June 2009

Discrimination basedon age and/or health

status is unfair

CMSnews

Pers

pect

ive

Contents

Decades later, the concept of risk selection is as contentious as ever. In practice,treating people differently because of their health status remains a perennial

tendency in all health insurance systems – and South Africa is no exception.Despite being discouraged by law, the practice of favouring the young and healthy

over the old and sick remains prevalent in our private health insurance sector. Whereour Constitution and the Medical Schemes Act already protect us against unfair discrim-ination, they are unfortunately sometimes ignored. So it seems that the only othersolution – which is already on the parliamentary table – is to introduce structuralchanges to the regulatory framework governing medical schemes.

But things are rarely that simple. There are at least two sides to this epic story. Atthe Council for Medical Schemes we place the interests of beneficiaries first, but weare also cognizant of the importance of ensuring the long-term well-being of medicalschemes. After the heated debates have subsided, the ultimate goal needs to be theelimination of all avoidable unfairness, with competition in the industry aimed atmaximising affordable and comprehensive lifetime coverage for all South Africans.

Sooner or later, age catches up with us all. And if medical schemes are not supported,access to quality care may just become more instead of less elusive.

Risk selection as a policy issue 1

Risk selection: a short history 2

The risk profiles of medical scheme options 3

Unfair discrimination is all too real 4

The next time you speak to your broker … 5

Waiting periods: preventing anti-selection by members 6

Open enrolment does not necessarily mean open arms 7

PMBs, benefit design and risk selection 8

Keeping the industry in shape:meet our Compliance Unit 10

Insurance products and medical schemes 12

(Also see the information directory and reading matter on the inside back cover)

PublisherCouncil for Medical Schemes

Editorial CommitteeAlex van den Heever

Aleksandra SerwaPhumla Khanyile

EditorAleksandra Serwa

ContributorsBoshoff Steenekamp

Craig Burton-DurhamDanie Kolver

Marli WeldhagenNolukholo Phoshoko

Patrick MatshidzePhumla Khanyile

Thulani Matsebula

AddressBlock E

Hadefields Office Park1267 Pretorius Street

HatfieldPretoria

Copyright: CMS News is publishedquarterly by the Council for Medical

Schemes (CMS). All material iscopyrighted and cannot be used

without the written permission of thepublisher. All material is correct at the

time of going to print.

Editorial Committee

CMS News June 2009 1

The medical schemes industry was deregulatedin 1989-99. Schemes were allowed to price

their benefit options by taking into account amember’s health status and age. Almost all theopen schemes embarked on the practice of riskselection which entailed the selection of predictablyprofitable members through direct or indirectmeans. This process was generally intended toencourage low-risk members to enlist in schemeswhilst discouraging high-risk members fromentering the private health insurance environment.

Since 2000, risk selection has been discour-aged with the introduction of the Medical SchemesAct, which has brought about interventions suchas open enrolment, community rating, guaranteedbenefits, and social solidarity. Allschemes are now legally obligedto admit members withoutengaging in any form of discrimi-nation. Also, contributions payableby members must be set only onthe basis of income, number ofdependants, or both.

As a result of the MedicalSchemes Act, schemes can nolonger legally risk-select membersbased on their health statusand/or age. Yet despite theseprovisions, schemes continue todiscriminate against membersthrough practices such as exclu-sions, restrictive limits, discriminatory benefitdesigns, risk-shifting, inaccessible designated serviceproviders, protocols, and formularies.

In many instances, such practices have resultedin the denial of access to healthcare to memberswho needed it most. They have also resulted inmembers buying up to the more expensive benefitoptions which they could ill-afford. This behaviourtrend has often led to risk-pooling on the basis ofdemographics and health status, resulting in above-average year-on-year contribution increases formembers of those schemes. The overall effect isthe denial of efficient income- and health-cross-subsidisation between groups.

Over time, interventions have been affectedwhich ranged from the enforcement of existinglegislation by the Council for Medical Schemes tothe review of the registration process of schemesand the approval of scheme rules. However,despite these, members continue to experienceresidual risk selection.

In light of this, a process was begun to addressthe ongoing residual risk selection practices byschemes. It was acknowledged that the interven-tions brought about through open enrolment andsocial solidarity had not been as effective as wasinitially hoped. They were ineffective largely dueto the absence of a risk equalisation mechanism;research shows that in countries with privatehealth market structures similar to ours, whencommunity rating and social solidarity were intro-duced, they were followed by the introduction ofa risk equalisation fund.

Risk equalisation assists in the redistribution offinancial resources among schemes to reflect moreaccurately the expected risk costs of members.

Another proposed legisla-tive intervention to addressunfair risk selection by schemesis the transformation of benefitdesigns to incorporate a basicpackage of benefits and theintroduction of a revisedpackage of prescribed minimumbenefits.

But the promulgation oflegislation on risk equalisationand other related provisions hasunfortunately been delayed. Theundesirable consequence of thisdelay has been the exacerbationof a skewed market structure

with some schemes continuing to benefit in theirrisk profiles while others experience worseningdemographic profiles.

In the absence of the necessary legislation, SouthAfrica continues to face the stark reality: whenschemes do not compete fairly, they are often facedwith two possible options – either amalgamationor liquidation. We have recently witnessed severalschemes amalgamating or being liquidated due totheir worsening risk profiles. This can be attributedto a large degree to the delay in the introductionof legislation that could have helped schemescontinue to trade fairly. In other instances, the poormanagement by the Board and/or administrator hasalso contributed to the collapse of schemes.

But all is not lost. The Council for MedicalSchemes will continue to engage with relevantstakeholders with a view to ensuring appropriateprotection of members through strengthening thecurrent health policy structure or supporting anyproposed health policy reforms. ■

Risk selection as a policy issueDespite the introduction of the Medical Schemes Act in 2000 which aims to eliminate unfair discrimination based on age and health status, schemescontinue to risk-select.

By PatrickMatshidzeACTING REGISTRAR

OF MEDICAL

SCHEMES AND

HEAD: RESEARCH

& MONITORING

Medical schemescontinue todiscriminate againsttheir members.“

”

Risk selection:a short historyUntil recently medical schemes in South Africa were allowed to pick andchoose who they would admit as members and who would be turned away:they welcomed you on board if you were young and healthy but rejected you if you were not. The Medical Schemes Act has rectified the situation to a largeextent but members remain vulnerable to schemes who try to cherry-pick the healthiest South Africans.

It is obvious why the ability to select“good risks” while eliminating high

claimers from cover would appeal tomedical schemes: they would be ableto keep contribution levels low forthe young and healthy, thus attractingthem to enrol in even greaternumbers.

Some stakeholders use this argu-ment to consistently advance formore deregulation of the industry: tomake risk selection legal again.

But are calls to permit risk selec-tion realistic?

The argument that risk selectionleads to affordable contributions forlow-risk members disregards the

(negative) impact ofrisk selection onthose most likely toneed and thereforeseek cover forhealthcare: the olderand sicker would be faced withhigher contributions and wouldultimately be forced out of themedical schemes environment.

This is exactly whathappened in South Africabetween 1989 and 1999 whenthe industry underwent significantchanges allowing risk selection tooccur. Overall membershipremained stagnant. Restrictedschemes were losing members

to open schemes. And instead of implementingefficiency improvement measures, schemes weresimply “dumping” high-risk members onto the

public health sector.The negative conse-

quences of riskselection during the1990s gave a hugethrust to initiatives torevise the MedicalSchemes Act. It wasamended in 1998 toreintroduce risk-

pooling. Since then schemes areallowed to take into account only twofactors when setting their contributionlevels: the number of dependants, andincome.

But schemes found a way topersist with the discriminatory prac-tice.

In 2006, the Council for MedicalSchemes (CMS) aler ted severalschemes to the fact that the mannerin which they had structured theirmedical savings accounts was in factresulting in the risk-rating of contribu-tions for out-of-hospital expensesbased on the age and health status oftheir members. The possibility to varycontributions to medical savingsaccounts was subsequently removed.

Later that same year, the CMSmade further, perhaps radical,proposals to implement a basicpackage of healthcare services that

would be uniform across all medical schemeoptions in preparation for the implementation ofrisk equalisation across all schemes to ensure thatno scheme was prejudiced by the healthcareprofile of its members in terms of financialperformance. The amended Act requires that allschemes provide full cover for this defined list ofconditions, referred to collectively as prescribedminimum benefits (PMBs).

The proposed changes to benefit design arecontained in the latest Medical Schemes Amend-ment Bill. It promotes income cross-subsidisationbetween medical schemes. The revised benefitstructure hopes to remove the existing scenariowhere schemes are still able to risk-rate PMBs bystructuring some options to contain morecomprehensive benefits while others provide onlythe PMB package.

Significant strides have been made towardseliminating risk selection in the medical schemesenvironment, but without the benefit design re-structuring as envisaged in the Medical SchemesAmendment Bill, several avenues are still open forschemes to circumvent the Act by implementingrisk selection in more subtle ways. ■

“Measures toeliminate riskselection haveunfortunatelynot resultedin a completeeradication ofthe practice.

”

By ThulaniMatsebulaSENIOR POLICY

ANALYST

2 CMS News June 2009

What is risk selection?

Schemes view potential membersas “risks”. You are a “good risk” ifyou are young and healthy becauseyou will claim less and thereforecost the scheme less. The older andsicker you are, the more you willneed to claim – which makes you a“bad” or high risk. But schemes arenot allowed to choose theirmembers based on their age and/orhealth status; the principle of openenrolment protects potentialmembers against unfair discrimina-tion.

What is risk-pooling?

All members of a particular medical schemebelong to the same “risk pool”. They allcontribute to this risk pool and their claimsare covered from this risk pool. No distinc-tions are made between members on thedifferent options of the scheme.

CMS News June 2009 3

By Dr BoshoffSteenekampREF PROJECT

SPECIALIST

The Council for Medical Schemes (CMS)receives two kinds of quarterly submissions

from medical schemes: data for the Risk EqualisationFund (REF) project as well as statutory returnsprescribed by the Medical Schemes Act.

Having analysed both for a number of yearsnow, we have developed the graph below.We findit quite interesting.

The graph shows that there are marked differ-ences between the risk profiles of benefit optionsin registered medical schemes. Each benefit optionseems to attract members similar in age and healthstatus.

Look again at the graph. It visually demon-strates the relationship between the average ageof beneficiaries on a particular option and thecontributions charged to these beneficiaries tobelong to this option.

Benefit options face risk. This risk can bepresented in many ways but in this graph it ispresented as the estimated cost of the prescribedminimum benefits (PMBs) in the various optionsas well as the risk claim costs*. The numbers repre-sent the expected cost per member for PMBs,and the expected average cost for risk benefits.

On one extreme, the graph shows that wherecontributions are between R200 and R299 pbpm:• PMB costs are estimated at R212 pbpm (per

beneficiary per month);• the average age of beneficiaries in these low-

cost options is 27 years; and• risk claim costs are R301 pbpm.

The graph also shows that average age, contribu-tion levels, PMB costs, and risk claims increaseprogressively. The older you are, the more you payfor medical aid based on the option you are indi-rectly forced to choose, the more you end up payingfor PMBs, and the more likely you are to claim.

At the point where contributions exceedR2 500 pbpm, the average age is 64 years andPMBs cost almost R700 pbpm.

If older people pay more for PMBs thanyounger people do, this means that the currentbenefit design does not support inter-generationalcross-subsidisation from young and healthymembers to older and sicker members; de factorisk-rating is taking place.Yet a key objective of theAct is to prevent risk-rating.

Other research done at the CMS supportsthe view that option design allows for an unequaldistribution of risk, whereby lower risks (presentedby lower average age and low PMB costs) are risk-pooled separately from higher risk groups.

The uneven distribution of risk betweenoptions is the motivation behind the suggested

amendments to the Act, whereby a stricterversion of community rating will be imple-mented. (Community rating says that allmembers on a particular option should bepaying equal contributions.) The MedicalSchemes Amendment Bill proposes revisionsto the benefit structure as well as the imple-mentation of the Risk Equalisation Fund (REF).

The suggested revised benefit design willrequire all beneficiaries to be risk-pooledtogether in each individual scheme in respectof PMBs, and all beneficiaries will then pay acommunity-rated contribution (i.e. the samecontribution for access to PMBs). Thisarrangement will remove the current differ-ences associated with age, and will ensureinter-age cross-subsidies within schemes.

REF will introduce a system of financialtransfers between schemes, whereby allmedical schemes will face the same risk inrespect of PMBs, regardless of the risk profileof that particular scheme. ■

The risk profiles of medical scheme optionsThe current arrangement whereby community rating is required only at optionlevel and not at scheme level results in de facto risk-rating within schemes.Consequently, older people pay much more for medical aid than youngerpeople do.

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3 000Rand Average age (years)

Contribution bands (Rand)

Average age Average risk contribution PMB cost Risk claims

The currentbenefit design isinappropriate;it does notsupport inter-generationalcross-subsidisationfrom youngand healthymembers to older and sickermembers of the samescheme.

“

”* The risk claim costsrepresent the amount ofmoney that a scheme paysfor medical benefits that arepaid from the risk pool. Thisamount excludes benefitspaid from medical savingsaccounts and other expensesof the scheme.** The data is based onDecember 2007 REF andstatutory returns.

The distribution of risk through option design**

4 CMS News June 2009

The illegal practice of risk selection in themedical schemes environment manifests itself

in many different ways. It infiltrates scheme rulesand benefit design, marketing material, and theapplication of benefits by the scheme and/or itscontracted agents. The deliberate misinterpreta-tion of benefits can alsoconstitute a form of risk selec-tion where it is targeted at sickpeople who need access tohealthcare services.

The scenarios describedbelow are examples of howschemes continue to risk-selectagainst actual and prospectivemembers.

Deductibles,co-payments,and sub-limits

For some time we have beennoticing an increase in thenumber of scheme options thathave either introduced orincreased co-payments, deduct-ibles and/or or sub-limits onvarious medical interventions.When a scheme makes thesepenalties unaffordable, its bene-ficiaries either purchase a morecomprehensive (and hencemore expensive) option orremain on the current optionand face the penalties.

But co-payments anddeductibles do not apply toprescribed minimum benefit(PMB) conditions and theirrelated services.

Benefit limitations and exclusionsScheme A submitted its annual rule and benefitamendments to the Council for Medical Schemes(CMS) for registration.While reviewing its benefitschedules, we discovered that the maternity bene-fits section stated there were “no benefits forcaesarean section”. This vague exclusion was notregistered; it was removed from the benefit sched-

ules. “Delivery” falls under PMB 52N: pregnancy.The public sector protocol/practice is theminimum standard for PMB entitlements if thereis a significant difference between the public andprivate sector practice – and the public sectorprotocol does include caesarean sections where

they are clinically indicated.Some indications are known inadvance; consequently, aplanned caesarean section isthen clinically appropriate andis part of the PMB entitlement.

But if a patient asks for acaesarean section for social andnot clinical reasons, this isnot accommodated in theprotocol/practice in the publicsector and the scheme isallowed to impose a co-payment in such instances; thisshould be clearly stated in itsrules.

Chronic medicationfor PMB conditionsThe public sector protocol/practice does include chronicmedication as part of the treat-ment and care of a few PMBconditions listed in theDiagnosis and Treatment Pair(DTP) table in the MedicalSchemes Act. Some schemes,however, list these conditionsonly in their high-cost optionsand tell members that theyqualify for chronic medicationbenefits only if they upgrade toone of these expensive options.

Mr X underwent a hearttransplant. His scheme paid for

the procedure. He now needs anti-rejectionmedication on a chronic basis. He also requiresconsultations, investigations and specific servicesat regular intervals to monitor his condition post-operatively. Mr X is on the second most expensiveoption of his scheme. He applied for chronicmedication but the scheme declined his request,arguing that his current scheme option does not

Continued on page 9

Unfair discriminationis all too realRisk selection is sometimes just a euphemism for a form of unfairdiscrimination. And despite it being outlawed by our Constitution and the Medical Schemes Act, it continues to plague the private health sector.

By MarliWeldhagenFORMERLY A

CLINICAL ANALYST

AT THE COUNCIL

FOR MEDICAL

SCHEMES

Incorrect, false ordeceptive marketingmaterial which doesnot accurately reflectthe registered rulesof a scheme allowsthe scheme to risk-select againstprospective membersas well as currentmembers who needto make decisionsabout their annualbenefit optionsubscriptions.

“

”

The next time you speakto your broker …Healthcare brokers carry a huge responsibility on their shoulders: they have the power to either promote or mitigate risk selection in the medical schemesenvironment. It is a complex issue.

Medical schemes contract brokers to sellhealthcare cover to their clients. There are

two kinds of healthcare brokers in South Africa:the independent brokers and the tied agents.Independent brokers usually have contracts withmore than one scheme and give their clients achoice of cover amongst the schemes they arecontracted to. But tied agents are contracted tomarket one scheme only and as such, must disclosethis fact to their prospective clients.

Both kinds of brokers must be accredited. Theyare also required to have contracts with schemesand both must be licensed by the Financial ServicesBoard to provide services in a lawfully correctmanner.

Healthcare brokers and risk selectionSome brokers promote risk selection. Whenadvising their clients, many seem to put the inter-ests of schemes and administrators above theconcerns of their clients by favouring the admis-sion of the young and healthy over the sicker andolder and so adding fuel to thefire of unfair discrimination basedon age and health status insteadof trying to put out the blaze.

Brokers are there to adviseboth prospective and currentmembers of schemes on theextent of the cover available tothem. They need to add value totheir clients by making themaware of the best possible coverat the most affordable rates. Theselection of health cover offeredmust balance with the extent towhich the employer is willing tosubsidise the contributions oftheir employees and the effect ofout-of-pocket payments made byemployees for such cover.Employer subsidies of contribu-tions constitute a substantialportion of staff expenditure andhave an impact on the bottomline for employers. Conflict mayarise where the broker is paid by the scheme foradvising the member whilst pandering to thewishes of the employer.

The potential income of healthcare brokers

depends on the prescribed fees that schemes arelawfully permitted to pay them. Their income canalso be driven by the contributions for a richerbenefit option where contributions are moreexpensive than for lower-cost benefit options. Thismay have an impact on risk selection if the client’sreal need for cover is more aligned to reducedbenefits. The higher the contribution, the higherthe commission paid to the broker, though stillsubject to a legal maximum.

Consider the costs that brokers incur to advisetheir clients or to move them from one schemeto another. Brokers are required to educate theirclients about new benefits and changes in benefitdesign, and they should conduct regular and properanalyses of their clients’ needs and changes in finan-cial circumstances; a client may need to buy up ordown from occasionally. The decision to move theclient to another scheme may be influenced by thecost the broker will have to incur for doing so. Anenormous amount of work is involved in movingclients between schemes. Leaving them where theyare is often cheaper for the broker – although notalways in the best interest of the clients.

Many brokers fail to properlyassess the well-being of the schemeto which their clients belong.Whereschemes do not meet the requiredsolvency levels or fail to producefinancially sound results, brokersought to advise their clients accord-ingly and seek alternative schemesto ensure that their clients do notsuffer financial loss should theirscheme be unable to turn the tide.The risk of waiting periods for theclient should be weighed against therisk of loss of cover should thecurrent scheme have to liquidate.

Please also note that incentivesbeyond the commission prescribedby law are forbidden (except for aprofessional fee negotiation anddirect payment from the client tothe broker).Yet certain brokers arelikely to receive additional remu-neration disguised in many differentforms. Such additional incentives

make it difficult for brokers to advise their clientswith a clean conscience on issues that may havea direct bearing on the brokers’ income and conse-quently, material well-being. ■

Many healthcarebrokers seem toput the interestsof medicalschemes andadministratorsabove theconcerns of their clients.

“

”

By Danie KolverHEAD:ACCREDITATION

CMS News June 2009 5

6 CMS News June 2009

Waiting periods: preventinganti-selection by membersThe advent of the Medical Schemes Act (Act 131 of 1998) at the start of thenew millennium heralded a significant shift in the way that medical schemeswere entitled to conduct their business.

Prior to the introduction of the “new” MedicalSchemes Act in 2000, schemes had been able

to legitimately influence the risk profile of theirmembership bases via mechanisms such as risk-rating (the determination of the contributionwhich a member was required to pay on the basisof his or her age and/or health status).

But the introduction into the medical schemesenvironment of opene n r o l m e n t a n dcommunity rating (seesidebars for defini-tions) by the “new”Act resulted in thesepractices being out-lawed.

Medical schemeswere now obliged todeal with new appli-cants and membersof medical schemeson a basis free fromdiscr iminat ion ongrounds such as ageand health status.

While these legislative interventions haveresulted in improved right of access to medicalschemes on a non-discriminatory basis, there wasnevertheless a need to address the risk of abusiveand opportunistic be-haviour on the part ofcertain members.

Such behaviourtypically manifests it-self by way of certainmembers engaging inwhat is commonlyc a l l e d “ s c h e m e -hopping”, which is thepractice whereby anerrant member ex-h a u s t s h i s o r h e rbenefit entitlementson whichever schemethey belong to beforeseeking out a newscheme on which to perpetrate the same prac-tice. In the absence of any check on suchbehaviour, the open enrolment provisions of theAct would of course result in medical schemesbeing selected against in a prejudicial manner –hence the term “anti-selection”.

Parliament has sought to address the practiceof anti-selection by way of introducing a systemwhereby prospective members of medicalschemes can be subjected to the imposition ofdiscretionary waiting periods by any medicalscheme which they are seeking to join.

These waiting periods fall into two categories,namely a three-month general waiting period and

what is termed a 12-m o n t h cond i t i o n -specific waiting period*.

The imposition ofwaiting periods resultsin any member ad-mitted to a medicalscheme being excludedf rom access ing a l lbenef i t s for threemonths (with the ex-ception of the pre-s c r i b e d m i n i m u mbenefits) and/or fromaccessing benefits relat-ing to any spec i f i ccondition from which

they were suffering for the 12 months prior toapplying for their membership.

This sanction in effect aims to discouragethose persons prone to the pernicious practice

of oppor tunist ical lyexhausting the benefitsof medical schemes.

The leg i s l a turedoes, however, recog-n i s e t h a t n o t a l lchanges in medica lscheme membershipare motivated by op-portunistic self-interestand accordingly pre-vents any wa i t ingperiod from being im-posed in circumstanceswhere a change inm e d i c a l s c h e m emembership is occa-

sioned by factors beyond a member’s control,such as in the instance of a change of employ-ment where such a member was obliged to joinanother medical scheme as a condition of employ-ment. ■

Risk-rating v community rating

The problem: risk-rating = when a medicalscheme determines the contribution which amember is required to pay on the basis of his/herage and/or health status (outlawed in SouthAfrica)

The solution to risk-rating: communityrating = a principle enshrined in the MedicalSchemes Act to prevent risk-rating by medicalschemes by prescribing that members on thesame benefit option must pay the same contri-bution, regardless of their age and/or healthstatus

Risk selection v open enrolment

The problem: risk selection = when a medicalscheme favours the young and healthy and unfairlydiscriminates against the older and sicker(outlawed in South Africa)

The solution to risk selection: open enrol-ment = a principle enshrined in the MedicalSchemes Act to prevent risk selection by medicalschemes by prescribing that anyone and everyonewho wishes to join a medical scheme must beallowed to do so and be admitted to the openscheme of his/her choice (subject only to waitingperiods)

By Craig Burton-DurhamHEAD: LEGAL

SERVICES

There was a need to addressthe risk of abusiveand oppor-tunisticbehaviour on the partof certainmedicalschememembers.

“

”* Waiting periods areclearly defined in the

Medical Schemes Act. Thisensures that members of

medical schemes areprotected against risk

selection in the form of thearbitrary application of

waiting periods whenjoining medical schemes.

By NolukholoPhoshokoSENIOR ANALYST:BENEFITS

MANAGEMENT

The introduction of the Medical Schemes Actbrought about several new legislative provi-

sions, one of which was open enrolment.Open enrolment allows all eligible members

to join a medical scheme of their choice withoutfacing any form of unfair discrimination. This ismore relevant in the open schemes environmentas opposed to the closed or employer-basedschemes environment.

Previously, most medical schemes practisedrisk-rating where the health status of the prospec-tive member was a strongdeterminant of his or her contri-bution level. This practice servedas a major barrier to entry tomedical schemes for manypotential members.

It was also common practicefor medical schemes to accept amember but then to excludecertain important conditions(such as diabetes), which ulti-mately amounted to exclusionfrom cover.

Since the system at the timediscriminated primarily againstthe sick and the elderly, therewas a need to create a fair andjust system – one that would,amongst other things, prohibitthe exclusion of applicants frommedical schemes on the basis oftheir age or health status andalso allow anyone and everyoneto join the open scheme envi-ronment, provided they were able to pay theaverage contribution.

Over time, the Council for Medical Schemes(CMS) has been monitoring the implementationof the legislation to ensure that it meets thebroader policy objectives of government.

Monitoring is done actively and passively. Activemonitoring entails stakeholder surveys and theassessment of whether or not marketing mate-rials and application forms comply with legislation.Passive monitoring is conducted largely throughthe review of complaints that are submitted tothe CMS. The motoring system enables the CMSto develop a deeper understanding of the industryand to identify areas for possible regulatory inter-vention to ensure adequate protection of theinterests of members.

According to Thembi Phaswane, Manager ofour Complaints Adjudication Unit, the CMS hasnot received many complaints from prospectivemembers who were being refused membershipby medical schemes in the last couple of years.She believes this is because the CMS has beenvery effective in ensuring that schemes complywith the Medical Schemes Act in this regard.

A challenge that prospective memberscontinue to face in many open schemes is that ofthe incorrect application of waiting periods which

tends to exclude members fromcover. Section 29A of theMedical Schemes Act givesmedical schemes the discretionto impose waiting periods toprevent anti-selection bymembers. This legislative provi-sion applies primarily toindividuals but excludesemployer groups. The challengefor employer groups has beenthe arbitrary definition or quan-tification of a group by somemedical schemes.

Closed or restrictedschemes, on the other hand, tendto waive the application ofwaiting periods altogether astheir focus is completely differentto that of open schemes. Theemphasis for most restrictedschemes is on access to goodquality healthcare for theiremployees. This has generally

translated into healthcare benefits that are in manyinstances richer than those of many open schemes.

Medical schemes also use other means toundermine the principle of open enrolment. Onesuch strategy are rule amendments which includeprovisions allowing the medical scheme to refuseentry to prospective members whose member-ship with their previous scheme had beenterminated because they had failed to pay theircontributions within the time frame allowedin the rules of the scheme. Another strategyused to undermine open enrolment is denyingaccess to the medical scheme on the grounds ofnon-disclosure of material information.

Such practices constitute unfairness tomembers and impact on their access to health-care. ■

Open enrolment does notnecessarily mean open armsThe principle of open enrolment is enshrined in the Medical Schemes Act,yet prospective members are prevented from joining open schemes anyway.

CMS News June 2009 7

Medical schemescontinue to underminethe principle ofopen enrolment.This is unfair to prospectivemembers.

“

”

PMBs, benefit designand risk selectionPrescribed minimum benefits appear self-explanatory: they are minimumbenefits that are prescribed by law – and thus guaranteed. Medical schemes do not have a way out … or do they?

Medical schemes have a legal obligation toprovide cover for prescribed minimum

benefit (PMB) conditions in all their options.The explanatory notes to Annexure A in the

Medical Schemes Act provide more clarity on thisprovision when they refer to the protocols orpractice in the public health sector as the minimumstandard of care in resolvingdisputes where the privateand public sector practicesdiffer.

Explanatory note 2Aalso clearly states that thesetting is not restricted: anyPMB can be provided on anoutpatient basis or in asetting other than a hospital(where this is clinically most appropriate).

A number of medical schemes have beenextremely creative in crafting their benefit design;

it gives the impressionthat their low-costoptions do not coverPMBs. This is especiallyevident in instanceswhere the marketingmaterial of a schemedoes notadequatelyreflect theregisteredrules of thescheme.

Havingr e v i ewedboth hardcopy andelectronicmarket ingmaterial, weh a v eobse r ved

that some low-cost options go as faras indicating that all non-hospitaltreatment and care, and evenchronic conditions, are either notcovered at all or covered from themember’s medical savings account,without making any reference toPMBs. This is false and misleading –and illegal.

Some services and limitations

described in benefit schedules can apply to bothPMB and non-PMB conditions; these are the so-called “overlapping” benefits. Examples includeoncology, dialysis, organ transplants, mental health,an internal and/or external prosthesis, appliances,and specialised radiology.

But because many schemes neither commu-nicate with nor educate theirmembers, it seems that mostmembers who qualify forPMBs do not realise that theannual limit (e.g. R50 000 forrenal dialysis) can only beapplied to non-PMB condi-tions and that the scheme isnot allowed to limit thebenefit if the treatment is in

line with public sector protocols or practice andobtained from a designated service provider(DSP).

Several options apply deductibles and/or co-payments to specific procedures or admissions.These penalties cannot be applied to PMB condi-tions and their related services. Despite this, thespecific procedures or admissions are often linkedto groups of people identified by the scheme as“high risks”, e.g. joint replacements that are mostly

u t i l i s e d b y o l d e rmember s . The co-payment for a h ipreplacement can go upto R25 000. A memberwho fears a hip frac-ture and who cannotafford the co-paymentor deductible might beerroneously advised toupgrade to an optionwhich does not havethese severe penalties– and the member willupgrade unnecessarilyif s/he does not knowthat a hip fracture is aPMB condition.

The same principleapplies to options withself-payment gaps formembers who mightneed regular and/orcostly access to healthservices.

8 CMS News June 2009

These benefits areprescribed by law– and thus guaranteed.Medical schemes havea legal obligation to provide cover forPMB conditions.

“”

By MarliWeldhagenFORMERLY A

CLINICAL ANALYST

AT THE COUNCIL

FOR MEDICAL

SCHEMES

Prescribed minimumbenefits

Prescribed minimum benefits(PMBs) are described in Section29(1)(o) and Regulation 7 of theMedical Schemes Act 131 of1998.

All medical schemes must payin full for the PMB conditions ofall their members, regardless ofthe benefit option to which theybelong.

In terms of PMBs, schemesmust cover all costs to diagnose,treat, and care for:1 the ±270 Diagnosis and

Treatment Pairs (DTPs);2 the 25 chronic conditions on

the Chronic Diseases List(CDL); and

3 any emergency medical condi-tion.

Your savings account

Regulation 10(6) of the MedicalSchemes Act 131 of 1998 is clear:the funds in a member’s medicalsavings account shall not be used topay for costs of a prescribedminimum benefit (PMB).

Schemes are also generally very vague whenindicating which chronic conditions qualify forPMBs, especially on low-cost options.

Numerous schemeslist only the 25 condi-tions on the ChronicDiseases List (CDL)when they must in factalso mention the ± 270chronic conditions thatfall under the Diagnosisand Treatment Pair(DTP) section of PMBs.

Yet the first ruling ofthe Appeal Board of theCouncil for Medical S chemes rega rd ingchron ic medicat ion benefits for a DTP condi-tion was made back in 2001 (for Gaucher’sDisease).

This ruling stipulated that where chronicmedication forms part of the treatment and care

cater for chronic medication after organ transplan-tation – and that he would obtain access to themedication if he upgraded his scheme option. MrX was also informed that all costs of his medicalmanagement post-operatively would be coveredfrom his medical savings account.

Scheme B got it wrong. It acted outside ofclear legislative provisions and its registered rulesand benefits.

Misleading marketing materialThe registered rules and benefits of Scheme Cadequately provide for cover for HIV infection, asper PMB code 168S. Its marketing material,however, incorrectly indicates that as far as out-of-hospital benefits are concerned, beneficiarieswho suffer from HIV infection either have no bene-fits or their benefits are dependent on fundsavailable in their medical savings account. A poten-tial new member who is HIV-positive would reviewthis marketing material and probably decide notto join the scheme due to the perceived inade-quate coverage for out-of-hospital services. Thisis risk selection against prospective members.

Continued from page 4

Benefit limitations

The registered benefits of Scheme D reflect thatit has a R30 000 hospitalisation benefit for mentalillness/psychiatry and a separate out-of-hospitalmental illness/psychiatry benefit of R5 000, bothsubject to PMBs.

Mrs Y suffers from bipolar mood disorder. Thedisorder falls under PMB code 902T. She sufferedfrom a prolapse which required hospital-basedmedical management for 21 days in April.

Scheme D paid her hospital account ofR27 200 from her mental illness/psychiatric hospitalbenefit. After being discharged from hospital, MrsY went for outpatient psychotherapy sessions at atreating psychiatrist at three weekly intervals. Herpsychiatrist informed her that her scheme hadrefused to pay for his out-of-hospital claims on thebasis that she had already exceeded her PMB forthe year.

Scheme D had risk-selected against themember by reducing her benefits to the PMB enti-tlement only. The scheme acted incorrectly sinceMrs Y still had a separate benefit of R5 000 forout-of-hospital mental illness/psychiatry. ■

(medical management) of a DTP condition, as perthe public sector protocols or practice, it alsoforms part of the PMB entitlement for it.

M a n y m e d i c a lschemes continue to listonly some DTP condi-tions in their high-costoptions when theyshould be listing all; manytell their members thatthey qualify for chronicmedication benefits onlyif they upgrade to a high-cost option.

Examples of suchchronic DTP conditions that often go unmen-tioned include post- transplant medication,hormone replacement therapy, specific metabolicand endocrine conditions, anti-coagulant therapy,post-cardiac surgery, quadriplegia, and valvularheart disease. ■

CMS News June 2009 9

Your benefit option

Subject to the provisions of Regulation 8(1)of the Medical Schemes Act 131 of 1998,any and every benefit option that is offeredby a medical scheme must pay in full,without co-payment or the use ofdeductibles, for the diagnosis, treatment andcare costs of prescribed minimum benefit(PMB) conditions.

10 CMS News June 2009

Keeping the industry in shapeThe mandate of our Compliance Unit is central to effective regulation.This team of dedicated professionals makes sure that medical schemes,administrators and healthcare brokers think long and hard about the MedicalSchemes Act and its Regulations before making any decisions.

Conceptually and practically, compliance coversmany grounds. Stephen and his team deal

with the often tricky issues of non-health expen-diture, corporate governance, demarcationbetween schemes and traditional insurers, andgeneral non-compliance. They enforce the rulingsmade by the Office of the Registrar. They alsoeducate consumers and train trustees.

Stephen Mmatli(Head of Compliance)

Armed with many years of experience in manyareas of the law and a cultivated knowledge ofthe medical schemes industry, Stephen is theadmitted Attorney at the helm of the Unit.

“I have been a Senior LegalAdvisor at the Council for years.I have also actively participatedin numerous policy develop-ments in the industry. Theseexperiences have moulded andprepared me for the role ofstrategically taking the Unit toyet another level of propercoordination between enforce-ment and compliance,” Stephentold CMS News.

Stephen is known for hiscommitment, but he draws aline between work and leisure.His closer colleagues describehim as “that guy who does not

shy away from trading his tie for an apron andbraai-ing and dancing up a storm whenever theoccasion calls for it”.

Jaco Lubbe (Senior Investigator)

Jaco is a husband and a father of two who enjoysgolfing, a challenging game of tennis and biking ifhe is not travelling to interesting places with hisfamily.

Jaco has been with the Council for almost fouryears. He used to be with the Scorpions SpecialInvestigations Unit and the SAPS Office for SeriousEconomic Offences.

By PhumlaKhanyileCOMMUNICATIONS

OFFICER

Despite the gruelling demands of his job, Jacooozes positivity and optimism. His sense of humournever leaves him. He prides himself on being dedi-cated to playing the role of a protector andguardian to society. It gives him a sense of accom-plishment and satisfaction.

Loyiso Mdlalose(Compliance Officer)

L o y i s o i s a s e l f -confessed book wormwho finds pleasure instudying old newspa-pers and fixing oldcomputers. Before hejoined the ComplianceUnit in February thisyear, he was a computertechnician, a salesperson, and a forensicinvest igator. Loyisovalues the company offriends and enjoysplaying chess.

Milly Viljoen(Manager: Education and Training)

“I am literally as old as the Council,” says Milly. Shejoined the Council shortly after its establishmentin 2000 as an Education Officer.

Her job has taken her to places across thecountry. “I have spent countless days and nights

away from my pride and joy, my soon-to-turn-three son, but I draw inspiration and drive fromthe knowledge that I make a difference in people’slives and empower beneficiaries by telling themabout their rights and obligations.”

Milly is a well-travelled lady; she has visitednumerous countries in Africa and Europe. She alsolikes hiking, going to the theatre, and reading inspi-rational books.

Gugu Ngutshana (Education and Training Officer)

Gugu loves to read, travel, play scrabble and shop,but when it is time to step up to the podium andpreach member rights, she does it with passion.

Gugu, who got married recently, has been withthe Council for almost two years. She has workedas a call centre agent and at a healthcarebrokerage. She may not have ended up fulfillingher childhood dream – that of nursing people backto health – but “I have discovered a love forempowering people with knowledge”.

She reckons a lot more still needs to be donein this regard.

Luicia Leander(Education and Training Coordinator)

Give Luicia a happy andcontent world and youwould have given her thegreatest gift of all.

This joyful soul joinedus last year.

“I enjoy promotingthe Council for MedicalSchemes through educa-t i o n a n d t r a i n i n gactivities.”

Luicia also has a lovefor animals, which sheshares with her husband.They spend most of theirleisure time exploring na-ture and reading fiction.

StellaMatolweni(PersonalAssistant)

Stella is the chatterboxwho is Personal Assis-t a n t t o b o t h o u rCompliance and LegalServices Units.

S h e j o i n e d t h eCouncil four years ago asa receptionist beforebeing promoted to aCall Centre Agent.

“I love spendingtime with my adorablef o u r - y e a r - o l dd a u g h t e r, Mpho.” ■

CMS News June 2009 11

12 CMS News June 2009

Insurance products and medical schemesMedical schemes are under threat. Yet all that is needed to ensure their existenceis a clear distinction between traditional insurance and medical schemes.

In the absence of clear demarcation betweenhealth insurance products and medical schemes,

young and healthy members of schemes aretempted to discontinue their membership, leavingthe older and sicker people behind. This mightthreaten the sustainability of the industry. NationalTreasury has established a working group to makerecommendations on how regulations made interms of the insurance laws must prevent this fromhappening (see the article on the history of riskselection on page 2).

The Insurance Laws Amendment Act of 2008states that the Minister of Finance can make regu-lations that will identify insurance policies thatwould be regulated by the insurance laws and notby the Medical Schemes Act. Insurance policiesidentified as such would therefore be exemptedfrom the provisions of the Medical Schemes Act.

The Insurance Laws Amendment Act furtherspecifies that regulations must be made in consul-tation with the Minister of Health, Treasury, andthe Registrars of Medical Schemes and Insurance,and that they must have regard for the objectivesand purpose of the Medical Schemes Act, specif-ically the principles of community rating, openenrolment, and cross-subsidisation.

These regulations must also specify how ofteninformation must be submitted to the Registrars ofMedical Schemes and Insurance, and may regulatethe design and marketing of insurance products.

Earlier this year, Treasury established a workinggroup that includes representatives of the insur-ance industry, the Financial Services Board, and theCouncil for Medical Schemes (CMS).

In a draft document submitted to the workinggroup, the CMS presented the underlying reasonswhy some insurance products might underminethe purposes of the Medical Schemes Act, andproposed criteria that could be used to identify aspecific insurance product as being harmful to themedical schemes industry.

Health insurance products would be harmfulto the medical schemes environment if theycaused medical scheme contributions to risesystematically for poor risks (older and/or sickermembers) covered by schemes by prompting thegood risks (the younger and/or healthier) eitherto leave schemes while they are good risks or tobuy down from comprehensive cover options.

Similarly, insurance products are harmful if theyencourage good risks to remain on insuranceproducts and only join medical schemes when

By Dr BoshoffSteenekampREF PROJECT

SPECIALIST

they need better health cover.Products that undermine the life-cycle protec-

tion offered by the medical scheme system or thatcause schemes to reduce their benefit offeringsas a direct consequence of health insuranceproduct offerings, are also harmful.

Naturally, an insurance product is unaccept-able if it has been specifically designed tocircumvent the Medical Schemes Act.

Insurance products should not mislead thepublic into believing that they offer the sameprotection as a medical scheme, when theirprotection is in fact partial and conditional.

Members of the public may also not be misledinto thinking that a scheme does not already coverwhat is offered as insurance. If misled, consumersend up paying more for the same level of cover.An insurance product is not the same as medicalaid.

Insurance products should not aim to attractpeople who are healthy at the time of applicationand unable to assess the lifetime implications ofopting out of medical scheme cover for them-selves and their families.

Information gathered on medical schememembers must not be shared with insurancecompanies. Neither may it be used to underwriteaccess to top-up health insurance (or any insur-ance) through close linkages between medicalschemes and insurers.

Care must be taken to ensure that the envi-ronment that results from the existence ofinsurance products does not lead to any group orindividual being systematically excluded from coverwho would otherwise have had comprehensivelifetime cover in a medical scheme.

Mechanisms must be put in place to preventthe incentivisation of brokers to mislead the publicconcerning the relative risks of opting for insur-ance versus medical scheme cover and/or tomislead the public into purchasing insurance prod-ucts needlessly. In addition, interventions mustprevent brokers from assisting in the circumven-tion of the Medical Schemes Act by providing acoordination mechanism for insurance productsdeliberately tailored to fill structured gaps in covercreated by a scheme in collusion with an insurer.

Because insurance products are not subject tothe managed care provisions in the MedicalSchemes Act, buying healthcare services maybecome inefficient. This could result in system-wide cost increases. ■

The 2008changes to theInsuranceActs includeprovisionsfor theMinister of Finance to makeregulationsto ensurethatinsuranceproducts do notunderminethe object-ives of theMedicalSchemesAct.

“

”

Reception

t: +27 (0)12 431 0500 f: +27 (0)12 430 7644

Call CentreShareCall: 0861 123 CMS (267)

Resource Centret: +27 (0)12 431 0500 f: +27 (0)12 430 7644e: information@medicalschemes.com

Use our website to:• view lists of registered schemes as

well as accredited brokers, managedcare organisations and schemeadministrators in South Africa;

• download information (forms, theMedical Schemes Act 131 of 1998 and Regulations);

• read the latest news, developmentsand upcoming workshops; and

• lodge a complaint online.

Complaintst: +27 (0)12 431 0500 / 0861 123 CMS (267)f: +27 (0)12 431 0560 / +27 (0)12 430 7644e: complaints@medicalschemes.com

Complaints procedure• First, complain to your scheme. Phone the scheme or write to the Principal Officer.

Give full details of your complaint and include any supporting documents.• If you are not satisfied with the outcome of your complaint to the scheme, complain

to the Registrar of Medical Schemes (in writing).• If you are aggrieved by the decision of the Registrar of Medical Schemes or by the

decision of the scheme’s disputes committee or by any other decision relating tothe settlement of your complaint, appeal to the Council.

• If you are aggrieved by the decision of the Council, appeal to the Appeal Board.

How to avoid complaints• Make sure you know and understand the rules of your scheme.• Read all correspondence from your scheme.• Study your benefits guide.• Familiarise yourself with the terms and conditions of the benefit option that you

have chosen.• Make sure your contributions are paid in full and on time every month.

Reading matterBetween 1 March and 31 May 2009, wepublished on our website:

• Our Regulatory Plan and Budget for the financial year 2009-10• One invite to tender (for the development of our Corporate Identity manual and newwebsite)• March 2009 edition of CMS News, our paper-

based quarterly external newsletter• 2 issues of CMScript, our e-newsletterdedicated to prescribed minimum benefits(PMBs)• 3rd draft of the PMB review consultationdocument• Comments from external stakeholders on this

consultation document (74)• 11 documents relating to the Risk EqualisationFund (REF) project and the Risk EqualisationTechnical Advisory Panel (RETAP)• 2 press releases• 9 Circulars

• 5 guidelines and manuals

Visit www.medicalschemes.comfor so much more.

Information directory

Council for Medical Schemes

Private Bag X34Hatfield0028

Block EHadefields Office Park1267 Pretorius StreetHatfieldPretoria

t: +27 (0)12 431 0512f: +27 (0)12 431 0602