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					                                                           ―Working together for a skilled tomorrow‖




                             Learning Materials

            Unit Standard Title:                    Demonstrate knowledge and
                                                    understanding of different products
                                                    marketed by Healthcare Benefits
                                                    Administrators


            Unit Standard No:                       12323


            Unit Standard Credits:                  4


            NQF Level:                              4



                                  Learner Guide

                  This outcomes-based learning material was
                                  developed by
                          INHLE Business Solutions
                                 and reviewed by
          Pervina Soma of Alexander Forbes and Discovery Health
                  with funding from INSETA in October 2003.

                         The material is generic in nature.
          Its purpose is to serve as a guide for the further development
              and customization of company-specific, learner-specific
                   and situation-specific learning interventions.


                                             Disclaimer:
  Whilst every effort has been made to ensure that the learning material is accurate, INSETA takes no
   responsibility for any loss or damage suffered by any person as a result of the reliance upon the
                                     information contained herein.




US 12323 – HBA Products                   LEARNER GUIDE                                                 1
Table of Contents

1      UNIT STANDARD .......................................................................................................... 4
2      INTRODUCTION AND OVERVIEW OF THE MODULE ....................................... 8
    2.1       THE PURPOSE OF THIS MODULE ................................................................................. 8
    2.2       THE TEACHING STRATEGY ......................................................................................... 8
    2.3       MASTERING THE STUDY MATERIAL ........................................................................... 9
3      MODULE 1: CONCEPT, PRODUCTS AND BENEFITS ........................................ 10
    3.1       INTRODUCTION ........................................................................................................ 11
    3.2       RECOMMENDED READING AND WEBSITES FOR THIS UNIT STANDARD .................. 11
    3.3       HISTORY OF MEDICAL SCHEMES AND MEDICAL INSURANCE ................................. 12
    3.4       CONCEPT OF A MEDICAL SCHEME ........................................................................... 13
    3.5       THE BOARD OF TRUSTEES ....................................................................................... 15
    3.6       MEDICAL INSURANCE. ............................................................................................. 23
    3.7       TASK1 : PLAYERS IN THE HEALTHCARE MARKET ................................................... 29
    3.8       TASK 2: NEWSPAPER ARTICLE ................................................................................ 30
    3.9       TASK 3: NEWSPAPER ARTICLE ................................................................................ 32
    3.10      TASK 4 CONCEPT OF MEDICAL INSURANCE AND MEDICAL SCHEME ..................... 34
    3.11      TASK 5: MAIN EVENTS COVERED ............................................................................ 35
    3.12      TYPES OF MEDICAL SCHEMES ................................................................................. 36
    3.13      TASK 6 – TRADITIONAL VERSES NEW GENERATION – RESEARCH .......................... 44
    3.14      TASK 7 – BENEFITS MATRIX.................................................................................... 45
    3.15      SELF REFLECTION .................................................................................................... 47
4      MODULE 2: COMMON TERMS ............................................................................... 48
    4.1    COMMON TERMS IN THE MEDICAL SCHEME AND INSURANCE INDUSTRY .............. 49
    4.2    THE CONCEPT OF EX GRATIA PAYMENTS ................................................................. 49
    4.3    PRO-RATION OF BENEFITS IS EXPLAINED WITH REFERENCE TO CASE STUDIES. ...... 50
    4.4    TASK 8 – PRO RATION ............................................................................................. 52
    4.5    THE TERMS DATE OF INCEPTION; DATE OF TERMINATION AND SUSPENSION ARE
    EXPLAINED WITH REFERENCE TO THE EFFECT THAT THESE HAVE ON ACCESS TO BENEFITS.
           53
    4.6    CASE STUDY 1 – TERMINOLOGY – GENERIC SCHEME NAMES ................................. 55
    4.7    THE CONCEPT OF A PRE-EXISTING CONDITION IS EXPLAINED WITH REFERENCE TO
    THE EFFECT ON A BENEFIT AND THE IMPLICATIONS OF NON DISCLOSURE. ......................... 57
    4.8    THE DIFFERENCE BETWEEN THE BOARD OF HEALTHCARE FUNDERS (BHF) AND
    SOUTH AFRICAN MEDICAL ASSOCIATION (SAMA) RATES IS EXPLAINED WITH REFERENCE
    TO THE GOVERNMENT GAZETTE. ......................................................................................... 58
    4.9    TASK 9 – LEGAL APPLICATION OF SAMA AND BHF .............................................. 62
    4.10 PRESCRIBED MINIMUM BENEFITS. ........................................................................... 63
    4.11 LATE JOINING PENALTIES ARE EXPLAINED AND CALCULATED FOR FIVE DIFFERENT
    CASE STUDIES. ..................................................................................................................... 67
    4.12 TASK 10 – RESEARCH WHAT THE LAW SAYS. .......................................................... 68
    4.13 TASK 11 - LATE JOINER PENALTIES......................................................................... 70
    4.14 SELF REFLECTION .................................................................................................... 73
5      MODULE 3: SELECT A PRODUCT ACCORDING TO A CLIENT PROFILE. . 74
    5.1       SELECTING A PRODUCT FOR A CLEINT ......................................................... 75
    5.2       TASK 12 – NEWSPAPER ARTICLE............................................................................. 79
    5.3       CASE STUDY 2– SINGLE PERSON ............................................................................. 81
    5.4       CASE STUDY 3 – COUPLE ........................................................................................ 83
    5.5       CASE STUDY 4 – FAMILY OF FOUR .......................................................................... 84


US 12323 – HBA Products                                   LEARNER GUIDE                                                                 2
6     SUMMATIVE ASSESSMENT .................................................................................... 85
    6.1     RESEARCH REPORT .................................................................................................. 85
    6.2     SELF REFLECTION .................................................................................................... 86




US 12323 – HBA Products                              LEARNER GUIDE                                                               3
1        UNIT STANDARD

1.    TITLE:       Demonstrate knowledge and understanding of different
products marketed by Healthcare Benefits Administrators.


2.       UNIT STANDARD NUMBER:

3.       LEVEL ON NQF:                           4

4.       CREDITS:                                4

5.       FIELD:                                  Business, Commerce and Management
         Studies
         Sub Field:                              Finance, Economics and Accounting

6.       ISSUE DATE:

7.       REVIEW DATE:

8.       PURPOSE:

This unit standard requires detailed knowledge of the main products offered by
Healthcare Benefits Administrators.

         The qualifying learner is capable of:

       Explaining the difference between medical insurance and a medical scheme.
       Analysing and generalising the characteristics of traditional and new
        generation medical schemes.
       Explaining the benefits covered by medical schemes.
       Using terminology used in the industry in the correct context.


9.       LEARNING ASSUMED TO BE IN PLACE:

There is open access to this unit standard. Learners should be competent in
Communication and Mathematical Literacy at Level 3.


10.      SPECIFIC OUTCOMES AND ASSESSMENT CRITERIA:

Specific Outcome 1: Explain the difference between a medical scheme and medical
insurance.

         Assessment Criteria

      1. The concept of a medical scheme is explained with reference to the role of
         the Administrator in the structure, the co-role of trustees and the role of the
         member in the scheme.




US 12323 – HBA Products               LEARNER GUIDE                                    4
    2. Medical insurance is explained with reference to the role of the insurance
       company and the board of directors.

    3. The kinds of events covered by a medical scheme and the events covered by
       a medical insurance product are compared in a table.

    4. The payment of claims against a medical scheme is compared to claims
       against an insurance product.

    5. Legislation governing medical schemes and insurance products is named and
       an indication is given of the limitations that legislation places on the structure
       of the different products.


Specific Outcome 2: Compare traditional and new generation medical schemes.

        Assessment Criteria

    1. The broad spectrum of packages that make up three traditional medical
       scheme products are analysed in terms of benefits and limits.

    2. The information obtained in the research is used to generalise the
       characteristics of conventional medical scheme products.

    3. Three new generation products are researched in terms of guaranteed
       benefits and discretionary benefits.

    4. Information from the research is used to generalise the characteristics of new
       generation products.

    5. Reasons why the industry is moving away from traditional to new generation
       products are researched with reference to financial implications for the
       scheme, claiming patterns, increasing costs of healthcare, needs and
       priorities of members in terms of medical care and costs to the member.


Specific Outcome 3: Explain the benefits that are covered by medical schemes.

        Assessment Criteria:

    1. Benefits across three different medical scheme products are compared in
       terms of what is standard, what has limits and how they are covered.

    2. Common exclusions from benefits and exceptions to the exclusions are
       named with reasons why these are generally classified as exclusions.

    3. Benefits that have restricted access are named and reasons are given to
       explain the restriction.


Specific Outcome 4: Understand, and use in the correct context, terminology used
in the industry.

        Assessment Criteria:



US 12323 – HBA Products              LEARNER GUIDE                                     5
      1. The concept of ex gratia payments is explained with reference to case
         studies.

      2. Pro-ration of benefits is explained with reference to case studies.

      3. The terms date of inception; date of termination and suspension are
         explained with reference to the effect that these have on access to benefits.

      4. The concept of a pre-existing condition is explained with reference to the
         effect on a benefit and the implications of non-disclosure.

      5. The difference between the Board of Healthcare Funders (BHF) and South
         African Medical Association (SAMA) rates is explained with reference to the
         government gazette.

      6. Prescribed minimum benefits are explained with examples.

      7. Late joining penalties are explained and calculated for five different case
         studies.


Specific Outcome 5: Select a product according to a client profile.

           Assessment Criteria:

      1. Healthcare needs are identified for a single person, a couple and a family of
         four.

      2. The risk profile of the three cases is established based on age and pre-
         existing conditions.

      3. Suggestions are made as to what kind of healthcare products would be most
         suitable in each case.

11.        ACCREDITATION AND MODERATION:

This unit standard will be internally assessed by the provider and moderated by a
moderator registered by INSQA or a relevant accredited ETQA. The mechanisms
and requirements for moderation are contained in the document obtainable from
INSQA,
INSQA framework for assessment and moderation.


12.        RANGE STATEMENT:
           The typical scope of this unit standard is
      1.   Medical schemes and medical insurance as marketed by Healthcare Benefits
           Administrators in South Africa.
      2.   General characteristic of medical scheme products include general pooling of
           funds; a cross spectrum of benefits; defined benefits; fixed contributions; fee
           for service.
      3.   General characteristics of new generation scheme products include pooling of
           funds across certain benefits; options; savings; threshold benefits and gap
           cover.
      4.   Limits on benefits include pathology; optical; dental; psychological;
           occupational therapy; alternate medicine; auxiliary services.


US 12323 – HBA Products                LEARNER GUIDE                                     6
      5. Restrictions include waiting periods; limit of benefits to specific time periods;
         severity of ailment; pre-notification; notification to medical advisory committee
         and enrolment on lifestyle management programmes.
      6. Legislation means the Medical Schemes Act and Accompanying Regulations.


13.      NOTES:

CRITICAL CROSS FIELD and DEVELOPMENTAL OUTCOMES:

This unit standard supports in particular, the following critical cross-field
outcomes at unit standard level:

      1. Learners are able to organise and manage themselves effectively by
         becoming responsible citizens in conducting research into medical scheme
         and medical insurance products.
      2. Learners are able to communicate effectively using visual, mathematics and
         language skills to analyse, compare and present their conclusions in the
         activities required by the unit standard, calculating late joining penalties and
         explaining terminology commonly used in the industry.
      3. Learners are able to act as responsible citizens in the organisation and local
         community when selecting a product according to a client profile.
      4. Learners are able to demonstrate an understanding of the world as a set of
         related systems when explaining the implications of non-disclosure, indicating
         ways in which legislation places limitations on the structure of different
         products and researching reasons why the industry is moving away from
         traditional schemes to new generation products.
      5. Learners are able to identify and solve problems in making suggestions as to
         the healthcare product most suitable for three different situations.




US 12323 – HBA Products                LEARNER GUIDE                                     7
2          Introduction and overview of the module

2.1          The purpose of this module

Welcome to the Unit Standard 12323: Demonstrate knowledge and understanding of
different products marketed by Healthcare Benefits Administrators with INSQA

The purpose of the module is to provide learners with knowledge and skills to enable
you to demonstrate understanding of this unit standard.

2.2          The teaching strategy

The focus of our teaching role is on facilitating your learning experiences toward
achieving specific assessment criteria. Furthermore, for each of the topics that
comprise this module, the learning experiences are designed with the aim of enabling
you to master the learning content at a predetermined competence level.


2.2.1    LEARNING OUTCOMES, ASSESSMENT CRITERIA AND
LEVELS OF MASTERY
Each topic dealt with in this module contains a statement of the learning outcomes
that we wish to accomplish for the particular topic. In broad terms these tell you about
the knowledge and skills we expect you to have mastered by the time you have
completed your study of each topic. The assessment criteria indicate a required end
result, which is what you should be able to do once you have completed the study
unit. The formulated assessment criteria are based on various levels of mastery that
you are required to achieve when mastering the study material. The required levels
of mastery for this module vary from knowledge and comprehension to the
integration of knowledge under given circumstances. The following levels of mastery
are distinguished for the purposes of this module (Please note that these levels are
not exact duplications of those provided by SAQA, but summaries thereof.):


      2.2.1.1 Level 1: Knowledge and comprehension
This calls for a knowledge and understanding of facts, methods, processes and
structures and an ability to list and explain them. It involves memorising as well as an
awareness, immediate discovery, recall or recognition of relevant information in
various forms. A limited degree of interpretation is required.


      2.2.1.2 Level 2: Application
This calls for a knowledge and understanding of the background and of related topics
and the ability to apply rules, principles, techniques and methods to a problem in
order to find a solution based on the information that is provided.


       2.2.1.3 Level 3:Integration
This calls for a full factual knowledge of the topic, of the background and of related
topics and an ability to carry out integration functions, such as analysis,
interpretation, synthesis and evaluation. It includes the application of multi-
disciplinary knowledge and problem solving in cases where there are various
acceptable solutions. In this sense it constitutes creative thinking, comprising fluency,
flexibility, originality, critical awareness and independent thought.



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The module is aimed at critical cross-field and development outcomes that are the
objectives of the module. They aim to facilitate your mastery of the subject matter by
applying a cross-section of skills and assist your development with defined
outcomes.


2.2.2          Critical Cross Field and Developmental Outcomes


      1. Learners are able to organise and manage themselves effectively by
         becoming responsible citizens in conducting research into medical scheme
         and medical insurance products.

      2. Learners are able to communicate effectively using visual, mathematics and
         language skills to analyse, compare and present their conclusions in the
         activities required by the unit standard, calculating late joining penalties and
         explaining terminology commonly used in the industry.

      3. Learners are able to act as responsible citizens in the organisation and local
         community when selecting a product according to a client profile.

      4. Learners are able to demonstrate an understanding of the world as a set of
         related systems when explaining the implications of non-disclosure, indicating
         ways in which legislation places limitations on the structure of different
         products and researching reasons why the industry is moving away from
         traditional schemes to new generation products.

      5. Learners are able to identify and solve problems in making suggestions as to
         the healthcare product most suitable for three different situations.

2.3          Mastering the study material

This module requires careful and dedicated study. You must become proficient in the
material of this unit standard, which requires diligence and thoroughness.




US 12323 – HBA Products               LEARNER GUIDE                                      9
3          Module 1: Concept, Products and Benefits
Learning Outcomes

    1. The concept of a medical scheme is explained with reference to the role of
       the Administrator in the structure, the co-role of trustees and the role of the
       member in the scheme.

    2. Medical insurance is explained with reference to the role of the insurance
       company and the board of directors.

    3. The kinds of events covered by a medical scheme and the events covered by
       a medical insurance product are compared in a table.

    4. The payment of claims against a medical scheme is compared to claims
       against an insurance product.

    5. Legislation governing medical schemes and insurance products is named and
       an indication is given of the limitations that legislation places on the structure
       of the different products.

    6. The broad spectrum of packages that make up three traditional medical
       scheme products are analysed in terms of benefits and limits.

    7. The information obtained in the research is used to generalise the
       characteristics of conventional medical scheme products.

    8. Three new generation products are researched in terms of guaranteed
       benefits and discretionary benefits.

    9. Information from the research is used to generalise the characteristics of new
       generation products.

    10. Reasons why the industry is moving away from traditional to new generation
        products are researched with reference to financial implications for the
        scheme, claiming patterns, increasing costs of healthcare, needs and
        priorities of members in terms of medical care and costs to the member.

    11. Benefits across three different medical scheme products are compared in
        terms of what is standard, what has limits and how they are covered.

    12. Common exclusions from benefits and exceptions to the exclusions are
        named with reasons why these are generally classified as exclusions.

    13. Benefits that have restricted access are named and reasons are given to
        explain the restriction.




US 12323 – HBA Products              LEARNER GUIDE                                     10
3.1            Introduction

Medical Insurance and Medical Aid Schemes are the ―heart of healthcare‖ – or are
they? Today in South Africa approximately 6 million people are covered by some
type of medical insurance or medical aid scheme, yet South Africa has a population
of 48 Million people – what about the rest?

This unit standard covers the products of the Medical Aid Scheme and the Medical
Insurance, looking at each one in some depth. You, as the learner, will come out of
this unit standard with a good overall knowledge of each.

This course has been designed to be practical and useful, incorporating the
knowledge that you will have to know to complete the formative tasks, actual
examples, case studies and other real tasks with a Summative research task at the
end.

3.2            Recommended Reading and Websites for this Unit Standard

      1.   Medical Schemes Act 131 of 1998
      2.   Medical Schemes Amendment Act 55 of 2001
      3.   Regulations passed in terms of the Medicals Schemes Act
      4.   Draft amendments to the Regulations to the Medical Schemes Act published
           31 April 2002
      5.   Report to the Registrar of Medical Schemes 2000
      6.   Reforming financing of private health care in South Africa: The quest for
           greater access and efficiency: A draft policy document, Department of Health,
           August 1997
      7.   White paper for the transformation of the health system in South Africa: GN
           667 of 1997
      8.   The South Africa health review
      9.   The second Kaiser family foundation survey of health care in South Africa


3.2.1           Websites

      1.   Department of Health:               www.health.gov.co.za
      2.   Council for Medical Schemes         www.medicalschemes.com
      3.   South Africa Revenue Services       www.sars.gov.za
      4.   Health Systems Trust                www.hst.org.za
      5.   SA Managed Care Co-operative        www.samcc.co.za
      6.   South African Medical Association   www.samedical.org




US 12323 – HBA Products                LEARNER GUIDE                                  11
3.3          History of Medical Schemes and Medical Insurance


3.3.1         Introduction

It is very important to have a broad understanding of the history of healthcare funding
and some of the drivers that have influenced the development of the healthcare
funding both here in South Africa and overseas. This will equip you with the basic
knowledge to make sound socio economic and political judgements on factors that
are likely to influence your decision making.

It will become clear as we proceed through this course that healthcare funding in
South Africa, and all over the world, is in turmoil. Even the most sophisticated and
industrialised countries are battling to come to grips with finding the money to pay for
healthcare and its ever-increasing costs.

South Africa has its own unique set of problems and thus will have its own set of
answers.


3.3.2         The development of Healthcare

        3.3.2.1 Origins of Healthcare

The United States Congress established the first health insurance in the USA, in
1798, through the US Marine Hospital, which provided prepaid hospital care for
seamen. The insurance was funded by compulsory payroll deductions.

By the mid 19th century private companies began to issue sickness and disability
insurance. In 1850 the Franklin Health Insurance Company of Massachusetts offered
insurance for railroad and steamboat injury. By 1870 companies in industries such as
mining, lumber and railroads began to establish health insurance plans.

In 1910 Montgomery Ward and Company offered the first group health insurance
policies to employees. During the great depression of the 1930’s hospital occupancy
rates fell 50% and hospital responded by developing health insurance plans including
Blue Cross / Blue Shield Systems.

The first health maintenance organisations (HMO’s) also appeared during the 1930’s.
However the Social Security Act, passed in 1935 did not cover health insurance

After World War 2, during the time that wages were frozen, the unions started to
press for fringe benefits. It was during this period that employer began to offer health
insurance as an employee benefit. In the USA, the government and employees had
to find ways of covering the poorer segments of the population and during the 1960’s
Medicaid and Medicare was established to fund people receiving State financial
assistance.

By the 1970’s medical insurance was a thriving business and was accepted as the
alternative to national insurance. This arrangement was beneficial to health industry
interests and suited employers who could limit group premiums to the cost calculate
for their own relatively health groups.




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However it was during this period that the perverse incentives of the ―fee for service‖
system (where a medical scheme is provided and then pays the costs regardless)
began to be felt. Over servicing both by medical service providers and patients
became rife. Medical schemes responded with a range of product designs and
solutions and managed care initiatives to avert insolvency.

The economic recession of the 1980’s and early 1990’s in the USA impacted
negatively on health insurance. Companies reduced labour costs through downsizing
and switching from full time to part time labour (contract work). The price of
premiums to both firms and employees increased and the numbers of uninsured
people increased.

The economic growth phase seen in the 1990’s has not seen a reversal in the trend
and although the USA has a very well developed medical insurance system, both
private and public, over 50 million people remain uninsured in the USA.

3.4          Concept of a Medical Scheme


3.4.1         Introduction

The medical schemes industry in South Africa has, is and will continue to be a
turbulent one, surrounded by legislation and amendments to this legislation. Briefly
before the current Medical Schemes Act of 1998, the industry was governed by the
Medical Schemes Act of 1967 as amended.

The restrictions and limitations imposed by this act were responsible to a large
degree for the administration methods and rating structures used by medical
schemes in the past, and thus for a number of less desirable features of those
schemes.

A major requirement of the act was that only a medical scheme may provide
insurance for the defray of medical costs, furthermore, a medical scheme may not
transact other business. The implication of this restriction is that only a medical
scheme may reimburse members for medical costs incurred. This means that any
insurance company offering healthcare coverage may only do so on an ―approximate
basis ― – benefits cannot be defined to be equal to the insured person’s medical
expenses.

Medical Schemes Act of 1994 removed many of the restrictions that that had
previously hampered the effective administration of medical schemes and led to the
following changes;

       The removal of minimum benefits for certain benefit categories, including
        medication and dental care, as well as routine visits to the general
        practitioner.
       The removal of the so-called Representative Association of Medical Schemes
        (RAMS) ―Scale of Benefits‖.
       The removal of the requirement that contributions may only be based on a
        member’s race, income level and number of dependents. This act further
        allowed for premium calculations to be based on age, gender and medical
        impairments




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The concept of a medical scheme can be defined in two ways, by looking at the
definition of the ―business of a medical scheme‖ as per the definitions of the Medical
Schemes Act 131 of 1998, as amended and by looking at the Section 24 of the same
act that defines a Medical Scheme.


3.4.2         What does the law say?

The Medical Schemes Act, No 131 of 1998 defines the ―Business of a Medical
Scheme‖ as;

means the business of undertaking liability in return for a premium or contribution—

(a) to make provision for the obtaining of any relevant health service;
(b) to grant assistance in defraying expenditure incurred in connection with the
    rendering of any relevant health service; and
(c) where applicable, to render a relevant health service, either by the medical
    scheme itself, or by any supplier or group of suppliers of a relevant health service
    or by any person, in association with or in terms of an agreement with a medical
    scheme;

SS. 24-26 Medical Schemes Act, No. 131 of 1998 SS. 24 – 26

(2) No medical scheme shall be registered under this section unless the Council is
     satisfied that—
(a) a member of the board of trustees or the principal officer of the proposed medical
     scheme is a fit and proper person to hold the office concerned;
(b) the medical scheme complies with or will be able to comply with any other
     provision of this Act;
(c) the medical scheme is or will be financially sound;
(d) the medical scheme has a sufficient number of members who contribute or are
     likely to contribute to the medical scheme;
(e) the medical scheme does not or will not unfairly discriminate directly or indirectly
     against any person on one or more arbitrary grounds including race, gender,
     marital status, ethnic or social origin, sexual orientation, pregnancy, disability and
     state of health; and
(f) the registration of the medical scheme is not contrary to the public interest.

(3) The Registrar shall transmit to the applicant a certificate of registration and a copy
    of the rules of the medical scheme reflecting the date of registration of such rules.
(4) If an application for registration is rejected, the Registrar shall in writing indicate to
    the applicant in what respect the medical scheme in question does not comply
    with the provisions of this Act.
(5) The Registrar may demand from the person who manages the business of a
    medical scheme which is in the process of being established, such financial
    guarantees as will in the opinion of the Council ensure the financial stability of the
    medical scheme.

S.S.25. Notification of registration, the Registrar shall publish in the Gazette a
    notification of the registration of a medical scheme setting out—
(a) the name and address of the medical scheme;
(b) the date of registration; and
(c) any terms and conditions imposed.




US 12323 – HBA Products                LEARNER GUIDE                                       14
S.S.26. Effect of registration.—
( 1 ) Any medical scheme registered under this Act shall—

(a) become a body corporate capable of suing and being sued and of doing or
      causing to be done all such things as may be necessary for or incidental to the
      exercise of its powers or the performance of its functions in terms of its rules;
(b) assume liability for and guarantee the benefits offered to its members and their
      defendants in terms of its rules; and
(c) establish a bank account under its direct control into which shall be paid every
      amount—
(i) received as subscription or contribution paid by or in respect of a member; and
(ii) received as income, discount, interest, accrual or payment of whatsoever kind.
(2) No person shall have any claim on the assets or rights or be responsible for any
      liabilities or obligations of a medical scheme, except in so far as the claim has
      arisen or the responsibility has been incurred in connection with transactions
      relating to the business of the medical scheme.

3.5          The Board of Trustees

3.5.1         Introduction

The Board of Trustees of a Medical Scheme is similar to a board of directors of a
company. The law prescribes certain appointments be made by the scheme, its
administrator and the members of the scheme. It is put in place to guide the
management of the scheme in a manner best suited to the interests of the members
of the scheme and it is expected that each trustee takes his responsibility serious
enough to be held accountable if something goes materially wrong.


3.5.2         Definitions

“Board of trustees‖ means the board of trustees charged with the managing of the
                    affairs of a medical scheme, and which has been elected or
                    appointed under its rules;

“Officer”                 means any member of a board of trustees, any manager,
                          principal officer, treasurer, clerk or other employee of the
                          medical scheme, but does not include the auditor of the
                          medical scheme;

“Principal officer” means the principal officer appointed in terms of section 57 (4)
                     (a);


3.5.3         Registration and Rules

S.S.2     No medical scheme shall be registered under this section unless the
          Council is satisfied that—
(a)       a member of the board of trustees or the principal officer of the proposed
          medical scheme is a fit and proper person to hold the office concerned;

S.S. 5    The board of trustees’ report referred to in subsection (1) shall—




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(a)      Deal with every matter which is material for the appreciation by members of
         the medical scheme of the state of affairs and the business of the medical
         scheme and the results thereto.

SS. 29. Matters for which rules shall provide.


                              In the section below, the main points of SS 29
                              have been extracted for the purpose of these
                              notes. However we do suggest that you refer to
                              the Medical Schemes Act of 1998 and read SS
                              29 in its entirety for completeness

(1)      The Registrar shall not register a medical scheme under section 24, and no
         medical scheme shall carry on any business, unless provision is made in its
         rules for the following matters:
(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.

SS. 46. Removal of member of board of trustees.
(1)    The Council may, by notice in writing, remove from office a member of the
       board of trustees of a medical scheme if it has sufficient reason to believe that
       the person concerned is not a fit and proper person to hold the office
       concerned.


Trustees are required to know the fund rules as they must provide information on
behalf of the members to the administrator of the fund according to those rules. The
fund rules regulate the operation and administration of the fund and set out the rights
and obligations of the parties to the fund. It is very important to note that the
trustees of the fund do not administer the fund.

All funds have their own set of rules that govern the fund and are tailor made with
distinguishing characteristics. The Registrar of Medical Schemes must approve all
fund rules, as there are minimum requirements laid down by the Medical Schemes
Act of 1967. Examples of the minimum requirements are listed below.

       Fund name. The fund must have a registered name by which it is identified.
        All documentation and correspondence is made in the fund's name.
       Fund object: The fund objective details the purpose of the fund. It sets out
        what type of fund it is and how it operates.
       Requirements for fund membership and termination; this is a detailed
        policy or procedure to be followed in the event of new members, their
        eligibility and circumstances under which membership would case.
       Appointment of a liquidator; the fund rules must make provision for the
        appointment of a liquidator. The name of the liquidator must be set out in the
        fund rules.
       Dissolution or termination of the fund: The fund rules must detail a
        procedure to follow upon (the dissolution or termination of the fund).



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       Custody of title deeds and other fund owned securities; the rules of the
        fund must contain whom has custody of the title deeds and other fund owned
        securities.
       Rules for fund amendments: Any amendments to the rules of the fund must
        comply with the procedure set out in the rules of the fund.
       Appointment, removal and powers of officers: Fund rules must specify the
        procedure for the appointment, removal and powers of officers. In addition,
        the rules must specify which circumstances warrant removal from office.
       Beneficiaries’ entitlements: The fund rules must specify the conditions
        under which members or other persons may become entitled to benefits.
       Nature and extent of benefits; The fund rules must specify the nature and
        the extent of the benefits available through the fund.
       Disputes resolution. Methods for setting disputes must be detailed in the
        rules of the fund. Fixed procedures must be adhered to e.g. a disputed claim
        for benefits.
       Appointment of an auditor: The fund rules must make provision for the
        appointment of an auditor.
       Investments: The fund rules must contain the powers of investment, i.e. the
        fund must its have its own investment guidelines.


3.5.4         Financial responsibilities of the Board of Trustees


        3.5.4.1 What does the law say?

(c)      amounts invested by the board of trustees in accordance with section 35 (7).

(10)     The board of trustees of a medical scheme shall, subject to the provisions of
         subsection (13) appoint an audit committee of at least five members of which
         at least two shall be members of that board of trustees

The Auditor needs to;

         Assist the board of trustees in its evaluation of the adequacy and efficiency of
         the internal control systems, accounting practices, information systems and
         auditing processes applied by that medical scheme or its administrator in the
         day-to-day management of its business;

SS. 37. Annual financial statements.
(1)    The board of trustees shall in respect of every financial year cause to be
       prepared annual financial statements and shall within four months after the
       end of a financial year furnish copies of the statements concerned together
       with the report of the board of trustees to the Registrar.



        3.5.4.2 Investment Responsibilities

One of the responsibilities of the trustees is that they are expected to make
investment decisions on behalf of the members of the fund.

Trustees rarely have the skills and expertise to properly manage the investments of
the fund themselves, but they often do not make the actual investment decision.


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Trustees are required to appoint one or more investment managers to manage the
fund. In order to make a more informed decision, trustees have to develop their skills
and understanding in this area.

The following options are open to the trustees:

     The fund itself can employ people who buy and sell investments
     The trustees can appoint firms such as life insurers, unit trust managers and
      stock brokers to manage their investments
     A combination of the above options.


      3.5.4.3 The Investment Manager

Selecting an investment manager is not an easy trustee task. Before entrusting an
investment manager with the task of looking after the fund, the trustees have to
analyse the fund. Once they have a complete picture of the fund, they can determine
what kind of expert is required to manage the fund.

There are a number of areas that the trustees have to analyse before they can select
an investment manager-.

     Members Profile: The average age of the members of the fund will affect
      what investment route you should consider. If the average age of the
      members of the fund is under forty years old, they are in a position to take a
      more high-risk profile. Therefore you could choose an investment vehicle that
      has good growth prospects. However, if the members were close to
      retirement a more low-risk profile would be a better option.
     Assets of the Fund: The size of the assets of the fund should determine the
      type of investment portfolio chosen:
           o Unitised investment vehicle
           o Segregated fund
           o Split funding.
     Cash Flow of The Fund: All funds have expenses to pay such as premiums
      and professional fees. Once these payments have been made, the balance of
      the money is invested. The cash flow of a fund will influence the fund's
      investment portfolio.
     The influence of the Market: The political and economic environments have
      a large influence on the current market. The trustees often base their
      decisions on the current market, which is often the wrong route to follow. A
      long-term strategy should be adopted when portfolio managers invest funds
      for retirement purposes.
     Investment Strategy: Once the trustees have analysed all the above areas,
      they can establish a complete investment strategy for the fund and they can
      determine what investment manager will best meet the needs and
      circumstances of the fund.



      3.5.4.4 Fiduciary Duties of Trustees

SS. 57. General provisions on governance.




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(1)      Every medical scheme shall have a board of trustees consisting of persons
         who are fit and proper to manage the business contemplated by the medical
         scheme in accordance with the applicable laws and the rules of such medical
         scheme.
(2)      At least 50 per cent of the members of the board of trustees shall be elected
         from amongst members.
(3)       A person who is a director or an employee of an administrator of a medical
         scheme shall not be a member of the board of trustees of such a medical
         scheme.

SS. 57 – 58 the duties of the board of trustees shall be to;

                               In the section below, the main points of SS 57-
                               58 have been extracted for the purpose of these
                               notes. However we do suggest that you refer to
                               the Medical Schemes Act of 1998 and read SS
                               57 and 58 in their entirety for completeness



       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
       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;
       ensure that proper control systems are employed by or on behalf of the
        medical scheme;
       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;
       take all reasonable steps to ensure that contributions are paid timeously to
        the medical scheme in accordance with this Act and its rules;
       take out and maintain professional indemnity insurance and fidelity guarantee
        insurance from and up to such amount as the medical scheme’s auditor, with
        the concurrence of the Registrar, may determine;
       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;
       ensure that the rules, operation and administration of the medical scheme
        comply with the provisions of this Act and all other applicable laws; and
       take all reasonable steps to protect the confidentiality of medical records
        concerning any member’s state of health.
       Any notice required or permitted to be given to a medical scheme in terms of
        this Act shall, if given to the principal officer, be deemed to have been duly
        given to the medical scheme.
       the board of trustees shall—
            o take all reasonable steps to ensure that the interests of members in
                terms of the rules of the medical scheme and the provisions of this Act
                are protected at all times;
            o act with due care, diligence, skill and good faith;
            o take all reasonable steps to avoid conflicts of interest; and act with
                impartiality in respect of all members.




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The trustees and the principal officer of the fund have the power in terms of the rules,
to do all the things necessary to give effect to the rules in accordance with the
provisions of the law. As such, they all stand in a fiduciary relationship to the
members of the fund and are subject to the fiduciary duties in terms of both common
law and in terms of the Financial Institutions Act of 1984.


        3.5.4.5 The most important duties of the Trustees are discussed below

        To Act with Due Care and in Good Faith
        To Act Impartially
        To Hold Asset
        To Obtain Expert Advice
        The Duty to Administer Properly
        The Duty to Know.
        To Avoid Conflict of Interest


        3.5.4.6 To Act with Due Care and in Good Faith

It is expected of a trustee to display a greater extent of care in exercising his/her
duties than managing his/her own affairs. The duty is to act with diligence. There are
four main areas where the trustees must act with exceptional care.

     The trustees must handle any property entrusted to them with greater care
      than they would in dealing with their own property.
     The trustees must keep the members of the fund informed of all changes and
      their benefits relevant to them at all times.
     The trustees are responsible for ensuring that all relevant matters are
      sufficiently covered in meetings.
     Trustees have to fully understand all the relevant legal aspects in their
      capacity as a trustee.

It is important that a relationship of trust exists between the trustees and the
members, as this will help alleviate any concerns that members may have. It follows
that the more transparent the fund is, the more committed to it the members will be.

Good faith is not quantifiable. The standard required for good faith is the highest
standard. There is no other acceptable manner of behaviour other than that of utmost
good faith. The duty to act in good faith implies acting honestly and in the very best
interests of the members of the fund. A breach of good faith, no matter how small,
results in the trustee being mala fides or acting in bad faith. There is no sliding scale
of good and bad faith.



        3.5.4.7 To Avoid Conflict of Interest

Trustees are required to maintain an independent and impartial interest in the
business of the fund. They are required to put the interests of the fund above all else.
The trustee is still required to promote the interests of the beneficiaries to the
exclusion of all else. This duty includes the obligation to disclose any conflict of
interest.




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Conflicting interest include borrowing money from the fund to invest in their own
company or deciding on benefit increases and distribution of surpluses when they
themselves are members. In addition, serving only the employer's interests if they are
appointed as the employer, also constitutes a conflict of interests.

Common law requires trustees to account for, and to pay the fund, any profit that
they may have derived.



      3.5.4.8 To Act Impartially

The trustees are required to act impartially in respect of all beneficiaries. They must
ensure that all members of the fund receive unbiased treatment from the trustee.
Trustees may not discriminate or act against the interest of one member to the
benefit of others.



      3.5.4.9 To Hold Assets

Acting in good faith is not sufficient when holding assets. Trustees must act with
proper care and diligence. Trustees have to take greater care in managing the assets
of the fund than managing their own money.

Trustees are not entitled to have a personal interest in any trust property. Therefore,
any partnership between trustees and another entity involving the fund's assets is
strictly prohibited.



      3.5.4.10 To Obtain Expert Advice

It is unlikely that trustees are experts in all fields of trusteeship. Therefore, trustees
must consult experts when they do not have adequate knowledge or the skills that
are required. Often, actuarial, legal, medical, financial and administrative knowledge
may be required.

When duties are delegated to experts, especially with regard to the investment of
fund monies and administration of the fund, the rules need to make provision for
powers of delegation. The trustee has to enter into a contract with the experts, but
may still be liable for any negligence or non-performance of the contractors. Although
trustees delegate tasks, they do not renounce responsibility for a decision.

Ultimately, the trustees decision must be one of their own and not only advice from
an expert source. The trustees must give the decision due consideration and derive a
decision based on their own assessment of any given situation.


      3.5.4.11 The Duty to Administer Properly

All trustees are involved in the administration of the scheme to a degree and thus it is
the trustee's duty to administer the fund to a greater or lesser the fund properly.
Common administration tasks include the following.


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     Submitting information to benefit providers and administering the underwriting
      requirements.
     Transferring funds to the investment account.
     The collection and depositing of contributions.
     The maintenance of membership records.
     The preparation and submission of financial statements.
     Maintenance of the fund's records and preparation of data for the valuations
      of the fund.
     Ensuring that the fund is sufficiently covered by fidelity insurance against
      fraud or negligence on the part of the trustees.


        3.5.4.12 The Duty To Know

The fiduciary duty by which trustees are bound requires that trustees have a duty to
know. The field of a trustee's knowledge should be vast. A trustee is expected to
know the contents of numerous Acts of Parliament, case law, common law and a
portion of statutory law.

In addition, trustees need to know what is expected of them in their capacity as a
fund trustee. They must know where to obtain expert advice on fund management
matters.

Trustees and principal officers act in various roles. They serve in a professional
capacity rather than a role in the company. Their fees are paid as professional
services. Communication with the members is of the utmost importance for trustees.
As trustees are unable to spend time with the members of the fund the
communication channels must be effective.

Trustees and principal officers have to make decisions that require a great amount of
skill and understanding. In addition, they stand in a fiduciary relationship to the
members of the fund and are subject to the fiduciary duties in terms of common law
and the Financial Institutions Act 1984.

Statutory law, common law and customary law govern the duties and responsibilities
of many trustees. Trustees are not expected to be experts in the legal field, but
should have a good working knowledge to enable them to take informed decisions,
within our South African legal system.

Trustees of medical schemes have to manage money on behalf of other people,
namely the members of the fund. Thus, the duties and responsibilities of trustees, are
laid out in a number of legal documents and are governed by various principles.

It is recommended that trustees have a good working knowledge of the statutes
applicable to medical schemes. In addition, common law principles and customary
law principles must not be overlooked.



3.5.5         Duties and Responsibilities of the Principal Officer

The Principal Officer has additional duties and responsibilities over than that of the
trustees.



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The Principal Officer does not replace fund trustees or in any way interfere with the
fund's management. The Principal Officer is in a more administrative and
authoritative role and is the person with whom the Registrar of Medical Schemes will
correspond. In addition, the Registrar will expect answers to his queries regarding the
specific fund.

The Principal Officer has some statutory duties, such as co-signing fund financials.

The Registrar has requested, in addition, that Principal Officers should be located at
the administrator's offices. However in reality, often the Principals Officers office is
located at the place most suitable, for example, a co administrator.


3.5.6          Duties and Responsibilities of the Committee of Management

The Management Committee is established as a committee that is responsible,
firstly, for the appointment of the actual committee and, secondly, to establish terms
of reference. The Management Committee is also answerable to the Board of
Trustees. In addition, the meetings and proceedings of the Management Committee
are governed by the provisions of the Rules of the Scheme and are not superseded
by any other conditions.

The Board of Trustees usually determines meetings of the Management Committee.
All minutes of the meetings must be submitted to the Board of Trustees.

The Management Committee undertakes the operational management of the
scheme. This enables the Board of Trustees to be untied, to consider more urgent
policy-related matters. In the event of the Management Committee needing
assistance, it is authorized to form sub-committees. Sub-committees assist with the
execution of the Management Committee's duties and responsibilities

The duties and responsibilities of the Management Committee include, inter alias:

         The production and approval of monthly reports
         Any shortfalls incurred, produced in a monthly report
         Outstanding contributions
         Production
         Operations
         Investments
         Working Groups


3.6           Medical Insurance.


3.6.1          Introduction

Medical insurers are relatively new to the private health industry and some still act as
interested spectators. However, over the last decade in excess of one million health
policies have been sold to individuals. Life insures are prevented from competing
directly in the medical scheme industry because of restrictions placed on them by the
Medical Schemes Act.




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Momentum Health was the first of a new breed of health insurance companies in that
it marketed health insurance (combined with medical scheme), as it’s only product,
primarily to group schemes. However demarcation has now become entrenched in
the system and the future is likely to see many more insurers integrate closely with
their administrators so that the public will be hard pressed to separate the medical
scheme from the insurer. Demarcation issues need to have a short note.

As in the USA though, South African Life insurer have been relatively slow to enter
the managed care market. Their capital and client bases make them ideal candidates
for an easier entry into a difficult market.


3.6.2         Medical Insurance Products

True reimbursement coverage may still only be provided by medical schemes,
according to most interpretations of the Medical Schemes Act (Insurance is a stated
benefit whereas medical scheme is an indemnity benefit). However, the existence of
the benefit ―gap‖ faced by the majority of medical schemes members has led to the
emergence and ―top-up‖ coverage’s, primarily sold by the insurance companies.
These provide benefits that approximate (with greater lesser degrees of accuracy) to
the costs incurred by the insured members, with benefits reflecting the severity of the
underlying medical condition.


                                          Insurance is a stated benefit
                                          product and medical aid is an
                                            Indemnity Benefit Product




The products offered generally fall into two categories:


        3.6.2.1 Hospital Cash

Hospital cash policies generally pay the insured a fixed rand amount for each day
spent in hospital after a waiting period of zero, or alternatively after the excess is
paid. Benefits are often doubled for stays in high care or ICU wards and limits are
often imposed for psychiatric hospitals, confinements or stays, which do not require
major surgery. Hospital cash policies have sold very well via direct mail and several
large banks have offered policies such as this to their credit card holders. However,
Hospital Cash policies generally cover only room and board rates of hospital stays
and members often were still left short because of additional (e.g. surgeon’s and
anaesthetist’s) fees. Hence the development of major medical expense policies.




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        3.6.2.2 Major Medical Expenses.

Major Medical Expenses (MME) polices pay benefits related to the severity of
surgery or the nature of the treatment received. Early polices paid benefits according
to a short list of broad surgical categories but as competition increased the length of
surgical schedules increased rapidly. Today, some surgical schedules list more than
500 procedures for which benefits are paid. To simplify polices, these were paid in a
number of categories of severity and lists are composed showing only the ―severity
category‖ under which each procedure was categorised.

For example, under a certain product structure, where the policyholder has chosen a
sum assured, benefits were paid by determining the severity of a procedure and
paying a benefit in proportion to the sum assured. For example, for a policyholder
who had elected R100 000.00 sum assured, a heart transplant may pay out the full
sum assured whereas a knee replacement may only warrant a benefit of 30% (i.e.
R30 000.00).

During the early 1990’s the benefits and lists of these policies have increased and
have been tailored to integrate more easily with medical schemes. In fact some
insurers have arranged for medical schemes to design products that integrate with
their top-up policies. Also, some insurers sell a combination of hospital cash and
MME policies as a complete replacement for a medical scheme hospital plan.



3.6.3         Long Term Care

A handful of insurers have entered the long-term care (LTC) market, but success has
been very limited. LTC policies generally pay benefits when the (usually aged)
insured is no longer able to perform several activities of daily living (ADL’s), such as
dressing, driving and bathing without assistance. The benefits are designed to pay
for home care or assisted home care. Premiums are high and South Africans are
generally unaware of the need for such benefits. As the population ages and the
costs of post-retirement health care increase further, these policies may enjoy
greater support.


        3.6.3.1 What does the law say?

The Long-Term Insurance Act, 58 of 1998 defines a health policy as

"a contract in terms of which a person, in return for a premium, undertakes to provide
policy benefits upon a health event, but excluding any contract: of which the
contemplated policy benefit are:

     something other than a stated sum of money;
     are to be provided upon a person having incurred, and to defray, expenditure
      in respect of any health service obtained as a result of the health event
      concerned; and
     are to be provided to any provider of a health service in return for the
      provision of such service‖

There has been a proliferation of this type of product in South Africa born from the
need to;


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     Offer lower premiums in a high cost environment
     Overcome limitations in the industry where commission payments to
      marketers were not allowed
     Individually underwrite and set low entry-age limits
     Open new markets by the life assurance houses

Since 1994, the South African market has been inundated with health insurance
products offered by long-term assurers. Up to 1999 we saw hybrid products
combining a health insurance product with a medical scheme. This was, however,
effectively outlawed from 2000 by the new Medical Schemes Act..

These products operate on the basis of a list of stated benefits. The most common
procedures are allocated and paid at a predetermined Rand value and, depending on
the length of stay in-hospital, a further predetermined amount will be payable per day
admitted. These daily benefits usually cover the member from the fourth day onwards
so as to eliminate more frequent events and limit claims. The cash payout is paid to
the member directly and not to the provider of the health service.

These benefits are independent of any other benefits that the insured may enjoy,
such as from his/her own medical scheme. The benefits are paid directly to the
member and not the provider of the health service. Premiums for these products are
underwritten, and based on the age and health status of the applicant. Applicants can
either be excluded or the premium can be loaded if their health status is of an
unacceptable risk level to the insurer.



3.6.4         Short-Term Insurers

Short-term insurers offer products similar to the life insurers except that their policies
are generally annually renewable. Insurers such as Aegis, AIG and Master and VISA
Card and Cigna have offered such policies in the past and still do in some cases.


        3.6.4.1 Short-term insurance products - What does the law say?

The Short Term Insurance Act 53 of 1998 defines an

accident and health policy as "a contract in terms of which a person, in return for a
premium undertakes to provide policy benefits if:
    a disability event;
    a health event; or
    a death event contemplated in the contract as a risk, occurs, but excluding
       any contract of which the contemplated policy benefits:
          o are something other than a stated sum of money;
          o are to be provided upon a person having incurred, and to defray,
              expenditure in respect of any health service obtained as a result of the
              health event concerned; and
          o are to be provided to any provider of a health service in return for the
              provision of such service

Health insurance products offered by short-term insurers are generally designed to
supplement the benefits of a medical scheme and mostly pay for more serious 'in-


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hospital' procedures. The products are often designed to assist the insured where
his/her healthcare costs are likely to exceed an amount of R10 000.00, relating to a
specified condition, treatment or time spent in hospital.

These benefits are independent of any other benefits, which the insured may enjoy,
such as from his/her own medical scheme. The benefits are paid directly to the
member and not the provider of the health service. Premiums for these products are
generally low, bearing in mind that such products are either monthly or annually
renewable subject to cancellation at the discretion of the insurer

Health insurance products offered by short-term insurers can effectively provide cash
amounts for specific predetermined events, but can never replace the benefits or
business of a medical scheme.




3.6.5         Other vehicles including benefit funds

        3.6.5.1 Benefit Funds

In recent years, a number of benefits funds have been used for the provision of
medical benefits. These funds generally have as their purpose the controlling of
utilisation of medical services, by providing financial incentives for members not to
abuse their benefits. In the crudest form, these funds consist simply of individually
allocated savings accounts, which members may apply only to medical costs (and
then only in terms of specified rules, which generally closely resemble medical
scheme rules). Members who claim less than the balance in their accounts will carry
forward the extra to future years with interest. Those who claim excessively and
exhaust their savings bear the additional costs themselves.

During the last two to three years however, the commissioner of Inland Revenue has
clamped down on the use of such funds where he has deemed them to have
―overstepped the mark‖, as defined by the commissioner from time to time. Also the
revision to the Medical Schemes Act has meant that benefits, which could only once
be offered through benefit funds, can now be offered directly through medical
schemes.

        3.6.5.2 Other Vehicles

Other vehicles and almost every conceivable combination of vehicle have been used
to provide medical benefits in the past. The increased flexibility of medical schemes
however, is likely to reduce the number of alternative funding vehicles used for health
care funding.


3.6.6    Application of Short-term and Long-term (Life) Assurance
Products

The business of a medical scheme is totally different to that of both long- and short-
term health insurance products. Professional Healthcare Consultants / Brokers
should discourage the following practices and / or improper advice:




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Very recent legislation has introduced FAIS (Fit and Proper). Within this piece of
legislation the government has laid down a number of requirements that a broker /
administrator or any person that sells and kind of financial instrument to be
accredited and be qualified in terms of their product category.

Downgrading the level of cover by a medical scheme and top it up with a long-term or
short-term health insurance product.

Cancel a medical scheme and supplement it with a long- or short-term health
insurance product under any circumstance whatsoever, including reduced premiums.


3.6.7         Conclusion

An already complex industry has only now begun to embrace its newfound flexibility.
The onslaught of managed care concepts and technology will raise the levels of
complexity to new heights. Players will become more sophisticated, offering ever
greater levels of service in order to survive, furthermore, as the industry matures we
are likely to see some ―fall-out‖ as weaker players fail, or as some of the traditionally
dominant players prove unable to adapt to the new demands of their clients.




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3.7          Task1 : Players in the Healthcare Market

 Use mind map below, indicate the three parties involved in a medical scheme
 transaction. Within each block also write two points on your understanding as to who
 each of these parties are and what their functions are.




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3.8          Task 2: Newspaper Article

Required to do:

Read through the following newspaper article and at the end of this article note
down five points that a medical scheme differs from medical insurance. If
necessary use you knowledge gained through reading the unit standard
content

“Hospital cash plans take most pain from health cover ruling
DEMARCATION By LUCIENNE FILD – Sunday Times 10/09/2000

Thousands of policyholders could lose their health insurance cover in its present form.

This follows a victory by the Council of Medical Schemes in its demarcation battle over what
constitutes the business of a medical scheme and what is genuine health insurance.

Several insurers must now restructure their policies to comply with the agreed demarcation or
face legal action.

Following months of protracted negotiations, the Council and the Financial Services Board
(FSB) issued a joint statement this week on the demarcation issue. The FSB represents the
interests of short- and long-term insurers.

Patrick Masobe, CE of the Council of Medical Schemes, stresses that both parties are
committed to protecting the rights of policyholders.

The Registrar of Medical Schemes and the Registrar of Insurance will look at the practical
implications of the demarcation agreement and ensure a phased approach to any policy
changes.

Both the council and the FSB now agree that a medical scheme indemnifies individuals
against health care expenses in full or in part.

Health insurance, on the other hand, must be based on a specific health event and benefits
payable may not be related to the cost of treatment. Benefits may also not be determined with
reference to medical procedures or services.

Murray le Roux, long-term insurance specialist at the FSB, says the demarcation agreement
is likely to have the greatest impact on health insurance products like hospital cash plans,
which pay a fixed amount for every day in hospital.

In future, these plans must predefine health events covered and may pay only a fixed lump
sum in the event of hospitalisation, regardless of the length of stay.

A health insurance product may:
     Pay a lump sum not tailored to actual medical expenses.
     Link benefits to a contingency other than paying medical expenses such as income
        replacement.
     Pay benefits on a periodic basis, such as disability income benefits.
     Pay health insurance benefits directly to the policyholder.
     Operate on the basis of a minimum sum assured.

Health insurance may not:
    Be conditional on membership of a particular medical scheme.
    Be sold on a conditional basis to members of a medical scheme.
    Make reference to a medical scheme in its marketing.

All insurance policies must carry a warning that cover is not equivalent to a medical scheme‖


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       Medical Scheme              Medical Insurance
1




2




3




4




5




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3.9          Task 3: Newspaper Article
 Required to do:
 Read through the following newspaper article, noting down 5 points where the
 Medical Schemes Act has provided for protection of a medical scheme
 member.
“Laws there to protect medical aid members
Survey: Managed Health Care Location: Sunday 21 Apr 2002 >
Business Surveys

Consumers have been armed with the right to ensure they get
fair and efficient treatment from their medical schemes
The recently amended Medical Schemes Act is, at heart, a piece of consumer legislation.
In fact, one of the objectives of the Council for Medical Schemes in creating the Act was
to protect the interests of the beneficiaries of medical schemes "at all times".

Nevertheless, says a Johannesburg attorney, members should familiarise themselves
with the terms and conditions of the medical aid scheme to which they belong.

Neil Kirby, director of Werksmans Attorney's healthcare department, says the most
profound effect of the Act on the medical aid industry is that it effectively removed
schemes' ability to risk rate members. This means all members pay the same premium in
order to receive the benefits of medical aid cover.

"The recent amendments to the Act arguably enhance the rights of members - now
referred to as beneficiaries - who, at this time, are suffering the brunt of increasing
medical costs," Kirby says.

These rights may be championed or protected in two ways.
The first is by the registrar of medical schemes, who is now empowered to conduct an
inspection of a medical scheme "if he or she is of the opinion that such an inspection will
provide evidence of any irregularity or of non-compliance with [the] Act by any person" or
"for purposes of routine monitoring of compliance with [the] Act by a medical scheme or
any other person".

As amended, Section 43 of the Act also entitles the registrar to address to a medical
scheme any inquiries related to "any matter connected with the business or transactions
of the medical scheme". The second is by the members themselves. In this regard,
Section 47 of the Act affords the members the right to lodge a complaint with the registrar
against a truant medical scheme.

Says Kirby: "If the member is not satisfied with the outcome of the complaint, he or she
may appeal to the Council for Medical Schemes.

"The Act therefore provides the member with a procedure that does not require that the
beneficiary incur legal costs or formal litigation."

The rules of a medical scheme, which form the contract between the scheme and its
members, are also regulated by the Act. What the rules may and may not contain is
specified.

These specifications are designed to protect members against discrimination and the
admission of members to a scheme without the imposition of a waiting period. Written




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notice is required to be given to members "of any change in contributions, membership
fees or subscriptions and benefits or any other condition affecting their membership".

The Act also specifies the manner in which a scheme may be liquidated.

"The rules are important and members should familiarise themselves with their
provisions," says Kirby.

The Act also deals with the ever-increasing threat of medical aid fraud.

The victims of such fraud are the schemes and its members who are, ultimately, the ones
who have to pay higher premiums in order to cover the costs of fraud investigations and
litigation.

"In terms of Section 59 (3) of the Act, a medical scheme may deduct from any amount
owing to either a member or the supplier of a health service 'any loss which has been
sustained by the medical scheme through theft, fraud, negligence or any misconduct
which comes to the notice of the medical scheme'," says Kirby

"An issue that dovetails with medical aid fraud is the efficient and accountable
governance of a medical scheme.

"The governing structures of schemes have been changed in order to introduce a more
transparent system of administration and decision-making procedures.

"In terms of sections recently introduced into the Act, the principal officer of a medical
scheme may not be a medical aid broker or employee, director, officer, consultant or
contractor of the administrator of the medical scheme concerned, or the holding
company, subsidiary, joint venture or associate of the administrator.‖

Point     Detail
No:
1


2


3


4


5




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3.10         Task 4 Concept of Medical Insurance and Medical Scheme

In each of the blocks below describe in no more that 20 words, what a medical
scheme is and what a medical insurance is. Clearly distinguish between the two by
identifying the main characteristics of each (use both your notes and the two
newspaper articles provided).
MEDICAL SCHEME                            MEDICAL INSURANCE




MAIN CHARATERISTICS                      MAIN CHARATERISTICS




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3.11         Task 5: Main events covered

In the following exercise you are required to read though the following statements
and phrases and then place them into the block belonging to either the medical
scheme or the medical insurance.
     Pay medical suppliers directly,
     Pay the member,
     A lump sum.
     Principal officer,
     CEO, Premium,
     Pre existing condition.
     Council for medical schemes,
     Community rating,
     Limited cover,
     Top up plans,
     Members,
     Clients.
Medical Scheme                             Medical Insurance




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3.12         Types of Medical Schemes


The principal financial intermediary of the South African private health care sector are
Medical Scheme accounting for 66% of the total healthcare budget within the private
sector.

In this section the different types of medical schemes are described.

The following medical schemes exist or have existed in South Africa:


3.12.1        Registered Schemes

These schemes are registered in terms of the Medical Schemes Act and make up the
majority of the medical schemes in South Africa. These schemes are registered
under the conditions SS. 24 – 26 MSA 131 of 1998.



       3.12.1.1 In House Schemes - Restricted schemes

These schemes cater for the employees, continuation and widow members of a
single or relatively small group of employers (e.g. Anglo American and Siemans)., in
terms of S1-3 of the MSA (Medical Schemes Act of 1998)

Means a medical scheme, the rules of which restrict the eligibility for membership by
reference to:

(a)      employment or former employment or both employment or former
         employment in a profession, trade, industry or calling;
(b)      employment or former employment or both employment or former
         employment by a particular employer, or by an employer included in a
         particular class of employers;
(c)      membership or former membership or both membership or former
         membership of a particular profession, professional association or union; or
         (any) other prescribed matter.


       3.12.1.2 Open Schemes

These schemes provide membership to employees, widow and continuation
members of multiple employers and individuals and are usually established and
managed by the larger medical scheme administrators (e.g. Discovery and Medihelp)


3.12.2        Exempted Schemes

These schemes are exempt (for historic reasons) from the provisions of their
legislation such as the Industrial Council Act. Although they are not legally obliged to
do so, the majority of these schemes do report to the Registrar and for all practical
reasons operate as if they were registered in terms of the Medical Schemes Act.
Different products in the South African Market



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Medical Schemes still dominate the private healthcare insurance market, and for the
time being, still offer the widest range of different products and plans.

Medical Scheme plans can be broken down into distinct categories, each with its own
contribution scales and defined set of benefits.


3.12.3        Old generation type plans

BASIS STRUCTURE: Defined benefit set payable from the plan, no savings account
detailed as follows;


      3.12.3.1 Comprehensive / 100% Plans



                                    IN
                                 HOSPITAL


                                                             ALL PAYMENTS ARE MADE
                                  OUT OF
                                                             FROM THE SCHEME
                                 HOSPITAL                    ACCORDING TO SUBLIMITS



                            DAY-TO-DAY EVENTS




These plans provide for the full range of medical benefits, up to the SAMA
recommended scale of benefits. Benefits in respect to hospitalisation may even be in
excess of this scale at which point the scheme will define them as being payable at
cost.




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          3.12.3.2 80% Plans


USUALLY COVERED UP
 TO AN ANNUAL LIMIT
                                    IN HOSPITAL                        ALL PAYMENTS ARE MADE
                                                                       FROM THE SCHEME
                                                                       ACCORDING TO SUBLIMITS
MAY BE COVERED IN                                                      ON HOSPITAL PORTION
FULL, MAY REQUIRE A                   OUT OF
CO PAYMENT                           HOSPITAL                          HOWEVER, THE MEMBER IS
                                                                       RESPONSIBLE FOR A CO
                                                                       PAYMENT OF 20% ON OUT
                                                                       OF HOSPITAL BENEFITS
IS USUALLY COVERED                  DAY-TO-DAY
TO A SMALL LIMIT AND                  EVENTS
REQUIRES A CO
PAYMENT OF 20%




          3.12.3.3 Threshold Plans



              THRESHOLD
                                         IN
                                      HOSPITAL                     BENEIFITS WILL BE PAID AT
                                                                   A % LEVEL UNTIL THE
                                                                   TOTAL BENEFIT HAS
                                       OUT OF                      EXCEEDED A SPECIFIED
                                      HOSPITAL                     THRESHOLD, WHEREAFTER
                                                                   100% OF THE BENEFIT
                                                                   BECOMES PAYABLE
                                   DAY-TO-DAY EVENTS




    A threshold type plan can be very complex in design as it has, as its basic structure a
    co payment system. Simply put, the member is responsible for a co payment of
    benefit up to a threshold level, where once he exceeds this level the scheme kicks in
    with a 100% payment of benefit. This threshold level will vary according to the
    contribution and no of dependents.

    Often this type of scheme has a linked members savings account, upon which the
    member is allowed to draw from too pay for this co payment.

    It is the intention of this type of scheme to make members accountable for their own
    day to day / out of hospital medical costs. Often the member is required to settle
    small claims upfront and then claim them from the scheme.


          3.12.3.4 Primary Plans




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The Medical Schemes Act provides for a type of treatment benefit called a prescribed
minimum benefits (PMB), which is usually provided for at state facilities. All medical
schemes are required to cover all PMB’s in full.


                  A PMB or Prescribed Minimum Benefit is a minimum
                  benefit that the government has prescribed that the
                  Medical Scheme must pay for, and which is applicable
                  to all medical schemes – for example, paying for
                  Tuberculosis




A primary plan is a plan that provides for the cover of PMB’s only and does not cover
much else


3.12.4        New Generation Type Plans

BASIC STRUCTURE: The medical plan is split into components of which the plan
usually has a compulsory purchase such as the hospital and dread disease plan and
a number of elective purchase options such as the Day to Day (Prefunded) Option,
The Medical Saving account (Cumulative) Option and various chronic and life
threatening programmes.


      3.12.4.1 The New Generation Hospital Plan

In this type of plan, the member is covered for major trauma, such as a car accident,
and various other dread disease problems. Included here are usually benefits for the
following,

         Ward fees
         Operating theatres, unattached operating theatres & day hospitals
         Prescribed medicines & materials dispensed and used in hospital
         ICUs, Specialised ICUs & High Care Wards
         In Hospital Procedures & operations performed by:
         GPs
         Specialists
         Ante-natal consultations & foetal scans
         Confinements
         Radiology in hospital
         MRI scans, CT scans, Interventional Radiology, Angiograms, Duplex Doppler
         scans & Nuclear medical investigations
         Procedures & operations by Maxillo Facial and Oral Surgeons




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        Ambulance Services
        Blood transfusion services
        Hospices & registered nurses
        Prosthesis & implants introduced internally as an integral part of an operation
        Renal Dialysis
        Oncology (Cancer) treatment
        Organ transplants
        Biokineticists & physiotherapists

In most cases, the plan pays its benefits according the Board of Healthcare Funders
(BHF) scale of benefits, although some of the better plans may pay these benefits at
the South African Medical Association (SAMA) scale of benefits.


      3.12.4.2 The New Generation day to day (Prefunded) Account / routine
               benefit.

With new generation plans, allowance maybe made for the contribution to a day-to-
day benefits account. This, simply put, is the contribution of monies, at a defined rate
per month, into an account, that allows the member to have benefit payable
according to a defined set of benefits. Benefits under this heading could include, All
out of hospital medication

Once the member defines his monthly contribution, he is prefunded this amount
upfront, from day one and may utilise the full amount of the benefit immediately, for
example, if his monthly contribution is R50.00 per month, and the annual benefit
amounts to R600.00 per year, he will be allowed, from day 1, to spend the R600.
However once spent this amount cannot be renewed until the New Year. It is also
common practice amongst medical schemes to not carry any balance amounts
forward into a new year.


      3.12.4.3 The New Generation Medical Savings Account (Cumulative)

By definition, the medical savings account is an account into which the member can
accumulate money up to a maximum amount of 25% of his total annual sum of
medical scheme contribution. These monies belong to the member and usually the
medical scheme will allow it to be used for the following purposes,

                                                 Surgery and other procedures for the
                                                  purpose of correcting refractive errors.
     This list is only some of                   In-Vitro Fertilisation and Infertility
     conditions and not all
     schemes use it
                                                  treatment.
                                                 Treatment      relating    to      sexual
                                                  dysfunction.
                                                 Treatment relating to or forming part of
                                                  Organ        Transplants        including
                                                  maintenance medication in the private
                                                  sector.
                                                 Treatment for cosmetic purposes.
                                                 Treatment relating to or arising from
                                                  participation in professional sporting
                                                  activities.
                                                 Examinations for insurance, school,
                                                  association,      emigration,        visa,


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                                               employment or similar purposes.
                                              Anti-alcohol and anti-smoking drugs.
                                              Obesity
                                              Educational Therapy
                                              Protective gear
                                              All costs relating to or forming part of
                                               the treatment of HIV/AIDS
                                              Costs associated with, or arising out of
                                               willful self-injury, suicide or attempted
                                               suicide.
                                              Hearing devices including cochlear
                                               implant devices, whether introduced
                                               internally or not, as well as the
                                               maintenance of these devices.
                                              Household remedies, contraceptives,
                                               patent medicines, non-ethical and all
                                               proprietary preparations including but
                                               not limited to vitamins, minerals, face
                                               creams,        body      lotions,   soaps,
                                               shampoos, laxatives.
                                              All costs arising from injury or illness
                                               for which any other party is liable
                                               unless the scheme is satisfied that
                                               there is no reasonable prospect of the
                                               member recovering adequate damages
                                               from the other party.
                                              All treatment and costs incurred for
                                               which benefits are not specifically
                                               provided.




3.12.5        What does the law say?

In terms of the Medical Schemes Regulations as Amended 2002 SS 10, which came
into force 1 March 2002, the following has been prescribed in terms of the way a
medical scheme should handle a member’s savings account.

SS10.


(2)      The limit on contributions into personal medical savings accounts applies to
         each individual member of a medical scheme.

(3)      Funds deposited in a member’s personal medical savings account must not
         be used to offset contributions.

(4)      Credit balances in a member’s personal medical savings account shall be
         transferred to another medical scheme with a personal medical savings
         account regime when such member changes medical schemes.




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(5)     Credit balances in a member’s personal medical savings account must be
        taken as a cash benefit, subject to applicable laws, when the member
        terminates his or her membership of a medical scheme or benefit option
        without enrolling in another medical scheme or enrols in another medical
        scheme without a personal medical savings account provision.

(6)     Any balance in a member’s personal medical savings account shall be
        excluded from the calculation of the mandatory net assets of the medical
        scheme.



Amendment of regulation 10 of the Regulations
8. Regulation 10 of the Regulations is hereby amended


                                In the section below, the main points of the
                                regulations have been extracted for the purpose
                                of these notes. However we do suggest that you
                                refer to the Medical Schemes Act of 1998 and its
                                regulations and read them in their entirety for
                                completeness.     Please   note    that   these
                                regulations do change periodically. Please
                                double check for completeness.


(a) By the substitution for subregulation (1) of the following subregulation.'

(1)     A medical scheme on behalf of a member. must not pay into a members'
        personal medical savings account an amount that exceeds 25% of the total
        gross contribution made in respect of the member during the financial year
        concerned.‖

(b) By the substitution for subregulation (3) of the following subregulation:

(3)      Ownership of the funds deposited in a members personal medical savings
        account shall vest with the member and may not be used to offset
        contributions."

(c) By the substitution for subregulation (4) of the following subregulation:

(4)      Credit balances in a members personal medical savings account shall be
        transferred to another medical scheme or benefit option with a personal
        medical savings account, as the case may be, when such member changes
        medical schemes or benefit options."

(d) by the substitution for subregulation (5) of the following subregulation:

(5)     Credit balances in a member's personal medical savings account must be
        taken as a cash benefit, subject to applicable taxation Jaws, when the
        member terminates his or her membership of a medical scheme or benefit
        option without enrolling in another medical scheme or enrols in another
        medical scheme or benefit option without a personal medical savings account
        provision.‖



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(a) By the substitution for subregulation (6) of the following subregulation;

(6)     The funds in a members medical savings account shall not be used to pay for
        the costs of a prescribed minimum benefit.‖

(f) By the addition of the following subregulation:

(8)     Apart from funds paid into a medical savings account, no portion of a
        members contribution may be set aside for the purpose of paying the claims
        of a particular member and her or his dependants exclusively."




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3.13         Task 6 – Traditional verses New Generation – Research


 Required to do.

 You are required to select six medical schemes and compose a presentation to a
 client about the differences between the two schemes. However three schemes must
 be of traditional style and the other three must be on new generation style.

 You are required to examine the schemes in terms of the following;
    1. Benefits and Limits
    2. Generalised characteristics of each type of scheme

 Finally, you are required to compose a report of no less than 1 page on why the
 industry is moving towards the new generation type of scheme, with reference to
 claiming patterns, increasing costs in healthcare, needs and priorities of members in
 terms of medical costs and costs to the member.




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3.14         Task 7 – Benefits Matrix

 Required to do,

 You are required to select 3 schemes and draw up a table, on a separate piece of
 paper or on the computer (which, ever you are more comfortable using) comparing
 the benefit of the each scheme to each other. Although 3 product tables have been
 given to you for reference at the end of this workbook, if you are working in the
 industry and wish to use another scheme’s benefits, you may do so with pleasure.




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3.14.1    Common Exclusions from benefits and exceptions to the
exclusions.


        3.14.1.1 Benefits Exclusions

Recently it has become the norm not to exclude most things from the benefits of a
medical scheme, however medical scheme product designers are very careful in
what they include in the insured benefit portion of their scheme. The items listed
below usually do not qualify for payment from insured benefits but may be payable
from the Day-to-Day Cover or Individual Medical Savings Account if funds are
available:


        3.14.1.2 Common Exclusions

        Surgery and other procedures for the purpose of correcting refractive errors.
        In-Vitro Fertilisation and Infertility treatment.
        Treatment relating to sexual dysfunction.
        Treatment relating to or forming part of Organ Transplants including
         maintenance medication in the private sector.
        Treatment for cosmetic purposes.
        Treatment relating to or arising from participation in professional sporting
         activities.
        Examinations for insurance, school, association, emigration, visa,
         employment or similar purposes.
        Anti-alcohol and anti-smoking drugs.
        Obesity.
        Educational Therapy.
        Protective gear.
        All costs relating to or forming part of the treatment of HIV/AIDS.
        Costs associated with or arising out of wilful self-injury, suicide or attempted
         suicide.
        Hearing devices including cochlear implant devices, whether introduced
         internally or not, as well as the maintenance of these devices.
        Household remedies, contraceptives, patent medicines, non-ethical and all
         proprietary preparations including but not limited to vitamins, minerals, face
         creams, body lotions, soaps, shampoos, and laxatives.
        All costs arising from injury or illness for which any other party is liable unless
         the scheme is satisfied that there is no reasonable prospect of the member
         recovering adequate damages from the other party.
        All treatment and costs incurred for which benefits are not specifically
         provided.




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3.15         Self Reflection

Make notes for yourself to investigate any area of the notes that you feel you need to
have more knowledge in. Try and summarise what you have read and learnt in this
module, which is relevant to your workplace. Try and do this in bullet form.




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4       Module 2: Common Terms
    Learning Outcomes

    1. The concept of ex gratia payments is explained with reference to case
       studies.

    2. Pro-ration of benefits is explained with reference to case studies.

    3. The terms date of inception; date of termination and suspension are
       explained with reference to the effect that these have on access to benefits.

    4. The concept of a pre-existing condition is explained with reference to the
       effect on a benefit and the implications of non-disclosure.

    5. The difference between the Board of Healthcare Funders (BHF) and South
       African Medical Association (SAMA) rates is explained with reference to the
       government gazette.

    6. Prescribed minimum benefits are explained with examples.

    7. Late joining penalties are explained and calculated for five different case
       studies.




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4.1           Common Terms in the Medical Scheme and Insurance Industry

The following terms and concepts are defined in the following legal references.

       REGULATIONS IN TERMS THE MEDICAL SCHEMES ACT, 1998 (ACT NO.
        131 OF 1998):
       Regulation Gazette No. 6652, Vol. 412, 20 October 1999 No 20556,
        GOVERNMENT NOTICE, No. R 1262, 20 October 1999,
       MEDICAL SCHEMES ACT, 1998 (ACT NO. 131 OF 1998)

The Minister of Health has, in terms of section 67 of the Medical Schemes Act, 1998
(Act No. 131 of 1998), after consultation with the Council for Medical Schemes, made
the regulations in the Schedule

4.2           The concept of ex gratia payments

An ex gratia payment is a discretionary payment that can be made to a member
under exceptional circumstances, where the members submits the details of the
claim to the trustees of the medical scheme and the trustees make a decision based
on the merits of each case

Ex gratia payments are risks to the scheme since the total claims are subject to
significant variability. Although ex gratia claims are, in theory, completely in control of
the trustees, decisions made by the ex gratia committee may set precedents that
could have significant cost implications. It is prudent to ensure that the ex gratia
committee works from a set of guidelines and that it only has access to a defined
amount of money each year. Thus, an ex gratia reserve or budget allocation should
be set each year in advance.

It is usual for a medical scheme to hold an ex gratia budget of 0.25% to 0.5% of total
contributions. ex gratia payments have historically conformed to this budget on many
schemes. Under a managed care system, the managed care provider should set up
provision for its own ex gratia system


4.2.1          Ex gratia payments

Suggested criteria to be considered in ex gratia cases are listed below,

         Medical Necessity
         Claims must exceed a certain proportion of the individual income
         Compliance with the rules of the scheme
         Possible abuse or fraud
         Compliance with treatment protocols

Over the course of the year, the actual ex gratia account must be monitored to
ensure that the scheme does not overspend the budget. The scheme could decide
on a monthly budget to help the ex gratia payments. Generally, ex gratia claims and
disputes have a long lag period before they are processed and paid. Therefore care
must be taken in the budgeting of ex gratia accounts to allow for this.




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4.2.2         What does the law say?

SS 30 – General provisions to be contained in the rules.- A medical scheme may in
      its rules make provision for –

(b)     the granting of loans to any to its members or to make ex gratia payments on
        behalf of or to members in order to assist such members to meet
        commitments in regard to any matter specified in the definition of ―business of
        a medical scheme1‖ in section 1.

4.3      Pro-ration of benefits is explained with reference to case
studies.


4.3.1         Limits on benefits

SS 9    A medical scheme may, in respect of the financial year in which a member
        joins the scheme, reduce the annual benefits with the exception of the
        prescribed minimum benefits, pro-rata to the period of membership in the
        financial year concerned calculated from the date of admission to the end of
        the financial year concerned.


4.3.2         Example

Mr Abraham decides to join Medical Scheme A in June 2003. He has been a
member of another medical scheme for the last three years and has no pre-existing
conditions. However his Medical Saving Account is fully used up and cannot transfer
any monies across to the new scheme. You, as the new broker are asked to explain
to Mr Abraham the effect of moving to the new scheme and specifically what this
means in relation to Pro – ration of benefits.

Your response: The consequence of pro ration of benefits being applied is not a
result of his Medical Savings account being fully utilized, but rather of his timing of
the move to Medical Scheme A. Due to fact that he is moving in the middle of the
year, he is thus only entitled to effectively receive half the benefit a member would
have had, had he been a member for the full year. This is calculated by counting the
number of months the new member will now be a member on the scheme for the
remainder of the year and taking this as a factor of 12, i.e. Six months would
represent 6/12, you would then multiply this by the total benefit. The result is what the
member is now entitled to as pro ration of benefit.

For Example, Assume your benefit to be R120 000.00, Months left of year are 6,
therefore
         R120 000.00 x 6/12
       = R60 000.00

Therefore Mr Abraham is only entitled to a benefit of R60 000.00, for the remainder
of this year.

1
 As per section 1 – business of a medical scheme, the rules of the scheme may list this as its
objective or often found as rule 5 – see model rules as suggested by the medical schemes
council.



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4.3.3         Why is this done?

The principle of Pro Ration is applied for two reasons,

As the member will not contribute to the premium pool of funds for the whole year,
you cannot expect other members to support him when he joins in the middle of the
year, and,

To stop people from utilising the full benefit of one scheme and then hopping to
another scheme to try and gain maximum benefit for a second time.




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4.4          Task 8 – Pro Ration

Complete the following exercises, calculating the pro ration of benefit for each (you
will need a calculator)

Question 1      .         Total Benefit           R300 000.00
                          Start Date              1 September 2003

Answer –




Question 2.               Total Benefit          R500 000.00
                          Sub Limit A                  R100 000 00
                          Sub Limit B                  R20 000.00
                          Inception (Start Date) 1 March 2003


Answer –




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4.5      The terms date of inception; date of termination and
suspension are explained with reference to the effect that these have on
access to benefits.


4.5.1      Date of Inception – Date on which Medical Cover will start,
usually the first date of membership, subject to a three month waiting
period or any other waiting period imposed.

      4.5.1.1 How does this impact on access to benefit?

It all depends on whether there are waiting periods imposed or not.

In that no waiting periods are imposed, the member should have full access to all
benefits from date of inception, however one must bear in mind that should he have
joined in the middle of the year then his benefits are likely to have been pro rated.
Please refer to regulation No 24007 (November 2002).

In the event that a general three month
                                                            The term “emergency” is
waiting period has been imposed, then                       still very vague as to
the member may have benefits afforded                       what     constitutes      an
to him for emergency purposes only,                         emergency and most
                                                            schemes       adopt      the
however certain medical schemes are                         attitude that the member
very vague in the application of this                       has no benefits available
                                                            to him / her during this
benefit, but under normal circumstances,                    period. It is hoped that
the member will have to wait until the end                  during the 2004 year this
of the three months for any benefits to be                  issue will be clarified.
afforded to him


In the event that a condition-specific 12 month waiting period has been imposed on
the member, the member would receive all benefits from date of inception, with
exception of the benefits attached to the condition specific - for example, if the
member is underwritten for a period of 12 months due to hypertension, then all
benefits related to and for the treatment of hypertension shall not be afforded to him
during the 12 month period.

Date of inception may be conditional of waiting periods.


4.5.2    Date of Termination – Date on which all benefits afforded to
the member shall cease.

From the date of termination, the member shall have no more benefits afforded to
him, however he will have a further three months to submit any claims, incurred
before the last day of benefit.

This condition of three months arises from the provision that a member is allowed to
submit claims to the medical scheme up to three months after the liability was
incurred and the scheme is obliged to consider them for payment.

Suspension – Date from or specified period that a member shall not receive
access to all benefit or some benefit.



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      4.5.2.1 What does the law say?

S 29. Matters for which rules shall provide. (1) The Registrar shall not register a
      medical scheme under section 24, and no medical scheme shall carry on any
      business, unless provision is made in its rules for the following matters:

SS (2) A medical scheme shall not cancel or suspend a member’s membership or
       that of any of his or her defendants, except on the grounds of—
       (a) failure to pay, within the time allowed in the medical scheme’s rules, the
       membership fees 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.




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4.6          Case Study 1 – Terminology – generic scheme names
On the 15 July 2003 Mr Jones (who has been a member of A Medical Scheme for the past 5
years and accumulated a sum of R10 000.00 in his medical savings account), becomes
annoyed with the service levels he is currently receiving. Mr Jones is a diabetic. He thus
decides to start looking around and discovers that a scheme called B Medical Scheme will
offer him a product mix that will better suit his needs. After talking to the marketing people of
the scheme he decides to leave F Health, at the end of July and join T Med.

However, two days before resigning from F Health he is fired from his current employment
and luckily enough finds a new employment within 5 days, but his new employer has a
contract with D Health and although it does not have preferential group underwriting status,
requires all new employees to join D Health.

But Mr Jones is nervous about being condition specifically underwritten and does not disclose
to D Health that he is a Diabetic.

You as the new company’s designated broker are required to sort out Mr Jones in respect to
his date of inception, underwriting status and answer other questions as listed below.

Question 1
Mr Jones wants to know what his date of inception will be on D Health.

Answer 1




Question 2
How is Discovery likely to underwrite Mr Jones and what waiting periods are likely to be
imposed?

.Answer 2




Question 3.

Three months after joining Discovery, Mr Jones submits a bill, for reimbursement of Insulin
Costs to the scheme and the scheme discovers that he is a diabetic. What is the scheme
likely to do?



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Answer 3




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4.7       The concept of a pre-existing condition is explained with
reference to the effect on a benefit and the implications of non
disclosure.


4.7.1         Definition

A pre-existing sickness condition means a condition for which medical advice,
diagnosis, care or treatment was recommended or received within the twelve-month
period ending on the date on which an application for membership was made;

What this means is that if a member or an applicant to a medical scheme has had
treatment for a particular treatment or condition of the 12 months prior to the joining
of the scheme, he may be underwritten and a waiting period imposed on him.

This could apply to any condition, including something like flu, but a scheme is not
likely to worry about the lesser conditions, as they are not material. However if an
applicant is receiving ongoing treatment for say a chronic condition, then the scheme
is likely to take notice and place a condition specific waiting period on the applicant.

This is done to prevent people from using up a limitation of benefit on one scheme
and then hopping to another scheme to find more benefit.


4.7.2         What does the law say?

In terms of SS 12 - Pre-existing sickness conditions, .No waiting period may be
       applied if,

(a)     in respect of any treatment or diagnostic procedure covered within the
        prescribed minimum benefits;

(b)     to a member or dependant who changes from one benefit option to another
        within the same medical scheme unless the member or dependant is subject
        to a waiting period on the current option, in which case any remaining period
        may be applied.

(c)     on a child dependant born during the period of membership.

(Incorporating amendments published in Government Notice R.570 Gazette Nr
21256 dated 5 June 2000 and Government Notice R. 650 Government Gazette
21313 dated 30 June 2000 and R1360 GAZETTE NO 2477 dated 4th November
2002.) Please also refer to Regulation No 24007 (Nov 2002) for further clarity.




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4.8       The difference between the Board of Healthcare Funders (BHF)
and South African Medical Association (SAMA) rates is explained with
reference to the government gazette.


4.8.1         BHF Resume


Courtesy of the BHF Website

The launch of the Board of Healthcare Funders on the 30 April 1999 heralded the
advent of a new and powerful vision for healthcare in general, and healthcare
financing in particular.

The winds of change sweeping through the political, social, cultural and economic
landscape have reshaped our society. The demands of the new healthcare
dispensation placed an irresistible onus on the funding base for private healthcare to
adapt and transform to the new realities.

Under the new democratic dispensation, it was evident that massive reorganisation
of the whole health sector was in the offing. The launch of BHF was a declaration by
the industry that it was ready to meet the new challenges by reshaping the forces
and relationships, which drove the healthcare sector.

In the public sector, the Primary Health Care (PHC) model, on which the new
dispensation is based, required a shift of resources away from tertiary and secondary
levels of healthcare provision. Clearly, within a framework of defined resources, this
would require the private sector to play a more integrated role in the provision of
healthcare.

The Medical Schemes Act, 1998, underpins the entire restructuring of the private
sector in line with the new dispensation and mandates the reorganisation of the
funding base of the private healthcare sector.

This reorganisation stratifies the healthcare system sufficiently to advance the
introduction of social health insurance. This will open a channel for funding the public
hospital system and is part of a social security policy for South Africa. Legislation to
introduce social health insurance is expected within the next three years.

BHF, unlike its predecessor RAMS, is ideally suited to marshal the industry in line
with these developments. The prospect of a smart partnership between the State and
private sector are also dramatically enhanced, and BHF is optimally placed to
engineer such partnerships.

BHF, through its representative and inclusive format, holds the memberships of 90%
of the medical schemes who in turn represent some seven million beneficiaries.

Operational services to members, such as tariffs, are more efficient than in the past.
Office administration and human resources have been subjected to relevant
restructuring to obtain maximum efficiency. Of great importance is the adoption of
long-term strategic projects such as.




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The development of a central data collation capacity under the custodianship of a
central industry body. This has translated into a database of healthcare information
on a scale not seen before, and which will serve as a national asset.

Developing a new reimbursement model that eliminates the waste- full and
inefficient, open ended, fee-for-service, third party payer system, and replace it with
one which is more in keeping with the notion of a vastly expanded market.

Developing a health policy unit, with research and health economics capabilities, to
provide the industry with a policy capacity for health systems development, and
which is informed, at the outset, by market realities.


4.8.2         Structure of the BHF




4.8.3         BHF Board of Directors (2002 - 2003)

Brian A Brink (AACMED) Chairman Jenny Tlhabi (BHF of Southern Africa)
Managing Blamo Brooks Chairman: Regulatory Policy Mac Chaora (CIMAS)
Elizabeth Delport (Methealth Openplan) Brian Dick (Sappi Medical Aid
Scheme)Arnold Fair Chairman: Finance & Operations Rod Gush
(Bankmed)Helmut Heydt (Profmed) Barbara Hlatshwayo (Bonitas Medical Fund)
Deputy Chairman Lionel Kearns (Pro Sano Mediese Hulpskema) Blum Khan
(Metropolitan Health Group)Dan Krige (University of Natal Medical Scheme)
Chairman: Tariff & Risk Shaun Matisonn (Discovery Health) Deputy Chairman:
Regulatory Policy Welcome Mboniso (National Union for Mineworkers)Moira
Oosthuizen (Hudaco) Deputy Chairman: Finance & Operations Anton Rijnen
(Medihelp) Deputy Chairman: Tariff & Risk Carlie Schafer (Methealth) Mike Schultz
(Lamaf Medical Scheme) Joe Seoloane (Pro-Active Health Solutions) Barry
Swartzberg (Discovery Health)




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    Departmental Email Addresses:
    Office of the     genman@bhfglobal.com
    Chief Executive
    Corporate         communications@bhfglobal.com
    Communications
    IT & OPS          BHFIt@bhfglobal.com
    Informatics       stats@bhfglobal.com
    Tariffs       and policy@bhfglobal.com
    Coding            tariff@bhfglobal.com
                      pharmacy@bhfglobal.com
    BHF      Finance accounts@bhfglobal.com
    and Corporate corporateservices@bhfglobal.com
    Services          pcns@bhfglobal.com
    Client Services clientservices@bhfglobal.com
    Reception         reception@bhfglobal.com



4.8.4         S.A.M.A.
Courtesy of the SAMA website


        4.8.4.1 What is SAMA

The South African Medical Association (SAMA) acts as doctors' and patients'
champion, and strives for a health care dispensation that will best serve their needs.
SAMA is a professional association for medical doctors without any statutory or
disciplinary powers. Membership is voluntary. It is also a registered trade union for its
members employed in the public sector. At present some 70% of doctors in both the
public and private sectors are members of the association, which is registered as an
independent, non-profit section 21 company. The Association's head office is situated
in Erasmus Kloof, Pretoria. It also houses the Foundation for Professional
Development (FDP), the educational arm of the Medical Association. The FPD looks
after the continuing professional needs of medical professionals. The Health &
Medical Publishing Group operates from Pinelands, Cape Town, and produces the
SA Medical Journal (SAMJ), the Continuing Medical Education (CME) and a wide
range of specialists medical journals.


        4.8.4.2 History

 The South African Medical Association was established on 21 May 1998. It was born
out of a unification of the Medical Association of South Africa (MASA), founded in
1927, and the Progressive Doctors Group (formerly NAMDA). On 30 April 1999 total
unification of organised medicine was achieved when the National Medical Alliance,
representing the SA Medical and Dental Practitioners, Society of Dispensing Family
Practitioners, Family Practitioners Association, Dispensing Family Practitioners
Association and the Eastern Cape Medical Guild affiliated to SAMA. The
Association's activities focus on both professional and business aspects. SAMA
believes doctors can positively influence medical practice by:




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                          Anticipating and influencing health policy
                          changes

                          Promoting cost containment

                          A lifelong commitment to continuing
                          professional development.

      4.8.4.3 Mission

The mission of the South African Medical Association is to empower doctors to bring
health to the nation.


      4.8.4.4 Value


                          Learning and adapting

                          Building trust relationships

                          Valuing diversity


      4.8.4.5 Objectives


                          To represent the doctors with authority
                          and credibility in all matters concerning
                          their interests in the health care
                          environment.

                          To promote the integrity and image of
                          the medical profession.

                          To develop medical leadership and
                          skills.

                          To provide doctors with knowledge
                          relevant to the demands of medical
                          practice.

                          To promote medical education, research
                          and academic excellence.

                          To encourage involvement in health
                          promotion and education.

                          To influence the health care environment
                          to meet the needs and expectations of
                          the community by promoting
                          improvements to health reform, policy
                          and legislation.




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4.9          Task 9 – Legal Application of SAMA and BHF

The South African Government has gazetted the use of SAMA and BHF Tariffs.

 Required to do

 Research the Government gazette that determines the use of SAMA and BHF tariffs
 and differentiate between the tariff guides.




Notes:




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4.10         Prescribed minimum benefits.


4.10.1        Definition

The South African government, through the Medical Schemes Act and its regulations
has prescribed that certain treatments (25 conditions, subject to change) ,are
mandatory treatments and that the scheme may not underwrite this with any waiting
periods or preclude anybody on the scheme from being treated for such a condition.
No financial limitations may be placed on the treatment for this either.

It is common in the industry that prescribed minimum benefits are limited to treatment
at a state facility first, and only provided that the patient cannot receive treatment for
the condition at a state facility, will he then be treated at a private facility.




                          Please note: The registrar is busy
                          reformulating the definitions of a PMB
                          and as from January 2004, these may l
                          revised to include certain chronic
                          conditions.




4.10.2    What does the law say? (Please refer to Regulation Gazette
No 24007 – November 2002, for a full and clear summary of this term).

SS8.     (1) From the date of commencement of these regulations, the prescribed
         minimum benefits that medical schemes must offer in terms of the Act consist
         of the provision of treatment for all the categories of Diagnosis and Treatment
         Pairs listed in Annexure A subject to any limitations specified in Annexure A.

(2)      Any benefit option that is offered by a medical scheme must reimburse in full,
         without co-payment or the use of deductibles, the diagnostic, treatment and
         care costs of the prescribed minimum benefit conditions specified in
         Annexure A in at least one provider or provider network which must at all
         times include the public hospital system.

(3)      Cover in the public hospital system must include all the costs of diagnosis,
         treatment and care for the prescribed minimum benefit Diagnosis-Treatment
         Pairs in Annexure A to a level and entitlement that is not different in terms of
         quality and intensity to the services provided to publicly funded patients.



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(4)     Medical schemes may offer enhanced options to their members through
        additional cover for any specific entitlements: Provided that diagnosis,
        treatment and care under the prescribed minimum benefits is provided.

(5)     The options referred to in sub regulation (4) may include the use of alternative
        providers or provider networks and could incorporate member co-payments,
        or enhanced options for other benefits that fall outside of the prescribed
        minimum benefits or both.

(6)     If cover for a prescribed minimum benefit as defined in Annexure A under an
        enhanced option is exhausted while the patient still requires diagnosis, care
        or treatment for that prescribed minimum benefit , that patient may be
        transferred to a lower cost provider or provider network, but the medical
        scheme must continue to be fully liable for all costs incurred in delivering the
        prescribed minimum benefit care that is required.

(7)     A member or dependant shall not lose his or her entitlement to any prescribed
        minimum benefit, regardless of any enhanced option they may choose or as a
        result of any condition associated with that enhanced option.

(8)     Medical schemes may employ appropriate interventions aimed at improving
        the efficiency and effectiveness of health care provision provided that every
        option offered by a medical scheme must at least provide full cover for
        prescribed minimum benefits in at least the public hospital system.

(9)     These regulations must not be construed to prevent medical schemes from
        employing techniques such as the designation of preferred providers,
        requirements for Pre-Authorization and the application of Treatment
        Protocols: Provided that in the case of Pre-Authorization a medical scheme
        must not refuse authorization for the delivery in a public hospital of standard
        treatment for a prescribed minimum benefit as defined in Annexure A.

(10)    Every Medical Scheme must make provision in its rules for the
        reimbursement of the cost of care that is considered to fall within the
        Prescribed Minimum Benefits prescribed under these Regulations within all
        the membership options that the medical scheme offers.

(11)    Medical schemes must refer to these Regulations in their rules and such
        reference may not be a full reproduction of these Regulations.

(12)    Medical schemes must specify in their rules whether they restrict the
        provision of the prescribed minimum benefits under specific membership
        options to a named network of providers.

(13)    The Registrar must determine whether medical schemes rules are consistent
        with the provisions of the Act and these Regulations before approving such
        rules.

(14) Disputes and complaints between a member or a provider and the medical
        scheme in relation to minimum prescribed benefits must be dealt with in terms
        of Chapter 10 of the Act.

Annexure A

Explanatory Note


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        The objective of specifying a set of Prescribed Minimum Benefits within these
        regulations is two-fold:

(i)     To avoid incidents where individuals lose their medical scheme cover in the
        event of serious illness and the consequent risk of unfunded utilisation of
        public hospitals.

(ii)    To encourage improved efficiency in the allocation of Private and Public
        health care resources.

        The Department of Health recognises that there is constant change in
        medical practice and available medical technology. It is also aware that this
        form of regulation is new in South Africa. Consequently, the Department shall
        monitor the impact, effectiveness and appropriateness of the Prescribed
        Minimum Benefits provisions.

        A review shall be conducted at least every two years by the Department that
        will involve the Council for Medical Schemes, stakeholders, Provincial health
        departments and consumer representatives. In addition, the review will focus
        specifically on development of protocols for the medical management of
        HIV/AIDS.

        These reviews shall provide recommendations for the revision of the
        Regulations and Annexure A on the basis of:

        (i) inconsistencies or flaws in the current regulations;

        (ii) the cost-effectiveness of health technologies or interventions;

        (iii) consistency with developments in health policy; and the impact on
        medical scheme viability and its affordability to Members

Some Examples of PRESCRIBED MINIMUM BENEFITS as per Schedule A of the
Regulations. (Please refer to the schedule for a complete list.)


        Categories (Diagnosis and Treatment Pairs) constituting the Prescribed
        Minimum Benefits Package under Section 29(1)(o) of the Medical Schemes
        Act (listed by Organ-System chapter)


BRAIN AND NERVOUS SYSTEM

CODE: 906A
     DIAGNOSIS: ACUTE GENERALISED PARALYSIS, INCLUDING POLIO AND
     GUILLAIN-BARRE
     TREATMENT: MEDICAL MANAGEMENT; VENTILATION AND
     PLASMAPHERESIS

CODE: 341A
     DIAGNOSIS: BASAL GANGLIA, EXTRA-PYRAMIDAL DISORDERS; OTHER
     DYSTONIAS NOS
     TREATMENT: INITIAL DIAGNOSIS; INITIATION OF MEDICAL
     MANAGEMENT


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CODE: 950A
     DIAGNOSIS: BENIGN AND MALIGNANT BRAIN TUMOURS, TREATABLE
     TREATMENT: MEDICAL AND SURGICAL MANAGEMENT, WHICH
     INCLUDES RADIATION THERAPY

CODE: 49A
     DIAGNOSIS: COMPOUND/DEPRESSED FRACTURES OF SKULL
     TREATMENT: CRANIOTOMY/CRANIECTOMY

CODE: 213A
     DIAGNOSIS: DIFFICULTY IN BREATHING, EATING, SWALLOWING,
     BOWEL, OR BLADDER CONTROL DUE TO NON-PROGRESSIVE
     NEUROLOGICAL (INCLUDING SPINAL) CONDITION OR INJURY
     TREATMENT: MEDICAL AND SURGICAL MANAGEMENT; VENTILATION

CODE: 83A
     DIAGNOSIS: ENCEPHALOCELE; CONGENITAL HYDROCEPHALUS
     TREATMENT: SHUNT; SURGERY

CODE: 902A
     DIAGNOSIS: EPILEPSY (STATUS EPILEPTICUS, INITIAL DIAGNOSIS,
     CANDIDATE FOR NEUROSURGERY)
     TREATMENT: MEDICAL MANAGEMENT; VENTILATION;
     NEUROSURGERY

CODE: 211A
     DIAGNOSIS: INTRASPINAL AND INTRACRANIAL ABSCESS
     TREATMENT: MEDICAL AND SURGICAL MANAGEMENT




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4.11       Late joining penalties are explained and calculated for five
different case studies.


4.11.1        Definition

A late joiner means an applicant or the adult dependant of an applicant who, at the
date of application for membership, is 35 years of age or older, but excludes any
beneficiary who enjoyed with one or more medical schemes as from a date
preceding 1 April 2001, without a break in coverage exceeding three consecutive
months since 1 April 2001


4.11.2        What does the law say?



Waiting periods and premium penalties

General waiting periods

                                   As these regulations are constantly
                                   changing, please refer to the latest
                                   regulation regarding these. Please see
                                   Regulation Gazette No 24007 of Nov 2002




11. (1) A medical scheme may require an applicant to provide the medical scheme
        with a medical report on any condition present at the time of application for
        which medical advice, diagnosis, care or treatment was recommended or
        received within the 12 months period ending on the date on which an
        application was made by an applicant and his or her dependants.

(2)      A medical scheme may impose a general waiting period of up to three months
         upon a new member and the members dependant(s) before such member or
         dependant(s) is entitled to claim any benefits.




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4.12         Task 10 – Research what the law says.

You are required to write a paragraph summarizing what the most current law
says in regards to the following;

You may need to refer to the Medical Schemes Act of 1998 and or other pieces
of legislations, for example, the Regulation Gazette No 24007 of November
2002

General Waiting Periods




Pre-existing Sickness Conditions.




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Premium Penalties for persons joining late in life. (Draw a table to summarise
the time frames)




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4.13         Task 11 - Late Joiner Penalties

   Required to do:

   In each following case studies, you are required to determine and answer the
   requirement of each case study.




4.13.1        Case Study 1



   Mr X is a man aged 45 year old. He wants to join a medical scheme for the first
   time, which has a monthly premium of R1000.00 per month. He requires you to
   calculate what the monthly premium will be, including any late joiner penalties?




 Answer 1




4.13.2        Case Study 2



 Mr Y has a family of 4, himself, a wife and two children under the age of 21. His age
 is 35 at his next birthday and his wife will be 33 at her next birthday. He wants to
 change his medical aid to one which has an annual premium of R18000.00 per
 annum per adult and R1800.00 per annum per child. Calculate his monthly premium




 Answer 2




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4.13.3        Case Study 3




   Mrs Z is a widow and at the age of 46 decides that she needs to join a medical
   scheme. She also has an adult dependent – her mother, who is aged 69, who
   needs to belong as well. The scheme she chooses has a monthly premium of
   R340.00 per month for hospital plan only. You are required to work out their
   combined monthly premium.




 Answer 3




4.13.4        Case Study 4




   Mr Ron has a family of 6 people, himself aged 53, his wife aged 55, two children
   under the age of 21, and a son at university aged 24 and a grandmother aged 79.
   He requires you to work out his monthly premium increase, which currently stands
   at R2300.00 per month, if his grandmother joins the scheme as a dependent. His
   scheme calculates its premiums on the following basis – Adults R566.00 per
   month and Children R300.00 per month. Currently the family has no additional
   fees imposed on them.




 Answer 4




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4.13.5        Case Study 5




  Granny Muriel is 72 years old and has chronic arthritis for which she needs to
  take monthly medication. Until now she has relied on the state to provide her with
  the medicine but cannot no longer afford to stand in the long queues in hospital.
  Thus she asks you to cost out a premium for her self. She chooses Scheme A,
  Scheme C and Scheme E for comparison, each having the following premiums,
  being A: R 500.00 per adult per month, B: R450.00 per adult per month and C:
  R840.00 per adult per month respectively. You also note that Scheme C will not
  impose a late joiner penalty if she joins them. You are required to work out the
  cheapest premium.




 Answer 5




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4.14         Self Reflection

Make notes for yourself to investigate any area of the notes that you feel you need to
have more knowledge in. Try and summarise what you have read and learnt in this
module, which is relevant to your workplace. Try and do this in bullet form.




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5       Module 3: Select a product according to a client profile.
Learning Outcomes


    1. Healthcare needs are identified for a single person, a couple and a family of
       four.

    2. The risk profile of the three cases is established based on age and pre-
       existing conditions.

    3. Suggestions are made as to what kind of healthcare products would be most
       suitable in each case.




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5.1           SELECTING A PRODUCT FOR A CLEINT

As a healthcare consultant one of the most important requirements in delivering a
good service is to understand the needs of the client and to provide him with good
and objective advice. In order to do this, the healthcare consultant must perform a
Needs Analysis.


5.1.1          The Needs Analysis

Individual healthcare needs depend on the individual's circumstances, financial
position and priorities. It is important to remember that each individual is unique.

It is tempting to use the usual stereotype; high income-earners require
comprehensive medical cover, regardless of the cost whilst a low income-earner is
only able to provide for more basic cover. However, this approach is not professional
and could expose the broker to accusations, and even litigation for providing poor
advice. A proper needs analysis must be done.

What does a healthcare needs analysis then look like? Healthcare funding needs
could comprise the following:

         Cover for Hospitalisation (In-hospital cover)
         Cover for day-to-day expenses (Out- of-hospital cover)
         Minimum benefits
         Auxiliary benefits
         Affordable premiums
         Sustainability
         Simplicity
         Accurate and prompt administration

A healthcare needs analysis can be defined as an examination or interpretation of
what the client requires or wants. The result of this needs analysis can never cloud
the judgment of a health benefit advisor. The client will judge for himself. The health
benefit advisor’s role is to guide the client to make an informed decision. A process
that could be followed in a needs analysis is to:

Step 1.
Determine the affordability level of the client.

Step 2:
Determine the family circumstances, in respect to …
    Principal Member,
    Spouse,
    Children,
    Health circumstances – pre existing condition and current health risks.

Step 3
Match the specific product type e.g.: Traditional, New Generation or cafeteria
products with the client's needs.

Step 4




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Determine the level of cover needed by the client. Is the cover needed at cost (South
African Medical Association (SAMA) or reduced rates (Board of Health Funders
(BHF))?

Step 5:
Determine the level of hospital cover. Is the need for unlimited cover, or is the client
prepared to self-insure, and if so, to what extent?

Step 6:
What specific day-to-day or out of hospital conditions will be covered and to what
extent? If the specific plan has a savings portion, to what level must provision for
savings be made?

Step 7:
Must the minimum benefits be topped up and if so to what level?

Step 8:
Compare the benefits on a like-for-like basis across a number of medical scheme
products available on the market. This means that benefits must be compared in an
easily understandable basis.

Step 9:
Advise the client of the disadvantages and advantages of each benefit option and
give the client the opportunity to choose a preferred option.

Step 10:
Advise the client about the need for pre- funding, and should such a need arise;
advice must be sought from an expert to provide for that need.

The preferred solution for a client may be at one or more health administrator and
therefore step 8 is very important. Some clients may rather not want to go the route
of choosing a medical aid according to the level of cover, but more in terms of the
financial stability of the medical scheme. Steps 3 to 7 might therefore be changed to
look into financial aspects such as:

       Current reserve ratios.
       Current solvency ratios.
       Previous years underwriting profit (loss).
       Administration costs.
       Date registered.
       Membership base.
       Membership growth.


5.1.2         Legal obligations
Like any other contract, a medical scheme contract may have been fraudulently
concluded, and can be cancelled by one of the parties to the contract on the grounds
of misrepresentation.

Misrepresentation constitutes a "wrong doing", and entitles the aggrieved party to
claim damages, provided that this misrepresentation meets all the requirements for
liability in delict. The requirements for delictual liability are:

     The wrongdoer must commit an act.



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       An element of wrongfulness attached to the act must exist.
       A detrimental result was caused by the wrongful conduct.
       There must be a fault or blameworthiness on the part of the wrongdoer.
       The health benefit advisors operate in a given environment and will be judged
        in terms of that. This environment includes:
             o Long-term policyholder protection rules.
             o Short-term policyholder protection rules.
             o Collective investment schemes protection Bill.
             o Court judgments and specific precedents set by previous court
               judgements.

The Medical Schemes Act also makes reference to undesirable Business Practices,
Section 61 of the Act. Please refer to this section for completeness.

It is appropriate to look at some softer issues of professional conduct. Professional
conduct can be described as those actions where a health advisor places his clients
interests ahead of his own. Professional conduct will also include the disclosure of
relevant information and in this regard the following will be required:

       Disclosure of the relationship to the product supplier.
       Disclosure of the relationship to the service provider.
       Disclosure of all relevant facts regarding the product itself.
       Disclosure of all the cost born by the client.
       The avoidance of remuneration tainted advice.
       The avoidance of only "tax benefit or tax tainted" advice.
       The following of accepted practices and procedures.
       The avoidance of reckless conduct.

In Durr versus ABSA (an Appeal Court Judgement) the matter of financial advice,
(and Health Benefit Advice is not immune to this), was addressed. The judge said
that the appropriate standard to be used in this specific case was not that of a typical
broker, but that of a regional manager of a broking division of a bank professing
investment skill and offering expert investment advice. To this extent he then asked
the Manager to assess himself in the following manner,

     ―Take an honest look at yourself…
         o Who are you?
         o What is your experience?
         o Who do you tell your clients you are and what do you tell them you
             do? .
         o Do you profess to be an expert in health benefit advice field?
         o Do you profess to know the industry regarding health benefits? ―

In terms of what the judge's comments, you will be judged in terms of the level of
competence

The judge closed by saying "I am of the view that on the facts of this case, Stuart did
not perform his duty and was consequently negligent. ABSA's negligence follows, as
it is accepted that it is precariously liable for his actions". It is clear in the Durr versus
ABSA case that Stuart was not blatantly fraudulent nor did he purposely mislead the
Durr family, but he was a victim of deceit by the Supreme Group. In the end Stuart
and his employers (ABSA) were responsible and were held accountable.




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This judgement is also applicable to health benefit advice and to you as a financial
advisor. This may seen to be is a heavy burden, but all the law really asks of us is to
be: honest, truthful and act in the best interest of our clients.




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5.2          Task 12 – Newspaper Article

 Required to do:

 Read the following newspaper article and use it in the advice you are required to give
 in the following three case studies.


“How to buy the cover you need
Focus on Healthcare

It's important to assess your own risks and to investigate the reputation
of your prospective medical scheme, writes Greg Gordon – Sunday
Times.

Healthcare cover should form a central focus of financial planning, particularly as
costs are soaring well ahead of overall inflation.

Many people are covered automatically by medical schemes by the companies they
work for, while self-employed people tend to join open schemes.

In either case, the cover should be revisited every year to determine if it is adequate.
If not, a savings plan should be implemented to pick up the shortfall.

About three years ago the government turned the private medical schemes industry
on its head by announcing that it had to be accessible to a greater number of people.

The new Medical Schemes Act, which came into effect in January 2000, required that
medical cover had to be extended to everyone, no matter his or her age or health. If
people could afford cover then they had to be provided with it under the concept of
open enrolment.

The new law strongly focused attention on the importance of risk management.

The implementation on March 1 this year of the Medical Schemes Amendment Act
has increased this emphasis even further.

There are tremendous cost pressures on the medical schemes industry that are
keenly felt by consumers. The slide of the rand, over-use and abuse of cover and
fraud are key contributors.

Adrian Baskir, technical services executive at Old Mutual Healthcare, says people
requiring healthcare cover should monitor the use of their cover and adjust premiums
as their needs change.

"If you look at claims for last year, you should get a good indication of what this
year's are likely to be. Add between 15% and 20% to adjust for medical inflation,
which is high," he says.

"People's status changes too. If a family is expecting a baby, or there's a divorce or a
marriage, cover should be increased or decreased accordingly."




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Medical cover is a significant investment and medical aid schemes should be vetted
for financial stability. Contributions and benefits change and they should be carefully
monitored.

John Harvey, managing director of Aon Healthcare, an international employee
benefits and human resources consultancy, says there is likely to be a shift towards
more tailored medical aid packages, where members select certain risks they are
prepared to take in terms of their own health.‖

"Niche players are bound to enter the market, catering for different levels of cover
and focusing on wellness rather than illness. Innovation will become the name of the
game," he says.

"We will certainly see members start self-rationing their claims to avoid steep
increases in their premiums. For example, we might see people prolonging the day
when they need spectacles by looking after their eyes and doing exercises."

The basic guidelines for choosing a medical aid scheme still remain, even if
members are "buying down":

Check the medical scheme and administrator's history. Find out about the schemes
past underwriting results, since large losses could lead to sharp increases in
premiums. Look at past rate increases and inquire about the company's credit rating,
which indicates the scheme's ability to pay claims;

Check the organisation's credibility with the medical community to ensure that
medical professionals are willing to deal with it directly;




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5.3          Case Study 2– Single Person




                SINGLE PERSON

                Mr Jackson is a single male living on his own and having reached
                the age of 35 years, now decides that he needs to insure his health
                needs.

                He approaches you, as a recognised healthcare broker to research
                the best option at the best price.

                He would like to start as soon as possible, but is concerned that he
                will have waiting periods placed on him. He also wants to
                reassured that he will be admitted onto the scheme.

                Mr Jackson has no current medical conditions but did suffer from
                appendicitis 6 months ago, broke a leg 4 years ago and his family
                has a history of Hypertension.




 Answer 1




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5.4          Case Study 3 – Couple




   Mr and Mrs Naidoo (36 and 34 years old respectively) are a well to do
   married couple, who have belonged to a medical scheme for nearly ten
   year. However, Mr Naidoo, who was the principal member was
   retrenched two month ago and as a result was forced to cancel his
   membership with the scheme. He has recently found new employment
   but his new job does not prescribe membership to a medical scheme.

   Mr Naidoo comes from a sickly family and has already been diagnosed with
   Metabolic Syndrome (Diabetes, High Cholesterol and Hypertension) due to his
   sedentary life style. He is obviously concerned that he needs to be placed on
   a Medical Scheme that caters for the above condition.

   You are approached by Mrs Naidoo to research and suggest some
   alternatives to them



 Answer 2




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5.5          Case Study 4 – Family of Four




   Family of Four

   Mr and Mrs N Asty and their two children are looking to join a medical scheme
   for the third time this year. Mrs Asty, being a hypochondriac, likes to visit
   doctors and is a pain killer pill abuser. Her two children are under the age of
   21 and Mr and Mrs Ages are 35 and 33 respectively.

   The Asty family contract you for the third time this year to place them in a
   scheme where they can gain more benefit for less price. They are currently
   paying R450 per month for each adult and R250 for each child.




 Answer 3




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6           Summative Assessment

6.1           Research Report


You have been approached by a new medical scheme that is interested in
developing some new product lines. Their management is also inexperienced in the
management of a medical scheme and their hiring company sourced each of them
from the Medical Insurance Industry.

Your contract brief states the following;

Compile a report for management on a comparative basis of the general
characteristics of a medical scheme verses the general characteristics (including
pooling of funds, benefits spectrum, defined benefits and types of contribution) of the
Medical Insurance Industry. Your Assessment will be based on the following topics.,

         General Legislation
         Structure of the board of trustees and directors
         The implication of being a trustee or a director
         Kinds of events covered by both types of organisation – look for similarities
         A brief description of product designs in the medical schemes industry –
          clearly indicate the route that the market currently following.
         Differentiate between benefits and exclusions
         Briefly explain the concepts of ex gratia, Pro – ration and prescribed minimum
          benefits
         Compile a process document on needs analysis.
         Carefully explain the rationale behind doing benefit comparisons in the
          industry.

Your report is not to be more that 5 pages long and the managers are looking to you
to present it in a bullet type format for easy reference and reading.

Should you choose to present this report in another form, other than the above
suggested, you may do so, as long as you are able to show that you are competent
in all areas, as required.




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6.2          Self Reflection

Make notes for yourself to investigate any area of the notes that you feel you need to
have more knowledge in. Try and summarise what you have read and learnt in this
module, which is relevant to your workplace. Try and do this in bullet form.




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