Moonstone Monitor: Healthcare Broker Commision Under Review

Healthcare Broker Commission Under Review

After reading the discussion document on revamping the remuneration of healthcare advisors I swallowed four Rennies with a glass of milk to settle my newly developed ulcer, but to no avail.

It is quite evident that the authors of this document have very little insight into the practical world outside their offices, yet they have the final say in what proposals are submitted to the Minister of Health. All I can say to this is thank the Lord that we have a new Minister of Health who will hopefully have the insight to see that these recommendations will wipe out the independent broker fraternity, and thereby achieve exactly the opposite of what it proposes to do – improve advice and service to consumers.

There are far too many anomalies to cover in an article like this, so I will highlight a few of the areas we propose to address in our input to the Council for Medical Schemes.

Background

The document bandies about a figure of one billion rand paid to brokers in 2007 but fails to stipulate what percentage this constitutes of all expenses. Acquisition costs are a normal expense for any business. Have they for instance investigated what is spent on advertising, which is a related expense? And are they planning to regulate this too?

The preamble refers to the need for broker remuneration to be restructured to ensure that “…consumers receive best advice and assistance…” The term used in FAIS is “appropriate” advice. This is but one of a number of instances where these recommendations are in conflict with the regulations and spirit of FAIS. It further suggests in point 5 that these proposals will deal only with broker remuneration and “…not directly with issues of regulation of broker conduct.” The proposed differentiation between marketing agents and independent advisors is however based on exactly this premise.

A Complex Product

The Council recognises the need for advice:

“There is little uniformity between these schemes and options in terms of what benefits they offer or how those benefits are structured, and they all come at different prices. It is therefore very difficult for consumers to find out for themselves what is on offer, compare value-for-money, and ascertain which schemes and benefit options best suit their health needs and their pockets. Many consumers therefore look for professional assistance in making these choices.”

Yet, when distinguishing between independents and scheme advisors, they say:

“A marketing agent of a medical scheme would obviously be required to provide truthful and factual information to the consumer about a product, but would not be expected to be impartial vis-à-vis other medical schemes. There is nothing inherently wrong with this…”

Except that FAIS specifically prohibits you from expressing an opinion on a product you have no knowledge of.

Current Remuneration Model

Healthcare brokers receive a flat rate of commission, mostly the capped maximum, as long as the contract stays in place. The discussion document states that “…medical schemes (and their commercial administrators) have an interest in incentivising brokers to provide biased advice in their favour.”

It goes on to say “…medical schemes and their administrators are also at risk of being “held to ransom” by brokers who may influence consumers in favour of the medical scheme which pays the highest incentives.”

Surely if the problem of biased information flows from illegal payments by medical schemes then the scheme is the source of the problem? It makes no sense whatsoever to penalise the broker for transgressions by the scheme, unless of course they are too scared to confront the big guns, and therefore hit the soft targets. Brokers do not pay commission, schemes do, and it is the duty of the Council to supervise this. If they do not, they are failing in their duty and should be taken to task for negligence.

Advice and Service

The provision of initial advice receives very little attention in the document compared to ongoing service. In our opinion there should be a very clear distinction between the two. The healthcare advisor uses his knowledge and expertise to assist the client on deciding which product of which scheme suits his needs best. This is a benefit to the receiving scheme, and they should pay a fixed fee of say R1 000 to the broker for placing the business with them.

The commission the broker currently receives is in reality a service fee only, and should be continued as such, and not disguised as an advice fee.

A reader that I approached for comment on the matter of advice, LD van Vuuren, reacted as follows:

“As options, benefits and structures change from year to year it is imperative for families to revisit their choices annually. This requires in-depth study, a proper understanding of the mechanics of a multitude of schemes, consultation with the members and lots of administration. Clearly the authors do not understand the current remuneration model, however flawed it may be. You cannot build a new model on the carcass of a flawed predecessor.

The current reality is that where a broker neglects his clients in terms of service they vote with their feet and the broker loses his ongoing income. There is no need for intervention from the Council."

Concerning the suggestion that clients be allowed to terminate an advisor’s fee one wonders how many clients had their fees reduced by the advisors’ commission when there was a mass exodus of brokers after commission was cut in 2004?

Independents versus Scheme Agents

The whole proposal on "scheme agents" is so ludicrous that I do not want to waste space on it here. A couple of thoughts on the proposals regarding independents need to be shared though.

• If the proposal is accepted that an independent broker contracts with the client for his fees, then this must lead to reduced premiums from the scheme for broker clients, or the client would be worse off. In practice we foresee very little difference between the two, so why bother?
• The suggestion that the independent should take out indemnity cover is palatable, but to suggest that they employ a debt collection agency to sort out clients who default on their fees borders on the ridiculous, to put it mildly.

Whereto from here?

The essence of what is contained in the CMS document also appeared in the National Treasury discussion document on long-term savings in 2006 but was soon dumped. Do we really need to go through this agony again?

Experience has shown that sufficient dissent can sway the authorities, as with the recent Land Appropriation Bill. Broker representative bodies need to voice their strongest protest, as should every person affected by these proposals.

If we don’t, we also forfeit the right to complain if these proposals are accepted.