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SUB CATEGORIES General  |  HIV |  Medical Schemes | 

Issues of ownership decided by the courts

26 June 2017 Jonathan Faurie

The medical schemes industry has been in the spotlight a lot lately as government is making a number of key decisions and announcements as it builds momentum towards laying the foundation towards the implementation of the National Health Insurance (NHI).

The draft demarcation regulations and Health Minister Dr Aaron Motsoaledi’s announcements regarding the future of medical schemes in the NHI did not go unnoticed by the industry who had a lot to say about these issues.

Key ruling

In a release to the media, the Council for Medical Schemes (CMS) has noted the Constitutional Court judgement on the appeal matter brought by Genesis Medical Scheme against the Registrar of Medical Schemes and the CMS.

The Constitutional Court’s ruling in favour of Genesis Medical Scheme that funds in medical scheme members’ personal medical savings accounts (PMSA) can be treated as assets of a medical scheme, has huge implications for members of schemes who have benefit options that include a savings account.

The CMS added that the significance of this judgement lies in the fact that members of medical schemes are not entitled to earn interest on the portion of the money in the PMSA, which according to the judgement, belongs to the medical scheme once such funds are deposited into the scheme’s account.

An equally noteworthy implication is the huge bearing on what happens to members’ contributions in a situation where a scheme is declared insolvent. The implication of the judgement is that the members’ PMSA cannot be ring-fenced from being accessed by creditors should a scheme become liquidated.

The Constitutional Court judgement is the culmination of a matter which has been ongoing since 2013 when the CMS rejected the Genesis Medical Scheme’s annual financial statements, on the basis that the accounting treatment of these funds by Genesis. The CMS felt that the financial statements did not correctly reflect the revenue and expenditure of the scheme.

Genesis disagrees with the CMS’ position. “The Constitutional Court has confirmed that the law is as it always has been.  In other words, it did not change the law in any way, but has confirmed what we have always believed. The issue for Genesis related to our audited annual financial statements that have always been prepared according to the Medical Schemes Act and that have always been correct and a fair presentation of the financial position of the Scheme.  The Registrar wanted medical schemes to hold assets off balance sheet; the courts all disagreed with this irregular accounting convention,” said Dennis van der Merwe, Principal Officer Genesis Medical Scheme.

Implications for the consumer

FAnews  spoke with Michelle David, Director at Norton Rose Fulbright, who gave us some key insight on what this ruling means for the consumer.

“For a consumer, the judgment serves as warning that having a PMSA does not amount to having a medical expenses nest egg that is protected. In fact, it means that consumers risk losing their personal medical savings acquired through a medical scheme in the event that the medical scheme is liquidated.  If the medical scheme is liquidated, the member will not have a right to their PMSA, rather it will just go into the pool to be distributed between the creditors of the medical scheme,” says David.

She adds that this is the case unless the medical scheme has an agreement in place which makes it clear that it is merely holding money on behalf of members.  In that instance, the PMSA would be the members’ assets, not the medical schemes.

This judgment places medical schemes in a favourable position.  It essentially means that the medical scheme can utilise PMSA’s to cover liabilities if needs be as it is the medical schemes asset.

Transfer of ownership

This may come as a surprise to some who may have thought that the medical savings are in fact assets of the policyholder in exchange for premiums paid to the scheme.

However, this transfer of ownership is not as clear cut as some may assume. David explains this.

“Ownership only transfers when the member actually utilises the money in their PMSA.  Prior to that, the money remains the asset of the medical scheme.  This concept can be explained as follows: a medical scheme agrees to provide members with medical cover in return for payment of a premium. In return for the contribution, the medical scheme provides benefits, one of which is the depositing of some money into a PMSA. Benefits are not owned by members, they only become available for utilisation in specific instances.  Until such time, no ownership is passed to the member,” says David.

Editor’s Thoughts:
There is no doubt that this will not be the end of this issue. I am sure that as we get closer to the roll out of the NHI, this issue will once again be fought in the courts. Because while there is no doubt that medical schemes play an important role in society, one can understand policyholders concerns with schemes when they hear about issues such as the one discussed above. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Comments

Added by kenny, 26 Jun 2017
Whilst there has been and currently is... a big drive away from purely hospital cover. One of the arguments of having a savings account was that the money remained yours in event you leave the scheme. Unfortunately, this is now plainly not the case (I don't know what is referred to in the article of an agreement that a scheme is merely holding money for members)... which I feel will have (if this is widely advertised ) implications in members moving back to hospital plans and paying out of hospital costs from their pocket.
Yet another example of how intertwined everything is in this industry.
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