Shoks Mzolo: The Financial Mail
PATRICK Masobe remembers the scepticism that greeted the Medical Schemes Act nine years ago. The act was intended to bring meaningful regulation to the R55bn industry for the first time, but the schemes felt it was too ambitious and impractical.
Since then, however, medical schemes registrar Masobe has impressed many with the ability of his Council for Medical Schemes (CMS) to regulate this difficult sector. But some industry players still accuse the CMS of being heavy-handed and counterproductive.
Fedhealth principal officer Jeremy Yatt says the CMS is ideology-driven, with a "knee-jerk and reactionary approach". It keeps presenting unworkable solutions and "convoluted answers". Instead of dealing with problematic schemes, the CMS legislates to everyone's disadvantage, Yatt argues. The state and the regulator are not paying attention to such concerns.
The Health Department has now opened debate for the Medical Schemes Amendment Bill, which is likely to be passed into law later this year. It sets the stage for a new round in the struggle between the state and private industry for ascendancy over medical insurance.
The draft legislation will deal with such issues as mismanagement of members' funds, "perverse management" of schemes, muzzling of principal officers (equivalent to scheme CEs), irregular election of trustees (some with shares or board seats in service providers such as hospital groups) and the way in which a Risk Equalisation Fund (REF) can be established.
Unfortunately, the bill ignores two important issues: affordability (how many people can afford cover) and escalating non-healthcare costs.
The REF would distribute funds according to each scheme's risk profile. This aims to curb discrimination against pensioners and sickly people.
Notwithstanding a lack of details on certain technical aspects of the REF and the fact that its establishment means a rise in non-healthcare costs, schemes support it "in principle", claims
Administration firm Medscheme favours the formation of a public register of scheme officials, such as applies to members of parliament. This, it says, would bolster checks and balances and reduce cases of conflict of interest. It wants the powers vested in schemes' chairmen curtailed because, it says, these powers impede governance.
Humphrey Zokufa, previously with the Health Department and now CE of the Board of Healthcare Funders (BHF), an umbrella body, says trustees and principal officers should declare interests, and should be prohibited from holding positions with conflicting interests. (Overlap of officials and service providers invariably leads to inflated costs, Zokufa argues.)
In line with this and in a bid to stem corruption, the bill aims to protect whistle-blowers. This is a progressive shift from the current legislation, where some CEs and staff may turn a blind eye to bad practice for fear of reprisals or job losses, says Masobe.
"With this bill we want to devise a mechanism to protect these people," he adds. "We can't jeopardise the good guys. If trustees want to terminate the services of a CE before the end of the contract, for instance, we want to know about it and if we feel that he or she is incorrectly removed, we'll intervene."
The BHF disagrees. Trustees should be able to wield the axe without the registrar's intervention, because principal officers are first and foremost scheme employees. Since the labour laws govern the employer-employee relationship, says the BHF, the registrar should not be allowed to interfere.
Though this argument makes sense on legal grounds, the BHF is quiet on alternatives to protect whistle-blowers. It's also mute on imposing disciplinary measures in cases where trustees breach corporate governance regulations.
To its credit, though, the body argues that administrative financial penalties on schemes will prejudice membership.
But, judging from Masobe's comments, the bill is unlikely to side with the BHF on this.
"We can't draw penalties from members' funds," says Zokufa.
"We already spend a lot on non-healthcare and things like these penalties will push non-healthcare expenditure even higher. Instead, we should effectively use the funds for healthcare needs. That's why it makes more sense to consolidate."
The BHF wants incompetent trustees and CEs to be held personally responsible for transgressions and to settle penalties themselves. While this will placate insured South Africans struggling to keep up with high non-healthcare costs, it's going to be interesting to see how medical insurance bosses react.
Non-healthcare expenditure has doubled (to R7,8bn) since 2000 on the back of administration and broker fees. Both of these have steamed ahead unabated - inflating earnings by dominant players such as Alexander Forbes, Discovery and Medscheme - to the CMS's dismay.
It's against this background that BHF has urged the Health Department and the CMS not to consider using members' contributions to settle penalties.
For corporate governance to prevail and non-healthcare costs to fall, medical aid societies need strong leaders. The schemes' over-reliance on administrators to drive the industry works against the public interest: schemes are supposed to be not-for-profit organisations; administrators are supposed to turn profits, yet they also set the agenda.
The lines are drawn, but the roles are not clearly defined and the bill is unlikely to change this.