sahr2001 - Health Systems Trust

grounds. This was driven by the need to make quick profits. While this state
of affairs had been considerably altered by the 1998 legislation, the new
Amendment Bill was intended to further strengthen the original policy goals.
Overall, the Bill aimed to:
◆ Significantly improve the independence of trustees, and address
governance principles
◆ Create a clear and logical framework surrounding penalties for adverse
selection such as waiting periods
◆ Improve the oversight of and use of re-insurance agreements
◆ Strengthen and improve complaint procedures
◆ Eliminate the conditional selling of various financial products with
medical scheme membership and improve the enabling legislation
dealing with brokers.
An important goal of the current legislation is the maintenance of the ‘notfor-profit’
status of medical schemes. It had become clear, both before the
original Act was passed in 1998 and subsequent to it, that re-insurance has
been used to circumvent the not-for-profit provisions of medical schemes.
Such agreements had been used to pass reserves of a medical scheme to a
third party, such that members lost ownership of these reserves.
In terms of the new Amendment Act, the Registrar of Medical Schemes should
review and anticipate problems with these agreements before they are entered
into.
The application of waiting periods is limited in cases where transfers are not
linked to opportunistic behaviour. However it is broadened where adverse
selection is very likely (such as when someone joins the scheme for the first
time).
An important area of regulation, relates to provisions dealing with medical
scheme brokers. Substantial member movement linked to commission
payments (called ‘churning’) instead of member choice has become a feature
of the medical scheme environment. This type of behaviour has added a new
layer of unnecessary cost and inefficiency to the medical scheme market.
There is a need therefore to develop an entirely new framework for regulating
medical scheme brokers, which limits the commissions that can be paid by
third parties, such as medical scheme administrators, and ensure that those
who receive a service from a broker pay for it. Many of the problems relating
to inappropriate re-insurance and poor management arise from conflicts of
interest between the trustees of schemes, the principal officer, and parties
with whom the scheme enters into contracts. As a consequence, the Act was
amended to explicitly exclude all persons who may be subject to such a
conflict. Overall, this should improve scheme governance, and contribute to
the improved management of schemes. The amendments to the Act also make
provision for penalties to be applied in cases where the payments of claims
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