Medical Schemes Amendment Bill, 2002 Department of Health Briefing to Portfolio Committee on Health 3 September 2002

Context to the Bill Debate on the Financial Advisory and Intermediary Services (FAIS) Bill gave rise to discussion between Health and Finance on the appropriateness of the function of accreditation of health brokers remaining within the jurisdiction of the Council for Medical Schemes (CMS), or being transferred by FAIS to the Financial Services Board, (FSB)

Finance motivated for the function to be transferred to the FSB, in order to ensure minimum standards of conduct regulation across all financial advisors, including health brokers Health was concerned about the intrinsic role of regulation of health brokers to the Council for Medical Scheme’s mandate to ensure that the policy objectives of the Medical Schemes Act (MSA) are met

In particular, health brokers can impact positively or negatively on factors such as: –stability of medical scheme risk pools; –non-health care expenditure of medical schemes; –non-discriminatory access of members to medical schemes; and –distribution of risk between medical schemes

Resolution Health and Finance negotiated a “win-win” solution with the following elements: –Intermediaries in the medical schemes environment will be subject to the common framework provided by FAIS in relation to market conduct as a means to promoting, as far as possible, an integrated approach to market conduct regulation –Over and above that common framework, the Minister of Health retains the power to exercise policy and regulatory intervention on matters specific to the implementation of health policy

–As a means to retain control in respect of health intermediary conduct impacting on the medical schemes environment, and meeting health policy goals, accreditation of health brokers remains a function of the Council for Medical Schemes (CMS) –Brokers accredited under the Medical Schemes Act (MSA) will be regarded as licensed under FAIS in relation to health business, but such accreditation will be conditional upon meeting: fit and proper requirements under FAIS; plus any additional fit and proper requirements determined under the MSA

–If a licence is suspended or withdrawn under FAIS, accreditation under the MSA will automatically be suspended or withdrawn, and vice-versa –Codes of Conduct will be developed under FAIS, in consultation with the CMS – no separate Code of Conduct will be promulgated under the MSA –The Advisory Committee on Financial Services Providers, established under FAIS, will include representation of the CMS

Legislative ramifications To give effect to the above principles, legislative changes were required to: –the FAIS Bill (recently passed by Parliament); –the Medical Schemes Act, giving rise to the Amendment Bill; and –the regulations under the Medical Schemes Act (currently under consideration by the Department of Health)

DRAFT MEDICAL SCHEMES AMENDMENT BILL, 2002 Revised definition of a Broker: ‘broker’ means a person whose business, or part thereof, entails providing a service or advice in respect of (a)the introduction or admission of members to a medical scheme or the movement of members from one medical scheme to another; or (b) the ongoing provision of, or access to, benefits or services offered by a medical scheme,`

but does not include- (i) an employer representative who provides such service or advice exclusively to the employees of that employer; (ii) a trade union or trade union representative who provides such service or advice exclusively to members of that trade union; or (iii) a person who provides such service exclusively for the purpose of performing his or her normal functions as a trustee, principal officer, employee or administrator of a medical scheme.

The expanded definition of health broker allows consistency with the FAIS environment by explicitly providing statutory recognition for the role of brokers in providing for ongoing service and advice to members beyond introduction of members to schemes Failure to expand the definition in this manner, while FAIS includes health products within the definition of “financial product” in FAIS could give rise to regulatory arbitrage in the sense that health brokers could apply for a licence under FAIS while not also being accredited under the Medical Schemes Act (MSA)

The revisions to Section 65 of the Act follow from the change to the definition of a broker, in recognition of the role of health brokers in providing ongoing advice beyond introduction or admission of members The proposed amendment to section 67 of the Act follows the agreement between Health and Finance, whereby health brokers would be subject to the Code of Conduct published under FAIS – rather than the Minister of Health publishing a separate Code