6 October 2002
From: TP Masobe (Registrar: Council for Medical Schemes)
To: Dr Ntsaluba (Director-General: Health)


1. The Standing Committee on Private Members in the National Assembly has proposed an amendment to section 29(1) of the Medical Schemes Ad, which allows medical schemes to offer a discounted contribution rate to members who retire from employment due to retirement age or ill-health. This discounted rate would continue to be applied to the member's spouse on the death of that member.
Such arrangement would at present be inadmissible under the Medical Schemes Act, which allows for premiums to be differentiated only on the basis of income or number of dependants (section 29(1)(n)).

The proposed amendment can regrettably not be supported, for the following reasons:

a. The proposal shifts post-retirement liability for medical expenditure from the employer to the medical scheme. Post-retirement provision for medical expenditure is an employee benefit, and the appropriate avenue to correct declining provision being made for this by employers is through labour relations legislation rather than through placing additional financial burden on medical schemes.

b. A medical scheme is in the business of receiving contributions, and paying claims (short-term liabilities) - and is not designed as a vehicle for prefunding post-retirement liabilities. The appropriate vehicles for putting away funding to meet future liabilities of this nature are through a range of annuity or insurance vehicles which are available to employers, which can then be used to pay contributions of retirees to medical schemes.

c. Permitting schemes to apply discretion as to application of a discounted rate for retires opens new avenues for indirect discrimination, in the sense that it is possible that the non-application of such discounted premiums to certain persons could be used to discriminate against people with poor risk profiles.

d. The financial implications of this proposal for schemes and the industry as a whole have not been assessed to determine the impact of this proposal on the contributions of younger members-and the consequent potential impact on enrolment and drop-out of younger members from the medical schemes environment (and the resultant impact on capacity for cross-subsidisation within the industry).

Nevertheless, the identified issue of declining provision for post-retirement medical expenses of employees is a critical issue, and it is recommended that the opportunities for addressing this through appropriate changes to labour legislation (e.g. Basic Conditions of Employment Act or the Labour Relations Act) be fully explored