Provisions in the Draft Medical Schemes Amendment Bill will make administration more expensive

Provisions in the Draft Bill will increase the cost of the administration of medical schemes, says veteran financial advisor Ian Dodds, who is Managing Director of Fundamental Investments.

'The roll out of the Risk Equalization Fund will be extremely costly for medical schemes at the same time that the Registrar of the Council for Medical Schemes is prevailing upon medical schemes to decrease administration costs.' he said.

The Draft Medical Schemes Amendment Bill was released recently for industry comment. The main provisions of the Bill provide for the Council for Medical Schemes to create and manage a Risk Equalisation Fund, which is a measure aimed at achieving a uniform risk pool for the financing of prescribed minimum benefits across all medical schemes.

In terms of the proposals in respect of the REF a portion of money collected via contributions would be paid into the Risk Equalisation Fund. Monies collected will be used to finance those medical schemes with sicker people.

'Designing the formula by which scheme should calculate their risks is an enormously complex process and has been fraught with both conceptual and practical difficulties,' said Dodds.

Proposed legislation provides allows the Registrar to prescribe the methodology to be applied in calculating the necessary financial transfers, to adjust any assessment made, to correct errors, to retrospectively effect changes in the number of beneficiaries or the prevalence of risk factors. It also obliges the Registrar to regularly review the risk equalization methodology.

Keeping up with changing methodologies will be very demanding of medical scheme administrators, and they will quite justifiably, be entitled to ask schemes to pay more for their services,' said Dodds.

He said that the proposed changes to legislation were designed to enable further options such as the Lower Income Medical Schemes.

'As with all legislation, the devil is in the detail, and we only get to see what the Department of Health has in mind when we see the Regulations,' he said.

However he commented that the new draft proposals did not appear to take into account recommendations from the Lower Income Medical Schemes committee, which recommended that schemes offered to prospective members should not have to have to cover all the PMBs, as required by existing legislation.

'The proposed legislation recommends that every medical scheme must pay the financial transfers as calculated and determined by the Council. The only exemption provided for is new schemes, and no mention is made of lower income medical schemes,' said Dodds.

'A further problem with the implementation of the Risk Equalisation Fund has always been the fact that the Health Act, passed in 2005, gives patients the right to confidentiality,' said Dodds. 'Yet the roll out and efficient working of the Risk Equalisation Fund depends on first of all doctors passing on confidential information to medical schemes, and medical schemes passing on this information to the Risk Equalisation Fund.

In my view, the legislation does not sufficiently seek to limit or address the liability that doctors and administrators might be exposed to in the course of furnishing the Risk Equalisation Fund with confidential information,' he said.