Forum counters CMS health broker remuneration proposal

In September last year the Registrar of Medical Schemes (CMS) published a discussion document detailing their take on health brokers’ remuneration in South Africa going forward. Their assessment focuses on the needs of the consumer and raised concerns ove

The broker community’s first input to the process

The broker community was not consulted prior to the release of the CMS Discussion Document. Thus the Joint Broker Forum’s (JBF) 99-page response, issued on 5 February 2009, is the industry’s first input to the process. The JBF speaks for the broker community as represented by the Financial Planning Institute (FPI), the South African Health Intermediary Association (SAHIA), the Black Brokers Services Association (BBSA) and the Financial Intermediaries Association (FIA).

One of the JBF’s first observations is that the Discussion Document fails to “give justice to the roles of the two pieces of legislation that [currently] regulates brokers.” The JBF believes that the Financial and Intermediary Services (FAIS) Act covers the conduct of the financial services broker. As such the FSB is already acknowledged as “the custodian of financial advice and the market conduct of all financial advisers.” Where the impact of brokers on the national health system is concerned, the responsibility lies with the minister of health through the Medical Schemes Act. In other words: “the current model, although not perfect, does not necessarily require major structural changes.”

It makes more sense to ensure the existing legislation is correctly enforced before forcing additional regulation on the industry. The JBF feels that major issues – like conflict of interest – can be addressed under the FAIS Act. Any desire to regulate the conflict of interest issue on a wider scale should be addressed “through “workflow 2” for the broader financial services discussion, as suggested by National Treasury.” They conclude that “the current broker model is a sophisticated model that was recognised as not being a cost driver of private medical scheme costs!”

Don’t paint all brokers with the same brush

Regardless of regulation there will always be individuals who act contrary to the best interest of other stakeholders. The JBF warns against labelling the entire industry due to the negligent behaviour of a few brokers, administrators and medical schemes. They suggest that the CMS uses the “powers contained in the Medical Schemes Act” before making regulatory changes to catch these so-called outliers. “In this regard the JBF suggests the full use of regulatory tools, such as undesirable business practices, fines and retraction of accreditation.” Criminal prosecution is welcomed where necessary.

Some of the proposals in the Discussion Document clash with aspects of the Competitions Act. The different operational guidelines for the proposed broker categories are a case in point. To allow Tied Agents to dispense one-time advice while requiring Independent Advisers to provide ongoing support could be dismissed as “unfair.” FAnews Online would also like to know how a Tied Agent can satisfy the ‘fit and proper’ advice requirement if only one medical scheme can be recommended. According to the JBF the proposals could lead to “an unfair environment where smaller medical schemes compete against large medical schemes.” This could ultimately lead to the demise of many smaller schemes.

Consultation should include all stakeholders

The JBF is also concerned with the wellbeing of the consumer. However, they feel the process applied in drawing up the Discussion Document “would not lead to an optimal solution.” There was simply not enough consultation with all interested stakeholders. A recent survey of medical industry stakeholders confirms this view. 79% of members, for example, believe the broker should be paid by the medical scheme, while only 6% believe they should carry the burden. And 60% of employers say brokers should be paid by medical schemes with only 2% feeling the member should pay. As such the JBF proposes an inclusive process to include “market research, cost benefit analysis and impact studies.”

Had the CMS completed such research prior to issuing the Discussion Document they would have known that cash-strapped consumers are opposed to increases in non-healthcare expenditure. The JBF refers to research that “indicates that employers and employees are not prepared to pay additional fees.” They warn that an unintended consequence of the proposed system will be a reduction in independent advice to the poor. Going forward the JBF wants the CMS to revise the process of consultation, ensure that market conduct isn’t influenced by money, utilise the FAIS Act to manage market conduct, increase enforcement through the Medical Schemes Act, regulate at source and conduct extensive market research, cost benefit analysis and impact analysis.

Editor’s thoughts:
The debate over remuneration of health brokers is in its infancy. We expect many more stakeholders to share their views before the Council for Medical Schemes gets to work on implementing any changes. Do you think the CMS should have consulted brokers and consumers before issuing their Discussion Document? Add your comments below, or send them to gareth@fanews.co.za