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

The Regulations in Terms of the Medical Schemes Act, 131 of 1998 was published for public comment in May 1999. The period of comment ended in August 1999. The re-drafted and finalised Regulations were published in the Government Gazette on 20 October 1999. The Regulations came into effect on 1 November 1999, except for chapters 3, 4, 8 and Annexures A and B which came into effect on 1 January 2000.

The Regulations largely deal with administrative issues, rules and regulations, and matters relating to information to be provided to members of medical schemes. Contribution and benefit structures of medical schemes are specified in the Regulations.

Over 60% of health care resources in South Africa are consumed by the private health sector to serve between 20 to 25 percent of all South Africans. The majority of health care providers work in the private sector, thus draining the public sector of its human resources. In 1998, 62% of GPs, 77% of specialists, 88% of pharmacists, and 89% of dentists worked in the private sector. Nearly half of all nurses (43%) were working in the private sector in 1998. In 1997, there were approximately 166 000 hospital beds in South Africa. Close to 30% of these beds was in the private sector.

There are major inequities in health resource allocation between provinces. For instance, Gauteng province spends R952 per person on health a year, the Western Cape spends R712, Mpumalanga R310, the Northern Province R322 and the North West R333. However, the inequities within provinces are far greater. For instance, the Eastern Cape’s health budget allocated at least four times as much money per person for health services for the Grahamstown district than it did for the Mount Frere district. In North West, a similar pattern was found in the allocation for spending on health between Potchefstroom and Odi districts.

The majority of South Africans do not belong to medical schemes. De-regulation policies over the past decade allowed medical schemes to bar many people from joining or remaining in schemes. This was particularly so for persons considered high risk by medical schemes. Thus, government inherited a situation which was characterised by:

To address these issues, the Department of Health introduced the key principle of community rating of premiums in the new medical schemes legislation. This means that medical schemes have to accept all individuals irrespective of their state of health. It also means that premium rates have to be determined on the same basis for everyone (flat community rating). The intended impact of community rating is to protect cost-effective and necessary health care, and to expand access to persons effectively excluded from cover due to factors such as age and health status. The provision for a minimum benefits package is an attempt to deal with adequate hospital cover for members of medical schemes and to curb "dumping" of scheme members onto the public sector.

A medical scheme’s rules can provide that contributions for child dependants be less than contributions for adult dependants.

A key component of the Regulations is the list of prescribed minimum benefits conditions and treatment procedures (Annexure A). Under the new law, all medical schemes must offer members a minimum benefits package. These benefits must be covered without limitation if the health provider is a public hospital. The intention behind this policy is to ensure appropriate essential care for employed persons, without the state having to bear the costs (that is, to prevent unfunded use of public hospitals). Public hospitals are thus able to recover the costs for treatment of serious illness without unduly burdening health service users. 

The Department of Health will review the list of prescribed minimum benefits every two years, in consultation with key stakeholders. Thereafter, the Department will revise the Regulations based on issues such as: cost-effectiveness; health policy developments; and the viability of medical schemes and affordability to members. Longer-term objectives of the Regulations are to encourage innovation in low-cost care provision; to create a platform for the future development of social health insurance (SHI); and to encourage managed health care which is directed towards quality and equity.

Annexure A lists the minimum benefits that medical schemes must offer and fully fund in at least one provider or provider network, which must include the public hospital system. Treatment cover in public sector hospitals must be at the same level of quality and intensity as that provided to state funded patients. Members have the option to expand their cover, provided that the minimum benefits stay in place. Medical schemes can specify that provision of the prescribed minimum benefits be restricted to a specific provider network, provided that the Registrar approves such a rule. Some examples of conditions and treatments are:

 Personal medical 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.

The Regulations allow for a general six-month "amnesty" period for late joiners. From 1 January 2000 to 30 June 2000, no premium penalties will be imposed on late joiners. Medical schemes must accept these applicants on a first come, first served basis.

A waiting period of up to three months can be imposed for new members and their dependants. The provision of a waiting period can be dropped if a new member instead pays an amount of money specified by the medical scheme. New members will not be subject to the waiting period if: (1) At the date of application they had previously belonged to a scheme for a continuous period of two years or more; and (2) they apply for membership within a period of three months after leaving a scheme.

A child borne during the period of membership will have immediate cover.

A scheme may impose a waiting period of 12 months on new applicants and their dependants. However, no waiting period can be applied to treatments or diagnostic procedures covered by the prescribed minimum benefits. The 12 months waiting period only occurs if at the time of application the applicant or any dependant has a specific condition, and if treatment or diagnosis for the condition was sought or given during the 12 months prior to application.

Premium penalties for "late joiners" and their dependants may be imposed upon application to a medical scheme. The starting age for penalties is 35 years old. The penalty is based on the number of years after age 30 an applicant was without medical scheme cover.

3.3 Provision of managed health care (Chapter 5)

A medical scheme may provide benefits to members through a managed health care arrangement. This arrangement must be put in writing, and must be with a person accredited by the Council for Medical Schemes. The arrangement must not absolve the scheme from its responsibilities towards its members in respect of service provision and payments to providers. To protect a member’s confidentiality, only a medical scheme will be allowed access to her or his medical records or any other information held by the provider.

The Council must accredit administrators of medical schemes, and accreditation is valid for only two years. Both the administrator and the medical scheme prior to work starting must sign a written agreement. The agreement must set out the terms and conditions for administration.

On termination of an administrator’s agreement with a medical scheme the administrator must, within a period of 60 days, provide a written report to the Registrar. The report must confirm that all documents pertaining to the business of the medical scheme have been delivered to the scheme’s trustees, or to the new administrator. The date, address, and name of the person to whom the report has been delivered must also be provided in the report.

The administrator must appoint an auditor who will examine the accounting records and annual financial statements of the administrator. The auditor must reconcile the annual financial statements and be satisfied that the accounting records comply with the Act and Regulations.

To act as a broker for a medical scheme, a broker or an apprentice broker must receive both accreditation and a certificate from the Council. The broker will sign a written agreement with the scheme, and compensation for the broker’s services must be included in the scheme’s financial statements. Brokers are obliged to inform prospective members that they are acting for a particular medical scheme, and to provide proof of this if asked to do so. They must disclose the cost of premiums.

Accreditation and certification of brokers is subject to at least a Grade 12 education, and a minimum of two years experience as a broker or apprentice broker in the health care business.

Accumulated funds refer to the nett asset value of the medical scheme, excluding funds set aside for specific purposes or reserves. Provision is made for a transitional arrangement for the first four years after the Regulations come into effect. Thereafter, a medical scheme must always maintain accumulated funds of not less than 25% of gross contributions.

The kinds and categories of assets that a medical scheme must have, based on principles of aggregate (total) fair value, are specified in Annexure B. Assets may not exceed the percentage specified in Annexure B.

• A key concern is the likely adverse impact that the Regulations will have on low-cost schemes that provide cover mainly for the primary health care needs of low-income workers. For instance, low-income schemes are vulnerable to collapse unless members are charged subsidised rates for public hospital benefits. The extra monthly cost of the prescribed minimum benefits cover is also likely to prove too costly for the workers. How will the Department of Health (DOH) develop an appropriate model to address the low cost schemes? Will such a model include subsidised hospital charges?

• Some common conditions and procedures are left out of the prescribed minimum benefits, and some are for short-term cover only. For example, TB, depression, alcohol and substance abuse, and HIV/AIDS. Does the DOH have a plan to deal with the possible implications of these oversights?

• The minimum benefits do not include anti-retroviral treatment for HIV-associated disease. This is a major concern if it indicates the policy direction that the Department of Health has taken in regards to anti-retroviral treatment for people who are HIV+. The Medical Schemes Act prohibits any unfair discrimination based on a person’s health status. In this light, will the DOH reassess its exclusion of anti-retroviral treatment on the list of conditions and treatment?

• The provisions pertaining to the "amnesty period" for late joiners came into effect on 1 January 2000 and will be in place until 30 June 2000. Has the DOH devised a workable strategy to get this information to people who most stand to benefit by it? The amnesty period may need to be lengthened if, for instance, schemes are overwhelmed by new applications. If this happens, who will foot the bill for informing the public of this change? Will the costs be shared between government and the medical schemes industry?

• We are concerned about the gap in the Regulations in regards to the responsibilities of employers to cover employees. For example, 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. 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? These issues may not be within the ambit of the Act. However, they do point to questions in regards to intersectoral collaboration on policy development. For instance, collaboration between the departments of Health and Labour.

In addition, is it appropriate for workers to have to pay for the care of their elderly relatives – even if there is some subsidy from employers? Should this not be a broader social responsibility, paid for from general taxation, which is more progressive than contribution-based schemes?

• It has been suggested that overall the Regulations aim to influence private health sector behaviour, and to enable public/private sector partnerships from which the public sector can benefit. What mechanisms have the DOH put in place to achieve these goals?

Footnotes:

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