work will largely come from levies on medical schemes. In this respect, the Department of Finance is expected to introduce a Levies Bill before the end of this year. The levies should be sufficient to cover the costs of previously neglected critical areas, such as oversight and research.

A key function of the Council is to protect the interests of members of medical schemes. The Council must ensure that all activities of medical schemes comply with and are complementary to national health policy. Further functions of the Council are to monitor the quality and outcomes of health services provided by medical schemes; to collect and disseminate information about private health care; and to investigate complaints and settle disputes that arise in the course of the business of medical schemes.

The Council will have the power, amongst others, to:

• Appoint additional staff
• Acquire moveable or immovable property
• Approve the registration, suspension, and cancellation of registration of medical schemes or a benefit option

The Chairperson, the Vice-Chairperson and three other Council members will comprise an Executive Committee which will be responsible for the day-to-day running of the Council. Other committees may be constituted to deal with issues arising from the work of the Council. The members of these committees will consist of Council members and/or other persons.

The Act provides for the appointment of a Registrar and one or more Deputy Registrars to manage the Council’s affairs and to supervise staff. As the Council’s Executive Officer, the Registrar will make decisions in regards to:

• Rules of medical schemes
• Approval and withdrawal of benefit options
• Financial arrangements of medical schemes, including the appointment of an auditor and submitting an annual financial statement
• Documents to be submitted and held by the Registrar
• Inspection of medical schemes’ books, documents and financial statements
• Registration, cancellation and suspension of medical schemes

Applications for registration are accepted if they comply with the provisions of the Act. Compliance includes evidence that the medical scheme is financially sound, and that it has a sufficient number of members who contribute or are likely to contribute to it. Registration of a medical scheme also depends on it not unfairly discriminating directly or indirectly against any person on the grounds of race, gender, marital status, ethnic or social origin, sexual orientation, pregnancy, disability and health status. Registration must be in the interests of the public.

Notification of the registration of a medical scheme will be published in the Government Gazette, which will furnish the name and address of the scheme, the date of registration, and any terms and conditions imposed. Once registered, the medical scheme becomes a body corporate. Registrations can be canceled or suspended if the Registrar and the Council deem it necessary to do so. 

The Rules must state the terms and conditions for admission to a scheme, including the cost of premiums. Premium costs are to be determined only on the grounds of income or number of dependants of the member, or on both income and number of dependants. Dependants of a member of a scheme are entitled to participate in the same benefit option as the member. Members and dependants are only permitted to join one medical scheme, and can only claim or accept benefits from the medical scheme they belong to.

The minimum benefits available to members and their dependants must be included in a scheme’s rules. Members must be informed about rules for continued cover for themselves and their dependants after a member’s employment is terminated. Medical schemes must set out the grounds under which they can cancel or suspend a member’s membership.

A medical scheme must include rules pertaining to personal savings accounts. These are deposits made by individual members, held by a medical scheme and used by members to pay for medical scheme expenses without risk pooling. Personal savings accounts ultimately belong to the member. The amount allowed to accumulate in a member’s account has been capped at 25% of his/her annual contribution. Members who change medical schemes can transfer their savings to the new scheme. If a member terminates membership and does not join another scheme, the accumulated savings are payable to the member, subject to paying a tax on it.

Every medical scheme must appoint or elect a board of trustees. At least 50 percent of the members of the board are to be elected from amongst members.

• The new medical schemes legislation seeks to widen access to private health care services. This goal raises some important issues. For instance, medical scheme cover will continue to be mainly available to employed persons who can afford the cost of premiums. There are many people, however, who will fall outside this insured group, such as low-income workers and the aged who rely on pensions for income. How will the legislation accommodate vulnerable groups who do not belong to medical schemes, but who nevertheless spend large amounts of money on private health care?

Another issue is related to the quality of private health care. There are indications that private health care is not always of the best quality. A recent study suggests that private sector treatment of STDs (sexually transmitted diseases) by private sector GPs is of a very poor technical quality. In terms of the Patients’ Rights Charter "Everyone has the right to choose a particular health care for services or a particular health facility for treatment". In order to make informed choices, however, users need to be informed about the full range of options.

What mechanisms will the Department of Health put in place to ensure that users are able to make informed choices? Will greater State intervention and stronger partnerships between the public and private sectors be needed to address these problems? Is government going to set-up a mechanism to monitor the quality of private health care services? Is there a mechanism in place to ensure that standards for quality are the same for both the private and public health sectors? How will public campaigns for health rights, such as the "Health Rights are Human Rights Campaign" and the Patients’ Rights Charter, filter through to the private health care sector? How will all these issues impact on the Act’s goal of greater access?

• It is admirable that the definition of dependants in the Act goes beyond a limited concept of what constitutes a "family". Our concern is that employers are not obliged by law to subsidise their employees’ dependants. If employers refuse to pay contributions towards the care of older dependants, medical schemes are likely to become unaffordable for low-income employees in particular. To what extent does the Act make provision for due consultation between employees and employers? If there is a dispute, will employee forums or unions be able to represent and appeal for their members in this respect? The Act may not be able to accommodate these issues. It may mean that the Department of Health will need to set up a process to investigate how best to deal with these potential problems.

• The Act stipulates that minimum benefits be fully funded at all times in public hospitals. However, a hospital may not be able to comply with this provision due to lack of resources. Medical scheme members may also be refused treatment in a public hospital due to a widely held perception that they can afford private health care. This could lead to complex legal and constitutional issues.

At the same time, there is a great need to inform health providers about the Act. Health providers have indicated anxiety about possible negative impact of the Act, especially in regards to human resource capacity. Providers are also worried about possible conflict between "the haves" and the "have-nots". If these situations arise, how will they impact on an already overloaded staff ? How will providers’ anxiety be dealt with?

• It is important that the Department of Health clarify the difference between medical schemes and health insurance. This is especially important because health insurance and its products are not registered under the Act. What initiatives are being implemented towards doing this?

• Medical schemes are bound by the Act to inform members about the terms and conditions that govern membership. However, it is unclear how the general public will get this vital information. How will the especially vulnerable, such as the aged and disabled, find out about their rights in terms of medical scheme cover?

• The Act provides for participation in governance and decision-making by members of medical schemes. For example, 50 percent of boards of trustees must be comprised of members. What mechanisms are in place to inform the members of their rights in this respect? How will it be possible to ensure that the Boards are sufficiently representative, and not dominated by members who are "experts"? This may require intersectoral collaboration and long-term training plans, such as encouraging black students to study subjects such as actuarial science.

Footnotes:

1. Opportunistic behaviour is when people only join a medical scheme when they get frail or sick, which has adverse financial effects on medical schemes. The protections against opportunistic behaviour or adverse selection are: Waiting periods; open enrollment periods; and premium penalties for people who join schemes late in life.

2. A "dependant" is defined in the Act as: The spouse or partner, dependent children or other members of the member’s immediate family in respect of whom the member is liable for family care and support; or any other person who, under the rules of a medical scheme, is recognised as a dependant of such a member and is eligible for benefits under the rules of the medical scheme.
3. Risk pooling refers to cross-subsidisation of the less healthy by the more healthy

4. Schneider, H. et al (1999) "STD Care in the Private Sector", South African Health Review

For further information on the Medical Schemes Act, 131 of 1998 please contact Phyllis Orner at: 021 448 8702; Fax: 021 447 0624; Email: phyllis@philaw.co.za

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