FIA slams City Press

CEO of the FIA, attempts to address some of the points put across in the article: <strong>City Press: Dr Monwabisi Gantsho [Registrar of the Council for Medical Schemes (CMS)] says broker costs have been steadily increasing every year, but the number of people recruited by these middlemen does not correlate with the millions paid to them

The FIA contends that healthcare intermediaries, whether they are brokers or agents, have been instrumental in the past in introducing clients to medical schemes. It states that it is disingenuous to blame the lack of growth in medical scheme beneficiaries on brokers. The Registrar and by extension staff in the office of the CMS should appreciate that the issues impacting on growth of membership are more complex and any factual study into this matter has identified cost and affordability as the biggest barrier to growth in scheme membership, not broker activity.

The association says it has further been acknowledged that commission paid to brokers is not one of the main drivers of healthcare costs. It explains that the Genesis Research Document commissioned by the Competition Commission for its enquiry into private healthcare costs specifically stated that broker commission is not a major healthcare cost and that brokers should be excluded from the competition's enquiry.

Van Pletzen states that to link the increase in broker remuneration to medical scheme membership demonstrates a poor grasp of the industry, bearing in mind that in real terms, broker fees actually decreased in the year under review - and when viewed against the overall increase in non - healthcare expenditure of 8.1% the increase to broker fees is low. Moreover, when one takes into account the extent of the regulatory requirements brokers have to comply with (and the concomitant costs) it is unfortunate that a representative of the regulators office should undermine their credibility.

"Broker remuneration is not only a function of medical scheme membership because commissions should be reviewed (in line with inflation) on an annual basis. The 4% increase in broker fees (as published in the 2012-2013 report) is not only below inflation but also significantly lower than the 9.6% increase the CMS granted itself by way of levies charged to medical schemes. Brokers provide a valuable service to clients and given the current legislated fee structure it is difficult for many brokers to make profit."

"Finally, there is no legal responsibility for brokers to grow overall membership of medical schemes. City Press: According to the yearly report by the CMS, which was released this week, schemes used more than R1.4 billion of members' money to reimburse brokers for bringing them more clients."

The claim that R1.4 billion was paid to brokers needs to be placed in context. Firstly, this sum amounts to only 1.2% of total contributions made to medical schemes. Secondly, this number is inflated to include service fees and other distribution costs paid by the medical schemes which are not broker fees. It is equally wrong to suggest that broker fees relate only to client acquisition. The role of a medical scheme broker as outlined in the Medical Schemes Act (MSA) is twofold. First - it is to introduce new members to a medical scheme. Second - the broker must provide ongoing services to the member,"says van Pletzen.

Most brokers spend a considerable amount of time supporting their clients to access medical scheme benefits for which clients pay significant monthly premiums. City Press: If brokers threaten to take away the members they brought in to another scheme, medical schemes have no option but to increase brokers' fees in order to retain the membership. Sadly, the increase has to come from member contributions.

"Brokers cannot be paid more than the legislated maximum commission even if they threaten to move members from one scheme to another. These fees will be paid by all commission paying schemes, thus creating no incentives for brokers to move members for an increase in broker fees. There are onerous responsibilities related to moving a member from one scheme to another and no broker will do so unless there is just course to do so. The Financial Advisory &amp; Intermediary Services (FAIS) Act clearly indicates the steps that need to be followed in selecting an appropriate scheme for a member.

City Press: Healthcare brokers were legally recognised in 2000.Two years later, 5 867 brokers had been accredited. By 2007, the figure had increased to 9 742, a clear indication that schemes had become fertile ground for brokers

We should celebrate the fact that there are more brokers in the market, especially in an industry that seeks to increase competition. The increase in broker numbers ensures that both existing and potential scheme members have a wide selection of professionals to deliver broking services. If one broker does not meet a scheme member's needs then the member can easily move to another.

City Press: It's about time we start considering to have an agreement between a medical scheme member and broker, instead of brokers having an agreement with medical schemes as it ends up not benefiting the member. Gantsho also explains that brokers needed to be regulated "more effectively"

The fees paid to medical scheme brokers are the only regulated costs in the system currently. Broker fees are regulated and set annually in terms of the MSA and presently capped at 3% of total medical schemes contributions, to a maximum of R69 per month. There is a legal obligation for the Department of Health to review the maximum payable to brokers annually, a duty the industry regulators have consistently failed to comply with.

Brokers are currently subject to dual accreditation by both the CMS and Financial Services Board (FSB) and their duties to their clients are detailed in the relevant FAIS Code of Conduct. If the broker is required to contract with the healthcare client there will be more of an administrative burden that will lead to higher costs, ultimately borne by the consumer.

No impact analysis has been provided indicating the effect of the proposal for healthcare brokers to contract directly with consumers rather than the scheme. Scheme members are not obliged to use a broker and may discontinue this relationship immediately by simply notifying the scheme. Schemes are also not obliged to use brokers and although governed by the maximum that they may remunerate a broker, they may also choose to remunerate the broker a lesser amount.

Members that are unhappy with the services they receive from their medical schemes broker can change brokers, cancel their broker's appointment or simply advise the medical scheme that they have no need for a broker. The broker commission will then not be paid over by the scheme administrators.

We hope that any change that seeks to regulate medical scheme brokers further has been thoroughly researched and caution against emotional decisions that may have undesired consequences. Brokers deliver necessary services to members of medical schemes and in fact, some medical schemes have confirmed that they cannot deliver similar services at the same cost.

The fact that brokers offer exemplary service in the healthcare environment is confirmed by the latest CMS Annual Report which shows that only 1 out of 4 651 complaints received by Council related to "Incorrect Advice by broker" One cannot deny that there could be wrongdoing by some brokers and medical schemes; but if there is wrongdoing, those with power to enforce must do

Navigating the medical scheme world is complicated and members need an independent and knowledgeable person at their side, especially when things go wrong. Without brokers, one would expect a significant increase in the number of cases referred to the Regulator, many of which are currently resolved by brokers engaging with the schemes.