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Are medical scheme brokers the scapegoat?

01 November 2016 Butši Tladi, Alexander Forbes

During submissions to the Competition Commission’s Enquiry into private healthcare costs, a few presenters said that the system did not need brokers.

In question, is this a fair statement to make and would cutting the middle man from medical schemes be the answer to getting more cover for customers?

The anti-broker stance

Brokers play an important and necessary role in the distribution of products and offer valuable advice to consumers of private healthcare, yet there are pockets of people in the health industry who are driving an anti-broker stance, including the Council of Medical Schemes (CMS) and the Department of Health.

There has been much finger-pointing and laying of blame at the doors of others, but the fact remains that out of 5 500 complaints received by CMS last year, only three related to advice given by brokers.

Moving far from the truth

Despite this, healthcare brokers are portrayed as villains who are drivers of cost, when in fact they are the only people in the system whose costs are regulated.

Their fees are 1.1% of the costs of total gross contribution payable to medical schemes and are capped in terms of what they can charge. Even that figure is exaggerated, including marketing and advertising costs.

With more than 8 500 brokers and 2 207 brokerages, there is healthy competition among brokers to serve their members’ needs.

The perception, as portrayed by the Health Department, that brokers simply move members from one scheme to another, while charging exorbitant fees, is an ill-informed picture about the true role of a broker.

There is a need for advice in relation to healthcare, not only because of the variety of choice available to clients (a choice of 24 open medical schemes, offering 179 different options), but because of the complexity of the product structures. Brokers apply tools, skill and knowledge to guide decision making.

Correctly defining broker services

The Medical Schemes Act correctly defines broker services to be about the introduction of members to a scheme and the provision of ongoing services, the latter being the biggest part of what they do.

This includes handling of client requests, inquiries and instructions and complaints and claims.

Brokers enter into Service Agreements signed by clients, which clarify service expectations. It is therefore strange that clients are said to not know who their broker is. When the Regulator does an inspection, these documents are requested from brokers.

Prior to a potential client choosing a medical scheme, the broker has much to do, requiring resource commitments in the form of time, travel, systems and documentation preparation. The scheme pays the broker the prescribed commission only at the end of the second month – which based on the CMS report, currently averages R51 per member per month.

When looking at member by member, R50 by R50, a broker builds his or her book and has to deliver high quality services to satisfy the member. If the broker fails to do so, the member can simply send a termination letter and appoint a better broker.

There have been questions asked about why the amount paid annually to brokers has increased so much in the last decade. This is due to growth in the market as well as the consolidation of schemes.

The current growth in the medical scheme industry is in the low-earner scheme market, where people are paying R500 a month, of which three percent is payable in fees.

It must be noted that by removing broker contributions from monthly fees and asking people to pay for advice, most middle class and low income earners will be unwilling or unable to do so.

Healthcare brokers do not work for schemes, they work for their members and advice should not be the preserve of affluent consumers.

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