Health Care Benefits

Class 9
Learning Outcomes
Apply knowledge of health economics to make an
informed decision:
• Understand the purpose and principals of the
Medical Schemes Act in the context of the medical
schemes industry and environment;
• Be able to explain the roles and duties of the key
stakeholders, their importance in terms of medical
schemes and how they are governed by the
Medical Schemes Act;
• Understand the matters for which the rules of a
medical must provide. The rules govern the affairs
of the medical scheme and in turn the rights and
responsibilities of members of the scheme;
Learning Outcomes
Apply knowledge of health economics to make
an informed decision:
• Understand the tools and mechanisms available
to medical schemes to manage risk;
• Investigating the various medical scheme benefit
option structures available;
• Investigating theories of product development
used by medical schemes.
 Introduction
The Medical Scheme Environment in South
Africa
Introduction
• A medical scheme is a statutory entity in which
members of the scheme pool their contributions to
provide health care benefits to members and their
dependants.
• The applicable legislation is the Medical Schemes
Act, Act 131 of 1998, as amended.
• The Minister of Health is responsible for the
Medical Schemes Act and it’s supporting
Regulations.
Introduction
• A key player in the medical schemes industry is the
Board of Health Care Funders of Southern Africa
(BHF), which represents the vast majority of
medical schemes throughout Southern Africa.
Introduction
• In terms of the Medical Schemes Act, there are two types of
medical schemes:
• Open/ Commercial schemes with unrestricted
membership, e.g. Discovery; and
• Closed or restricted membership schemes, e.g. only bank
employees may be members of Bankmed.
• A medical scheme has rules regulating the operation of the
scheme and specifies key aspects such as who may be a
member, who qualifies as a dependant, the levels of
members' contributions and which benefits are payable and
to what extent.
 Unit 1
Understand the purpose and principals of the
Medical Schemes Act in the context of the
medical schemes industry and environment
Unit 1
• Understand the reasons for the introduction of the
Medical Schemes Act, 131 of 1998;
• Understand the difference between the business of a
medical scheme and the business of health
insurance;
• Illustrate the requirements to register a medical
scheme;
• Understand the types of medical schemes available;
• Understand the principal of Social Solidarity that
supports the Medical Schemes Act;
• Describe the structure and payment of the
Prescribed Minimum Benefits.
Medical Schemes Act, 131 of 1998
The purpose of the Medical Schemes Act 131 of 1998
was to address the shortcomings of old Act which
allowed for medical schemes to vary benefit levels and
contributions on the basis of the age and health status
of members. The effects of the deregulation were the
following:
• Benefits for the elderly were diminished;
• Benefit structures attracted the young and healthy
members; and
• High-risk individuals and groups were discouraged
from membership by applying loadings to the
contributions based on the risk profile.
Medical Schemes Act, 131 of 1998
The “new” Medical Schemes Act 131 of 1998, referred to as
the “the Act”, came into effect on 1 January 2000, and
introduced significant changes aimed at reclaiming
regulatory authority of medical schemes.
The changes included the following:
• Created the Council for Medical Schemes, a statutory
body responsible for regulating medical schemes and
ensuring compliance with the provisions of the Act;
• Introduced the concept of the business of a medical
scheme and that of a relevant health service;
• Introduced minimum benefits which are compulsory
benefits for all medical scheme benefit options;
• Prohibits the discrimination of membership on the basis
of age, medical history and health status;
Medical Schemes Act, 131 of 1998
• Forbids medical schemes from excluding applicants or
their dependants for membership, except on certain
prescribed conditions;
• Provides for contributions to be determined only on the
basis of income and/ or number of dependants;
• Improved governance and supervision of medical
schemes;
• Improved financial management of medical schemes;
• Enables medical scheme to contract with public hospitals
for the provision of minimum benefits;
• Regulates and accredits contractors to medical schemes
which include administrators, managed care
organisations and brokers.
Medical scheme versus health insurance
• A key feature of the business of a medical
scheme is that it indemnifies members against
medical expense incurred in respect of a relevant
health service;
• The Act governs medical scheme business while
the Long-and Short-term Insurance Acts govern
health insurance business;
• Health insurance is based on the occurrence of a
health event and the amount of payable must be
determined at the occurrence of the event and
must not relate to the actual cost of treatment;
Medical scheme versus health insurance
• Medical scheme business involves the
undertaking of a liability to assist in defraying
actual expenditure incurred in connection with a
relevant health service;
• Health insurers must pay benefits directly to the
policy holder;
• Membership of a medical scheme should not be
a condition for selling health insurance;
• The sales and marketing of health insurance
which make it clear that the product is not a
substitute for medical scheme membership.
Requirements to register a medical scheme
The following requirements need to be met and
information supplied:
• An application to register a medical scheme must be
submitted in writing to the Registrar for Medical
Schemes and signed by the person wanting to register
the scheme;
• The application needs to be accompanied by all
documents and information as required;
• The name of the medical scheme. (A name may not be
changed without prior written consent from the
Registrar);
• The rules of the proposed medical scheme that will come
into effect at the date of commencement of operations
of the proposed medical scheme;
Requirements to register a medical scheme
The following requirements need to be met and
information supplied:
• Guarantees and guarantee deposits as required
by the Registrar;
• Full details of the Principal Officer and Trustees
of the proposed scheme;
• Details of the person who will administrator the
proposed scheme as well as a copy of the
administration agreement;
• A detailed business plan; and
• The application must be accompanied by the
prescribed registration fees.
Requirements to register a medical scheme
The Registrar can also reject an application for
registration on grounds of the following:
• members of the board of trustees and the principal officer of the
proposed medical scheme are not fit and proper persons to hold the
office;
• the medical scheme is not expected to be financially sound;
• the medical scheme has insufficient number of members who are
likely to contribute to the medical scheme;
• the medical scheme unfairly discriminates directly or indirectly
against a person on one or more arbitrary grounds; and
• the registration of the medical scheme is contrary to the public
interest.
Requirements to register a medical scheme
The effect of registration of a medical scheme means that it:
• Becomes a body corporate capable of suing or of being sued;
• Assumes liability for and guarantees the benefits offered to its
members and their dependants in terms of the rules of that
medical scheme;
• Opens a bank account to receive contributions and other
income;
• Needs to have a registered office in the Republic of South
Africa; and
• May not carry out any other business except for the business
of a medical scheme.
Types of medical schemes
The Medical Schemes Act 131 of 1998 as amended
“the Act” provides for two types of medical schemes to
be registered:
• Open membership schemes; and
• Restricted membership schemes.
Principle of Social Solidarity that supports the
Medical Schemes Act
The Medical Schemes Act 131 of 1998 as amended
“the Act”, is based on the principle of social solidarity
which broadly defined refers to the sharing of
advantages and burdens equally and justly among a
community. The key principals of the Act supporting
the concept of Social Solidarity are:
• Open enrolment;
• Community rating;
• Prescribed Minimum Benefits.
Open enrolment
• The principle of Open Enrolment means that medical
schemes have to accept all individuals irrespective of
their state of health or age.
Community rating
• Community Rating means that contribution rates
have to be determined on the same basis for
everyone, according to income and/ or family size.
This principle applies to each benefit option in a
medical scheme, although the Act permits members
of different benefit options within a medical scheme
to pay different contributions.
Payment of the Prescribed Minimum Benefits (PMB)
• As defined in Regulation 7, the PMBs relate to the
costs associated with the diagnosis, treatment, and
care of:
• any emergency medical condition;
• a limited set of 270 medical conditions (called the
Diagnosis and Treatment Pairs or DTPs, listed in the
Act); and
• the 25 (27 - diabetes 1&2+HIV) Chronic Diseases List
(called the Chronic Disease List or CDL list)
conditions.
Implications of PMBs for Medical Schemes
The implications of the PMBs for medical schemes are
that:
• medical schemes must provide for the full package of minimum
benefits in every benefit option;
• no payment for PMB conditions may be paid from the
member’s personal medical savings account (PMSA);
• medical schemes have to pay the full cost of the PMBs from the
insured risk benefits of the scheme;
• medical scheme may apply certain risk management
techniques to mitigate the risk of providing these
comprehensive benefits to members, including:
o the appointment of designated service providers;
o requiring pre-authorisation for patients with PMB
conditions;
o the use of treatment algorithms or protocols;
o the use of medicine formularies.
 Unit 2
Be able to explain the roles and duties of the
key stakeholders, their importance in terms of
medical schemes and how they are governed
by the Medical Schemes Act
Key Stakeholders: Their duties, responsibilities and
governing legislation
• Be able to list the key stakeholders;
• Demonstrate an understanding of the role and
duties each stakeholder performs in the context of
medical schemes;
• Show an understanding of the Minister of Health’s
and Council of Medical Schemes’ (CMS) strategy/
objectives;
• In terms of the Medical Schemes Act, be able to
explain how Trustees and the Principle Officers are
appointed;
Key Stakeholders: Their duties, responsibilities and
governing legislation
• Understand the responsibilities that vest with
Trustees and the Principle Officer and the impact on
the scheme if either or both parties don’t act in
accordance with their mandate, with specific
reference to governance;
• Be able to describe how legislation governs the
relationship between intermediaries and medical
schemes, and the regulation around commission
payable to intermediaries;
Key Stakeholders: Their duties, responsibilities and
governing legislation
• Be able to describe the Code of Conduct that applies to
intermediaries who market medical scheme products and
the accreditation process applicable to intermediaries
who provide advice to members/ employers, with
reference to FAIS and Medical Schemes Act;
• Be able to explain the steps that need to be followed
when providing a client (both employer and individual)
with advice on choosing the most suitable medical
scheme and benefit option;
• Demonstrate knowledge of alternative dispute resolution
channels available to members of a medical scheme;
Key Stakeholders: Their duties, responsibilities and
governing legislation
• Explain the regulations that apply to administrators with
reference to the Act;
• Outline the requirements for Managed Care
Organisations to be accredited, as stipulated in the
Medical Schemes Act;
• Explain the rules regarding the conditions for providing
managed health care.
• Understand the rights afforded to medical scheme
members, through the Medical Schemes Act and their
responsibilities;
• Explain the regulations that apply to schemes and intern
administrators in terms of the Medical Schemes Act;
Key Stakeholders: Their duties, responsibilities and
governing legislation
• Be able to explain where Bargaining Councils fit in
relation to Medical Schemes;
• Be able to assist a member with lodging a
complaint/ dispute correctly;
• Be able to explain and apply the steps that need to
be followed when providing a client with advice on
choosing the most suitable medical scheme and
benefit option.
 10 Point Plan
The 10 Point Plan, as listed in the foreword by the Minister of Health to the Department of Health’s 2012
Strategy document:
i. Provision of Strategic leadership and creation of a social compact for better health outcomes;
ii. Implementation of National Health Insurance (NHI);
iii. Improving the quality of Health Services;
iv. Overhauling the health care system and improve its management;
v. Improving Human Resource Management, Planning and Development;
vi. Revitalisation of infrastructure;
vii. Accelerated implementation of HIV & AIDS and Sexually Transmitted Infections National Strategic Plan
2007-11 and increase focus on TB and other communicable diseases;
viii. Mass mobilisation for better health for the population;
ix. Review of the Drug Policy; and
x. Strengthening Research and Development.

Taken from the Foreword by the Minister of Health to the 2012 DoH Strategic document
(www.doh.gov.za/list.php?type=Strategic)
Regulator – Council of Medical Schemes (CMS)
• The Council for Medical Schemes is a statutory body established by
the Medical Schemes Act (131 of 1998), to provide regulatory
supervision of private health financing through medical schemes;
• It does so by administering and enforcing the Medical Schemes Act
131 of 1998;
• Its purpose is to protect member’s interests and to control and
coordinate the functioning of medical schemes in a way that is in
line with national health policy;
• As an organ of the state it regulates and monitors medical
schemes, administrators, managed health care organisations and
healthcare brokers;
• In summary though, the CMS has the power to approve the
registration, suspension, and cancellation of registration, of any
medical scheme or its benefit options.
Trustees and Principal Officer
• Governance is vital to the way in which trustees run
a scheme. Governance is a framework of rules, laws
and practices by which a Board of Trustees ensures
accountability, fairness, and transparency in a
scheme’s relationship with all its stakeholders. Hence
Section 57(2) provides that at least 50% of the
members of the board of trustees shall be elected
from amongst members.
Health Care Brokers
To be accredited as a health care broker, a person
must:
• be accredited by the Council for Medical Schemes
(CMS);
• have the recognised educational qualifications and
experience (Regulation 28B);
• meet the Fit and Proper requirements as stipulated
in Section 7(1) of the FAIS Act;
• obtain a licence from the Financial Services Board
(FSB).
FAIS and the Medical Schemes Act
To be able to be accredited as a broker with the Council for
Medical Schemes, Section 28B(4) of the Regulations to the Act
provides for the following:
“(4) In the case of a natural person, an application for
accreditation as a broker or an apprentice broker must also be
accompanied by information to satisfy the Council that the
applicant complies with—
(a) any requirements for fit and proper brokers which may be
determined by the Council, by notice in the Gazette; and
(b) any relevant requirements for fit and proper financial
services providers or categories of providers which may be
determined by the Registrar of Financial Service Providers in
terms of section 8 (1) of the Financial Advisory and
Intermediary Services Act, 2002.”
FAIS and the Medical Schemes Act
The determination of fit and proper requirements for
brokers deals with the following aspects:
• Honesty and integrity;
• Competence;
• Operational ability;
• Financial soundness;
• Determination of qualifications for financial services
providers:
• Qualifications and the Criteria for Regulatory Exams;
• Competence: Specifically qualifications and regulatory
examinations;
• Continuous Professional Development (CPD).
FAIS and the Medical Schemes Act
The FAIS Act, in the General Code of Conduct,
stipulates that a Financial Services Provider (FSP) must
at all-time render financial service, based on the
following Fit and Proper criteria:
• Honestly;
• Fairly;
• with due skill, care and diligence;
• in the interests of clients;
• with the integrity of the financial services industry.
Evaluating Medical Schemes
Stage 1: The evaluation of the scheme should include, but not
limited to:
• Membership size and demographics of the scheme (age profile,
pensioner and dependant ratio, growth of membership and the
reasons for growth etc.);
• Benefit option flexibility/ range, benefit offering and contributions;
• Financial viability (Solvency, operating results, claims ratio, etc.);
• History of annual and interim contribution increases;
• Credit rating:
• Scheme governance;
• Scheme administration (service standards – claims payment,
contribution management and call centre services.
• From the above compile a list medical schemes that you would
recommend, as being financially viable and sustainable.
Evaluating Medical Schemes
Stage 2: Establish your client’s needs
• This is an important exercise which requires the
potential member’s co-operation to ascertain the
family’s medical history or lifestyle. As per FAIS
requirements a member needs analysis needs to be
done with the member. This is to establish both the
individuals past claims experience and members
future needs (i.e. starting a family).
Evaluating Medical Schemes
Stage 3: Analysing the information and matching needs to
benefits offered
At this stage, you need to analyse the potential medical scheme’s
rules and compare these to the potential member’s needs. For
each option offered, examine the following:
a) The medical benefits offered.
(i) Annual limits and sub-limits;
(ii) The rate at which the benefits will be covered;
(iii) Co-payments or levies;
(iv) Restrictions on access;
(v) Prescribed minimum benefits;
(vi) Reimbursement rates;
(vii) Treatment protocols & drug formularies;
(viii) Loyalty and wellness programmes.
b) Check the costs and review the choices.
Evaluating Medical Schemes
Stage 4: Recommendations
• Must make business sense and ensure that
healthcare and affordability requirements are met.

Stage 5: Implementation

Stage 6: Monitor and review

• Healthcare needs (and the medical scheme
environment) are ever changing, and as such goals
and objective should be reviewed annually.
Administrator Company
In order to be accredited by the CMS, in terms of the
Medical Schemes Act, the administration company
must:
• be fit and proper;
• maintain a financially sound position;
• be based in South Africa;
• provide services that are clearly distinct from others
contracted by the scheme;
• have the requisite resources, systems, skills and
capacity.
Managed Care Organisation (MCO)
MCO that contract with medical schemes are obliged to be
registered with the CMS. The requirements of managed care
organisations have to meet are listed in Chapter 5 of the
Regulations of the Medical Schemes Act. These can be
summarised as follows:
• The CMS has the right to scrutinise technology and
business models to ensure standards to protect the
interests of beneficiaries;
• They must be financially stable;
• They must make provision for appropriate exceptions and
alternative drugs where a protocol or drug proves
ineffective or causes an adverse reaction in a beneficiary;
Managed Care Organisation (MCO)
• They must apply clinical expertise (evidence-based
medicine and proven clinical practice) and demonstrate
that they add value to their client scheme(s), rather than
show mere cost savings without improving the health
outcomes of beneficiaries;
• They are obliged to be fully transparent with respect to
their protocols, their medicine formularies, formulary
inclusions and exclusions (drugs available to the
beneficiary), any limitations on the rights of beneficiaries
to treatment, restrictions on care that the beneficiary can
obtain, and the services that the company provides,
including formalities that must be complied with.
Patients’ Rights
• For many decades the vast majority of the South African population has
experienced either a denial or violation of fundamental human rights,
including rights to health care services. To ensure the realisation of the
right of access to health care services as guaranteed in the Constitution
of the Republic of South Africa (Act No 108 of 1996), the Department of
Health is committed to upholding, promoting and protecting this right
and therefore proclaims this PATIENTS' RIGHTS CHARTER as a common
standard for achieving the realisation of this right.
• This Charter is subject to the provisions of any law operating within the
Republic of South Africa and to the financial means of the country.
A healthy and safe environment
Everyone has the right to a healthy and safe environment
that will ensure their physical and mental health or well-
being, including adequate water supply, sanitation and
waste disposal as well as protection from all forms of
environmental danger, such as pollution, ecological
degradation or infection.
Patients’ Rights
Participation in decision-making
• Every citizen has the right to participate in the
development of health policies and everyone has the
right to participate in decision-making on matters
affecting one’s health.
Patients’ Rights
Access to healthcare
Everyone has the right of access to health care services that include:
i. receiving timely emergency care at any health care facility that is open
regardless of one's ability to pay;
ii. treatment and rehabilitation that must be made known to the patient
to enable the patient to understand such treatment or rehabilitation
and the consequences thereof;
iii. provision for special needs in the case of new-born infants,
children, pregnant women, the aged, disabled persons,
patients in pain, person living with HIV or AIDS patients;
iv. counselling without discrimination, coercion or violence
on matters such as reproductive health, cancer or HIV/
AIDS;
Patients’ Rights
Access to healthcare
Everyone has the right of access to health care services that include:
v. a positive disposition displayed by health care providers that
demonstrate courtesy, human dignity, patience, empathy and
tolerance; and
vi. health information that includes the availability of health
services and how best to use such services and such information
shall be in the language understood by the patient.
Patients’ Rights
Knowledge of one’s health insurance/ medical scheme
• A member of a health insurance or medical aid scheme is
entitled to information about that insurance or medical aid
scheme and to challenge, where necessary, the decisions of
such health insurance or medical aid scheme relating to the
member.

Choice of health services

• Everyone has the right to choose a particular health care
provider for services or a particular health facility for
treatment provided that such choice shall not be contrary
to the ethical standards applicable to such health care
providers or facilities, and the choice of facilities in line
with prescribed service delivery guide lines.
Patients’ Rights
Be treated by a named health care provider
• Everyone has the right to know the person that is
providing health care and therefore must be attended
to by clearly identified health care providers.

Confidentiality and privacy

• Information concerning one’s health, including
information concerning treatment may only be
disclosed with informed consent, except when required
in terms of any law or an order of the court.
Patients’ Rights
Informed consent
• Everyone has the right to be given full and accurate
information about the nature of one’s illnesses,
diagnostic procedures, the proposed treatment and the
costs involved, for one to make a decision that affects
anyone of these elements.
Refusal of treatment
• A person may refuse treatment and such refusal shall
be verbal or in writing provided that such refusal does
not endanger the health of others.
Patients’ Rights
Be referred for a second opinion
• Everyone has the right to be referred for a second
opinion on request to a health provider of one’s
choice.

Continuity of care
• No one shall be abandoned by a health care
professional worker or a health facility which
initially took responsibility for one’s health.
Patients’ Rights
Complain about health services
• Everyone has the right to complain about
health care services and to have such
complaints investigated and to receive a
full response on such investigation.
Members’ duties and responsibilities
• To not commit a fraudulent act/ claim against the scheme;
• To provide full medical disclosure on admission to membership
– regarding any treatment, care and diagnosis received in the
12 month preceding the date of application (Section 29A(7) of
the Medical Schemes Act);
• To pay contributions timeously (within 3 days of due date);
• To submit claims in the form prescribed and within 4 months of
the date of service;
• To understand and abide by the rules of the scheme;
• Continuously update their status of beneficiaries with the
scheme;
• In terms of Section 28 of the Medical Schemes Act, a member
or dependant may only belong to one scheme at any given
time.
 Unit 3
Understand the matters for which the rules of
a medical must provide. The rules govern the
affairs of the medical scheme and in turn the
rights and responsibilities of members of the
scheme
The Rules of a Medical Scheme
• Understand the importance of the rules of a medical
scheme;
• Explain the management of a medical scheme;
• Define the relationship between a medical scheme
and its members;
• Know the rules of a medical scheme concerning:
o benefits and benefit options;
o personal medical savings accounts;
o payment of contributions.
• Understand the manner in which complaints and
appeals are dealt with in the scheme rules.
The Rules of a Medical Scheme
Section 29 of the Act sets out the specific matters for which
the rules of a medical scheme must provide. These include
the following:
• The appointment and/ or election of a Board of Trustees to
govern the scheme;
• The appointment of a Principal Officer by the Board of
Trustees;
• The removal of officers;
• The manner in which complaints and disputes are to be
settled;
• The terms and conditions applicable to the admission of a
person as a principal member and his/ her dependant(s);
• The scope and level of benefits; and
• The scale or tariff for the payment of benefits.
Unlawful actions by a medical scheme
A medical scheme that acts outside of the scope of its rules or in a
manner that is in conflict with one or more of its rules is acting
unlawfully. As such, the following actions are unlawful:
a) denying a benefit to a member when the scheme rules allow
for such a benefit;
b) imposing a late joiner penalty on someone who does not
meet the criteria for such a penalty;
c) refusing to admit a person as a member of a medical scheme
because the person is over the age of 65;
d) refusing to pay for treatment for HIV;
e) refusing to admit someone as a member because the person
is HIV-positive; and
f) charging a member of a scheme a higher contribution than
other members who are on the same benefit option.
Consequences for unlawful activity
• The scheme could be directed by the Registrar of
Medical Schemes to rectify the situation;
• This could mean paying a claim that was refused; or
• Reinstating the member whose membership was
unlawfully terminated, or registering as a member
someone whose application was refused; or
• Refunding contributions or other amounts of money
to which the scheme was not entitled;
• In some cases the scheme’s failure to observe its
rules or comply with the provisions of the Act could
be a criminal offence.
The management of a medical scheme
Section 29(1) of the Act requires for provision to be
made in the scheme rules for the following:
a) “The appointment or election of a board of
trustees consisting of persons who are fit and
proper to manage the business contemplated by
the medical scheme;
b) The appointment of a principal officer by the board
of trustees who is a fit and proper person to hold
such office;
c) The appointment, removal from office, powers and
remuneration of officers of a medical scheme.”
Structure of the Board
• According to section 57(2) of the Act, at least 50% of
the members of the board shall be elected from
amongst members of the scheme;
• The Medical Schemes Amendment Bill of 1998 which
is yet to be passed into law, provides that the
remaining members must be appointed in terms of
the rules of the medical scheme (in the case of
restricted membership schemes) or should be
appointed by the elected members (in the case of
open medical schemes).
Size of the Board
• According to the King Report, every board should consider
whether or not its size, diversity and demographics make
it effective.
• For instance, rule 18(1) of the Model Rules states as
follows under the heading of governance:
“The affairs of the Scheme must be managed
according to these Rules by a board consisting of at
least ... persons who are fit and proper to be
trustees. “
• The number of trustees is not specified for the simple
reason that it may vary from one scheme to another.
• The size of the board of trustees is, however, important.
Size of the Board
If the board of Trustees is too large:
• it may be more difficult to obtain a quorum for meetings;
• proceedings are likely to be slower because more people
have to be involved in the taking of decisions;
• if trustees have to travel and stay overnight in order to
attend meetings, then a large number of trustees can
become expensive for the scheme;
• rapid communication for the purpose of obtaining the
views of trustees on issues outside of the board meeting
can become difficult;
• people are more likely to form sub-groupings within the
board than act as independent individuals, each
exercising his own objective judgement and expertise.
Size of the Board
If the board of Trustees is too small:
• the range of expertise and experience necessary to
manage the affairs of the scheme properly may be
limited;
• the risk of the domination of the board by a single
powerful individual who does not necessarily always
know what is best for the scheme is increased;
• the ability to ensure continuity between incoming and
outgoing trustees is limited;
• the loss of one or two board members due to ill-health or
other mishap could seriously impact on scheme;
• the introduction of new ideas and innovation in the
affairs of the scheme could be stifled;
• succession planning becomes difficult.
Duties of the Board of Trustees
The specific duties of the board of Trustees are found in
Section 57 of the Act and can be summarised in the table
below:
1. appoint a principal officer who is a fit and proper person to
hold such office and shall within 30 days of such appointment
give notice thereof in writing to the Registrar;
2. ensure that proper registers, books and records of all
operations of the medical scheme are kept, and that proper
minutes are kept of all resolutions passed by the board of
trustees;
3. ensure that proper control systems are employed by or on
behalf of the medical scheme;
4. ensure that adequate and appropriate information is
communicated to the members regarding their rights,
benefits, contributions and duties in terms of the rules of the
medical scheme;
Duties of the Board of Trustees
5. take all reasonable steps to ensure that contributions are paid
timeously to the medical scheme in accordance with this Act
and its rules;
6. take out and maintain an appropriate level of professional
indemnity insurance and fidelity guarantee insurance;
7. obtain expert advice on legal, accounting and business matters
as required, or on any other matter of which the members of
the board of trustees may lack sufficient expertise;
8. ensure that the rules, operation and administration of the
medical scheme comply with the provisions of this Act and all
other applicable laws; and
9. take all reasonable steps to protect the confidentiality of
medical records concerning any member’s state of health.
Appointment of a Principal Officer
The Act provides guidance on the appointment of a
principal officer. In this regard it stipulates in Section
57(7) of the Act that:
“a person shall not be a principal officer of a medical
scheme if that person is -
a) an employee, director, officer, consultant or contractor of the
administrator of the medical scheme concerned; or of the
holding company, subsidiary, joint venture or associate of that
administrator; or
b) a broker.”
Duties of the Principal Officer
• These fiduciary duties require of him to:
a) to act in good faith and to promote the
employer's business over the employee's own;
b) to serve his employer's interest honestly and
faithfully;
c) not to work against the interest of an employer
or to secure secret profits or commissions.
• The duties of a principal officer and his staff are not
specifically provided for in the Act or in the
regulations to the Act. This shortcoming is addressed
in the Medical Schemes Amendment Bill of 1998,
which is yet to be passed into law.
Who cannot be a member of a Medical Scheme?
• A person who is already a member of one medical
scheme is legally prohibited from becoming a
member of another, unless the membership of the
first scheme has been terminated (Section 28).
• This means that the membership of the second
scheme will not be legally valid as long as the
member remains a member of the first scheme.
Therefore the person must resign from membership
of the first scheme in order to become a member of
the second.
Who can be a dependant?
A dependant of a member can be an adult or a child. Section 1 of
the Act defines a dependant as:
“(a) the spouse or partner, dependant children or other members
of the member’s immediate family in respect of whom the
member is liable for family care and support; or
(b) any other person who, under the rules of a medical scheme,
is recognised as a dependant of a member”

Apart from the reference to spouse or partner, the definition

defines a dependant as dependant children or other members of
the member's immediate family in respect of whom the member
is liable for family care and support.
Who can be a dependant?
• A benefit option is not a separate medical scheme. It is a
package of benefits offered by the medical scheme to its
members and therefore a medical scheme can offer a number
of different options to its members.
“The Registrar shall not approve any benefit option unless
the Council is satisfied that such benefit option-
a) includes the prescribed benefits;
b) shall be self-supporting in terms of membership and
financial performance;
c) is financially sound; and
d) will not jeopardise the financial soundness of any
existing benefit option within the medical scheme. “
Termination of membership
In terms of Section 29(2) of the Act membership may
be terminated by a scheme only on one of the
following grounds:
a) failure to pay, within the time allowed in the medical
scheme's rules, the contributions required in such rules;
b) failure to repay any debt due to the medical scheme;
c) submission of fraudulent claims;
d) committing any fraudulent act; or
e) the non-disclosure of material information.
Personal medical savings accounts
Regulation 10 of the regulations to the Act defines the
characteristics of a personal medical savings account (PMSA) to
include the following:
a) The limit on contributions into a PMSA must not exceed 25%
of the total gross contribution made during the scheme’s
financial year (Regulation 10(1));
b) The limit on contributions applies to each individual member
of a medical scheme (Regulation 10(2));
c) The funds in a member's PMSA may be used by that member
and that member's dependants only. They may not be used to
off-set contributions but may be used to off-set debts owed by
that member at the date of termination of membership.
(Regulation 10(3));
Personal medical savings accounts
d) The credit balances in a member's PMSA are never
forfeited;
e) The credit balances are transferred to the new medical
scheme or benefit option with a MSA (Regulation 10(4));
f) The credit balances are refunded to the member in cash
where membership of a medical scheme or benefit
option is terminated or where membership is replaced
with membership of a medical scheme or benefit option
without a PMSA (Regulation 10(5));
g) No part of the funds in a PMSA may be used to pay for
the costs of prescribed minimum benefits (Regulation
10(6)).
Payments of contributions to a Medical Scheme
Section 26(6) and (7) of the Act stipulate that:
• “No person other than an employer shall receive,
hold or in any manner deal with the subscription or
contribution which is payable to a medical scheme by
or on behalf of a member of such medical scheme;"
and
• “All subscriptions or contributions shall be paid
directly to a medical scheme not later than three
days after payment thereof becoming due.”
Payments of contributions to a Medical Scheme
Regulation 6 of the regulations to the Act provides for
the manner of payment of benefits:
• In terms of Regulation 6(1), a medical scheme must
settle a claim submitted before the end of the fourth
month after the beneficiary concerned received the
last health service stated on the account.
• Similarly, where an account or claim has been
returned for correction and is resubmitted before the
end of the fourth month after it was returned, it has
to be paid.
Tariff and billing practices
Section 29(1)(q) of the Act requires a medical scheme to a
make:
“The payment of any benefits according to—
(i) a scale, tariff or recommended guide; or
(ii) specific directives prescribed in the rules of the medical
scheme.”

Following the ruling of the Competition Commission, the

Department of Health took over the responsibility for publishing
the National Health Reference Price List (NHRPL), a list of
guideline medical tariffs; however in 2010 a ruling of the North
Gauteng High Court declared the NHRPL null and void.
Complaints and Appeals
• Chapter 10 of the Act makes provision for a comprehensive
system of complaints and appeals from decisions of a board of
trustees, the Registrar of Medical Schemes and even the Council
for Medical Schemes.
• A complaint with regard to any matter provided for in the Act
may be lodged, in writing, with the Council for Medical
Schemes. The Registrar is obliged to notify the party against
whom the complaint is made. The Registrar must, as soon as
possible after receipt of any comments furnished to him, either
resolve the matter or submit the complaint together with such
comments, if any, to the Council. The Council must then take all
necessary steps as may be deemed necessary to resolve the
complaint (Section 47).
 Unit 4
Understand the tools and mechanisms
available to medical schemes to manage risk
Medical Schemes and Risk Management
• Understand the entry level controls available to medical
schemes to manage opportunistic behaviour by members;
• Explain the waiting periods and how they are applied;
• Define a Late Joiner Penalty and explain how this is calculated;
• Demonstrate an understanding of the managed care
techniques available to medical schemes to manage health
care services;
• Demonstrate knowledge of the conditions and standard for
managed health care.
Tools to control risk
The Act provides various tools to medical schemes to control
risk. These can be broadly categorised as follows:
• Entry level controls designed to manage the opportunistic or
anti-selective behaviour of applicants who wait until they are
sick and need medical treatment before they choose to join a
medical scheme, these are:
• Waiting Periods; and
• Late Joiner Penalties.
• Concurrent controls or tools designed to improve the efficiency
and effectiveness of the delivery of health care to members,
specifically the PMBs, so as to limit the financial risk to the
scheme.
Waiting Periods
The Act provides for two types of waiting periods.
These are:
• a 'general waiting period' of up to three (3) months; and
• a 'condition-specific waiting period' of up to twelve (12)
months.
Late Joiner Penalties
A late-joiner penalty refers to a penalty by way of additional
contributions, imposed on persons joining a scheme for the first
time only late in life. It is intended to encourage earlier and
continuous membership of a medical scheme.

Regulation 13(1) provides that:

• “a medical scheme may apply premium penalties to an
applicant or dependant of a late joiner and such penalties must
be applied only to the portion of the contribution related to the
member or any adult dependant who qualifies for late joiner
penalties.”
When can waiting periods not be applied?
New waiting periods cannot be applied by a medical scheme in the
following instances; however, unexpired waiting periods previously
imposed, can be carried forward:
• To child dependants born during the member’s period of membership;
• To a member who changes from one benefit option to another within
the same medical scheme;
• To a member who has to change medical schemes because of a
change in employment, i.e. involuntary transfer (this applies to
members of restricted membership schemes);
• To a member where the member’s employer decides to leave a
medical scheme or join a new scheme, provided that reasonable
notice (90 days) is given to the medical scheme to which application is
made for membership, and the transfer occurs at the beginning of the
financial year (1 January).
When can later joiner penalties apply?
The specific information needed to determine whether a late-
joiner penalty applies or not, must include the following:
• Is the applicant 35 years of age or older?
• Was the applicant a member of one or more medical schemes
as from a date preceding 01 April 2001 or not?
• Prior to application, did the applicant have a break in coverage
exceeding three (3) consecutive months since 01 April 2001?
How is a late joiner penalty calculated?
The additional contribution payable by a late joiner to a medical
scheme is calculated using the formula described in Regulation 13:

A = B - (35+C)
Where:
A = penalty band;
B = age of the applicant at the time of application;
C = number of years of proven creditable cover.
Creditable Coverage
To determine the late joiner penalty to be charged to an applicant, the medical
scheme considers any qualifying periods of membership of a registered medical
scheme since 1 April 2001. Creditable Coverage is defined in Regulation 11 to
mean:
• “any period in which a late joiner was—
a) a member or a dependant of a medical scheme;
b) a member or a dependant of an entity doing the business of a medical
scheme which, at the time of his or her membership of such entity, was
exempt from the provisions of the Act;
c) a uniformed employee of the South African National Defence Force, or a
dependant of such employee, who received medical benefits from the
South African National Defence Force; or
d) a member or a dependant of the Permanent Force Continuation Fund,
e) but excluding any period of coverage as a dependant under the age of 21
years.”
Calculation of Late Joiner penalty
Example
Peter wants to join a medical scheme. He is 40 years old and his wife is
32. Neither he nor his wife has been a member of a medical scheme
before.

The scheme contributions relevant to the option he has selected are as

follows:
• Principal Member = R1,000
• Adult dependant = R900

As Peter is over the age of 35 years, a late-joiner penalty may apply. No

penalty will apply to his wife, as she is under the age of 35 years. Peter
has never been a member of a medical scheme and therefore does not
have any creditable coverage.
Calculation of Late Joiner penalty
Apply the formula for the late joiner penalty:
A = B – (35 + C)
A = 40 – (35 + 0)
A=5
Peter falls in the penalty band of 5 - 14 years, where a penalty or
surcharge of 25% will apply to his contribution.
= R1 000.00 x 1.25 = R1 250.00
Managed Health Care
Regulation 15 defines “managed health care” as follows:
• “the clinical and financial risk assessment and management of health
care, with a view to facilitating appropriateness and cost-effectiveness
of relevant health services within the constraints of what is affordable,
through the use of rules-based and clinical management-based
programmes.”
• The Regulations also define rules-based and clinical management-
based programmes to mean “a set of formal techniques designed to
monitor the use of, and evaluate the clinical necessity,
appropriateness, efficacy, and efficiency of, health care services,
procedures or settings, on the basis of which appropriate managed
health care interventions are made.”
Provider contracting
Regulation 15 defines a “participating health care provider” as:
• “a health care provider who, by means of a contract directly between
that provider and a medical scheme in terms of Regulation 15A, or
pursuant to an arrangement with a managed health care organisation
which has contracted with a medical scheme in terms of Regulation
15A, undertakes to provide a relevant health service to the
beneficiaries of the medical scheme concerned.”
A “designated service provider” is defined in Regulation 7 as:
• “a health care provider or group of providers selected by the medical
scheme concerned as the preferred provider to provide to its members
diagnosis, treatment and care in respect of one or more prescribed
benefit conditions.”
Tariff negotiations
In the negotiation of tariffs with contracted DSPs, the MCO will generally
prefer to agree on an alternative to the fee-for-service tariff structure.
One such example is a capitation agreement.

A “capitation agreement” is defined in Regulation 15 as:

• “an arrangement entered into between a medical scheme and a
person whereby the medical scheme pays to such person a pre-
negotiated fixed fee in return for the delivery or arrangement for the
delivery of specified benefits to some or all of the members of the
medical scheme.”
Hospital Risk Management
This includes the pre-authorisation of a hospital event by the person
requiring hospitalisation, and the event itself is then reviewed
concurrently and retrospectively.

The level of care rendered during the hospital event is managed through
the case management process, which refers to a process of engagement
between the medical scheme and the treating doctor to assess whether
the desired level of care is being rendered at the appropriate time, for
example intensive care in the hospital and whether the patient could not
equally and effectively be treated in a general ward without
compromising the outcome of care.
Disease Management Program
These programmes focus on achieving optimal control
of common, high cost chronic diseases associated
mainly with the PMBs such as asthma, diabetes, HIV
and Aids and oncology. These programmes use
treatment protocols based on evidence-based
medicine to manage these disease conditions.
Disease Management Program
“Protocol” is defined in Regulation 15 to mean:
“a set of guidelines in relation to the optimal sequence of
diagnostic testing and treatments for specific conditions and
includes, but is not limited to, clinical practice guidelines,
standard treatment guidelines, disease management
guidelines, treatment algorithms and clinical pathways.”

“Evidence-based medicine” is defined in the Regulation 15 as:

“the conscientious, explicit and judicious use of current best
evidence in making decisions about the care of beneficiaries
whereby individual clinical experience is integrated with the
best available external clinical evidence from systematic
research.”
Pharmacy Benefit Management
This process provides for the authorisation of medicine for the
treatment of PMB chronic conditions according to a drug
formulary.
The formulary is a restricted list of approved medicine used in the
treatment specific chronic conditions. These price lists usually
stipulate the use of generic medicine when available.
Certain original drugs may not be available on the formulary. If
the member’s drug of choice is not on the formulary, the member
will have to pay for the difference in cost between the original and
formulary drug, or alternatively be willing to accept the formulary
drug.
 Unit 5
Investigating the various medical scheme
benefit option structures available
Benefit Option Structure
• Be able to explain the limitations on benefit design with
reference to legislation and Government healthcare policy;
• Differentiate between an Open medical scheme (open medical
scheme) and a Restricted Membership medical scheme (closed
scheme);
• Bargaining Council Fund or exempted medical scheme;
• Understand benefit options relevant to medical schemes.
Differentiation of the various schemes/ funds
Business of a medical scheme: Undertaking liability in return for a
premium or contribution -
• To make provision for a relevant health service to be obtained;
• To grant assistance in defraying expenditure in connection with
the relevant health service; and
• To render a relevant health service (either by the scheme or
contracted supplier/s).
Differentiation of the various schemes/ funds
There are two types of Medical Schemes, namely Open and
Restricted Schemes:
• Open Scheme: Membership is open to anyone wishing to join a
scheme and can afford the premiums. Examples of open
schemes are Discovery Health Medical Scheme (largest),
Fedhealth, Momentum Health, Bonitas etc.
• Restricted Scheme (employer-based schemes): Restricted to a
certain categories of employment or former employment
(retirees) or membership including: a company, profession,
trade, industry, calling, or trade union etc. Examples of
restricted schemes are GEMS (Largest), CAMAF, Bankmed,
Medipos etc.
Differentiation of the various schemes/ funds
A “third” type of fund which falls under the definition of ‘the
business of a medical scheme’, in terms of Section 1 of the Medical
Schemes Act of 1998, is Bargaining Councils.
• Bargaining council schemes mostly limit their benefits to
primary health care and managed care options and do not
cover hospitalisation;
• Members are therefore expected to revert to the public sector
for benefit that is not included;
• They are also exempt from providing the Prescribed Minimum
Benefits (PMB) to their members;
• These schemes are unique in that individual benefits are
negotiated as part of the terms and conditions of service. An
example of Bargaining Council Fund is MotorHealth.
Different benefit options
Section 33 of the Medical Schemes Act provides for the approval,
withdrawal and registration of benefit options. Benefit options
will only be registered by the Council of Medical Schemes if the
options:
• are self-supporting in terms of membership and financial
performance;
• include PMBs;
• are financially sound;
• will not jeopardise the financial soundness of any existing
benefit option within the medical scheme.
Different benefit options
To ensure survival, medical schemes have to offer employers a
range of tailored benefit options that would suit the majority of
their employee base. They offer benefit options with different
premiums, benefits, thresholds, co-payments and/ or deductibles,
hospital benefits, networks and etc.
Some options:
1. Traditional Option;
2. New Generation Option;
3. Pure Hospital Option;
4. Capitated or Network Option;
5. Hybrid Option.
Different benefit options
Age and life stages are important factors, with regards to benefit
option selection, as these factors are directly proportional to
claims experience and subsequently gives guidance to the options
selected by members. The graph below, illustrates this concept.
 Unit 6
Investigating theories of product development
used by medical schemes
Theories of product development used by medical
schemes
• Investigate theories of product development used by medical
schemes;
• Apply knowledge of the current Medical Schemes Act and the
demarcation debate to differentiate between a medical scheme
and medical insurance;
• Explain the impact of the National Health Policy and relevant
legislation with reference to governance and equitable,
affordable and equitable healthcare for all;
• Analyse selected products to identify the principles of health
risk management.
 Intro to calculating retirement needs and provisions
Medical Schemes
• Are governed by the Medical Schemes Act,
1998 (62 of 2002 as amended);
• Governed by the Council for Medical
Schemes;
• May not refuse to admit prospective
members;
• May not make a profit;
• Seek to match premiums and benefits paid
over the period of a scheme year;
Insurance Products
• Governed by the Long-term Insurance Act
1998 and the Short-term Insurance Act 1998;
• Governed by the Financial Services Board
(FSB);
• Have the right to refuse to insure you on the
grounds of the risk being too high;
• Insurers are listed companies with a profit
objective for themselves and their
shareholders;
• Rely on underwriting and actuarial
knowledge to predict expected future claims
over the long term;
 Intro to calculating retirement needs and provisions
Medical Schemes Insurance Products
• Medical schemes reimburse members for • Insurance companies pay policy holders a
actual medical expenses on submission of pre-agreed fixed amount in the event of a
accounts; claim;
• Can be paid directly to the provider of the • Must be paid to the policy holder, not a
service, a doctor or hospital; service provider;
• Registered medical schemes have to provide • Insurance companies may refuse to issue a
certain benefits, and may not charge you policy to an individual, or may load
contributions based on your health or age, premiums or exclude certain conditions;
as insurance products do. Medical schemes
are obliged to provide members with cover
for certain prescribed minimum benefits;
 Intro to calculating retirement needs and provisions
Medical Schemes
• Must provide members with certain minimum
benefits, especially those that cover essential
medical expenses;
• Usually increase the contribution rate on an
annual basis, and may enhance or limit benefits
every year;
• Medical scheme members can have their
membership cancelled if they fail to pay
premiums or if they are guilty of non-disclosure
of existing medical conditions;
Insurance Products
• Will pay out according to the terms of a policy. In the
event that a ‘health event’, as defined by the policy
occurs, the policy pays the insured amount,
regardless of the actual expense;
• Insurance policies offer cover for the term of the
policy which in the case of a short-term policy can be
anything between 30 days and a year;
• Short-term insurers are able to refuse policies to
individuals. They can also cancel policies with 30
days’ notice;
 Intro to calculating retirement needs and provisions
Medical Schemes Insurance Products
• Medical schemes are expected to spend • According to Rhys Edwards, CEO of
in the region of 85% of contributions on NMG, insurance policy cost ratios are
benefits, with the balance on non- uneconomical. Typically insurers spend
healthcare costs. between 60% and 65% of contributions
on claims, between 12% and 18% on
administration costs and between 15%
and 20% on commission.
What led to the demarcation debate?
According to the Council for Medical Schemes, the so-called
“hospital plan” insurance products contravene the Medical
Schemes Act. For some time there was confusion and arguments
around this issue, until it was resolved when a demarcation
agreement concluded by the Life Offices Association (LOA) and the
Council for Medical Schemes was announced in September 2000.
National Health Act
The objects of this Act are to regulate national health and to
provide uniformity in respect of health services across the nation
by-
(a) Establishing a national health system which:
(i) Encompasses public and private providers of health
services; and
(ii) Provides in an equitable manner the population of the
Republic with the best possible health services that
available resources can afford;
(b) Setting out the rights and duties of health care providers,
health workers, health establishments and users; and
National Health Act
(c) Protecting, respecting, promoting and fulfilling the rights of:
(i) The people of South Africa to the progressive
realisation of the constitutional right of access to health
care services, including reproductive health care;
(ii) The people of South Africa to an environment that is
not harmful to their health or well-being;
(iii) Children to basic nutrition and basic health care services
contemplated in section 28(l) (c) of the Constitution;
and
(iv) Vulnerable groups such as women, children, older
persons and persons with disabilities.
Future needs at retirement
Amendments to legislation aim to:
• Establish the Risk Equalisation Fund, a fund or ‘clearing house’, which
aims to spread the risk of the cost of prescribed benefits across
schemes with higher proportion of sick and elderly patients and those
with younger healthier and less costly members;
• Provide for the submission of beneficiary information necessary to
calculate the equalisation transfers;
• Specify the methodology for the estimation and payment of risk
equalisation payments;
• The factors the REF will use to determine which schemes will be paid
by and which will pay into the REF have yet to be finalised. The Bill
states that the Minister of Health, in consultation with the Minister of
Finance will determine the formula that will be used.
Solvency Ratio requirements
• Funds are required by law to have 25% of premium income as a
reserve;
• New schemes are permitted a period of grace to reach this level;
• If the solvency level of a fund is dramatically over this level it is usually
an indication of members leaving the fund;
• Conversely, a fund experiencing strong member growth, for example
Discovery, would have a declining solvency ratio;
• It takes time to build up the solvency ratio in respect of new members.