FPI position on Council for Medical Schemes comments on broker fees

The Council for Medical Schemes (CMS) 2005-6 Annual Report was released recently and noted that broker fees again rose sharply by 21.5%" with the increase in the per member per month amount being 16.6% (from R30.40 to R35.50). The report also explains that "broker fees have been accelerating over the last few years, resulting in increases in the broker fees now far exceeding the increase in (overall medical scheme) members" and that the "substantial increases in broker fees are not clearly being matched by increases in new members."

Peter Edwards, Head of Alexander Forbes Health Care Consultants and a member of the FPI Industry Sector Group Health Committee, is concerned that the CMS comments do not provide enough explanation and analysis on this issue. In so doing these comments by the CMS may leave readers with the incorrect impression and could create confusion relating to key elements of broker remuneration.

Edwards says the level of commission payable by medical schemes is regulated and limited to a maximum amount of less than 3% (plus VAT) of gross contributions, or R55.18 (plus VAT) per medical scheme member per month. The CMS report indicates that contribution income increased by an average of 5.2% and that the ceiling of R55.18 has not changed since April 2005. This, then, begs the question - how is it possible for broker fees to increase by 21.5%?

Edwards explains that not all existing medical scheme members have had a broker acting for them now or in the past. Any increase in the number of members who decide to appoint a broker will result in the overall amount paid to brokers increasing at a higher rate than average contributions. The CMS, however, does not explain this clearly in their reports and other commentary. "Confusion would be avoided if they provide statistics relating to the number of members who have appointed a broker from one year to the next, and explain the percentage increase in the total cost," says Edwards.

The CMS also appears to create the impression that an increase in broker fees should be matched with a proportionate increase in overall membership. "Not so,"says Edwards. "The Medical Schemes Act allows for the ongoing payment of commissions, so new broker appointments do not always come from new members to the schemes. In fact, existing members may feel they require support and assistance in this increasingly complex field." He further points out that other circumstances such as restricted schemes merging into the more complex open scheme environment also can result in the overall cost increasing at a higher percentage.

Edwards confirms that health care advisors play an important role and more scheme members are seeing value in the consumer advice provided by brokers in a very complex industry. Edwards also points out that this has been confirmed many times by industry reports and surveys and that these services are provided at a very low average cost of R35.50 per family per month.