The South African financial services industry is currently undergoing significant regulatory changes in order to bring it in line with international markets. While this is a specific area of concern for the short-term, life and investment sectors, the medical scheme industry is also not immune from these changes.
At the release of its annual report in August, the Council for Medical Schemes (CMS) pointed out that the medical scheme industry is facing significant challenges and that it will take major change to resolve them. One of these changes is the role of the broker.
Traditionally, brokers are tied to medical aid schemes or are affiliated to a number of schemes and engage with clients from that platform. CMS Registrar Dr Monwabisi Gantsho says that this should change, and that brokers should engage with medical aid schemes from the platform where they are tied to clients.
This means that the sector might experience a lot of change as it faces the imminent roll out of the National Health Insurance programme. But Gantsho pointed out that change is necessary because brokers need to be regulated more effectively.
While the CMS feels this way, the Financial Intermediaries Association of Southern Africa feels that this needs to be monitored very carefully and CEO Justus van Pletzen points out that no rash decisions should be made.
"The fees paid to medical scheme brokers are currently the only regulated costs in the system. Broker fees are regulated and set annually in terms of the Medical Schemes Act (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 commission payable to brokers annually, a duty the industry regulators have consistently failed to comply with,” says Van Pletzen.
He adds that brokers are currently subject to dual accreditation by both the CMS and Financial Services Board (FSB) and their duties to clients are detailed in the relevant Financial Advisory and Intermediary Services (FAIS) Code of Conduct. If the broker is required to be tied to clients, there will be more of an administrative burden that will lead to higher costs, ultimately borne by the consumer.
No idea of knock on effects
While this change may seem necessary, Van Pletzen urges the CMS to do a proper impact study before implementing the change.
"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,” says Van Pletzen.
He adds that members who 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,” says Van Pletzen.
Necessary service providers
Van Pletzen justifies his statement by pointing out that, 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 a 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 it must do so.”
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.
While change may be seen as necessary, it is important to point out that any rash decisions made regarding the brokers relationship has the potential to significantly affect the livelihood of brokers. If the public has the ability to decide that there is no need for a broker, the brokers revenue stream becomes restricted. On the other hand medical scheme policies are complex and the consumers are in need of the advice offered by brokers. Please comment below, interact with us on Twitter at @fanews_online or email me your firstname.lastname@example.org.