The Council for Medical Schemes (CMS) recently published a document titled: “Remuneration of Health Brokers: Revising the Regulatory Framework.” As the title suggests the CMS has its sights set on broker commission in the medical aid environment. They believe that medical schemes are paying too much in broker commissions and are proposing a number of interventions to tackle the issue.
Why all the fuss?
The CMS remains narrowly focused on the actual expense incurred by medical schemes. Their latest attack on commissions is similar in nature to their continued obsession with the cost of private hospital care… With this sector under siege from various government departments it makes sense for the CMS to run their finger down the ‘big ticket’ expenditure items and pick up on the next ‘problem’ area: the rand value of payments made to brokers in the latest financial year. “Medical schemes spent one billion rand on brokers in 2007,” they say. And “given the affordability constraints on medical scheme membership, it is incumbent on the Council to assess the impact of the regulatory framework.”
Why is medical cover so expensive? We’ve been told that private hospital admissions are the largest expense item across all medical aid schemes. But the CMS has found another category that needs attention. They’re on a quest to rewrite the broker commission legislation to ensure that “incentives for brokers created by remuneration in terms of the regulatory framework are consistent with consumers receiving best advice and assistance which is not tainted by the possibility of conflict of interest!” The CMS further states that the current broker remuneration system displays a number of shortcomings. Let’s take a look to see how the CMS proposes the problem be addressed.
Putting the squeeze on independent brokers
The CMS hopes to revise the regulatory framework in line with the proposals made in the abovementioned document. They are at pains to point out that these proposals will only affect broker commissions and not place any additional behavioural restrictions on the brokers who remain in the industry.
The first thing you need to know is that the CMS will create two classes of medical schemes representatives. On the one hand you will have brokers who act as agents of a particular medical scheme (called marketing agents) while on the other you will have brokers who act as independent agents for consumers (called independent advisors).
The marketing agent will be a single-product specialist who will provide facts on the medical scheme to which he is affiliated only. This, says the CMS, is totally acceptable “provided that the consumer is under no illusion that what is being offered is impartial, independent advice and assistance.” Marketing agents would effectively be employees of the medical scheme in question, and remuneration to the marketing agent would be part of the legitimate business expense of the medical scheme. Has anyone noticed how commissions paid are already slightly reduced? The marketing agent is “paid by the medical scheme concerned (and not by the administrator or any other party which may have an interest in marketing any other scheme).”
Is there anything left for the independent broker to chase?
So what happens if you decide to pursue the independent advisor route? Will the broker who decides to do business independent of the medical aid scheme make a go of it? It’s going to be difficult. The CMS proposes that “independent advisors would operate in terms of a contract negotiated with the consumer, based upon an agreed upon tariff.” The consumer would then pay for the ‘advice’ on an ongoing basis and would be free to cancel the contract at any point. The CMS further proposes that the party initiating the business with the independent agent (whether employer or employee) would pick up the tab for advice.
The CMS’s next proposal flies in the face of how medical schemes brokers have been operating for years now. They suggest that independent advisors have no “contract with any medical scheme or administrator and would not be able to receive any form of remuneration or incentives for broker service or any other type of service directly or indirectly from a medical scheme or administrator.” It doesn’t leave much room to manoeuvre. There are a number of other proposals too. The CMS suggests there would be no cap on the fee that an independent broker could charge – and that such fees would be determined by natural market forces.
A magic trick to make commission expenses disappear
And here’s the big question. If the CMS is really trying to assist medical schemes (and possibly their members) in bringing medical aid commissions down, then their proposals don’t make any sense. They aren’t reducing the R1bn spent by medical schemes on broker commissions each year! Instead they’re cleverly moving the expense out of the medical schemes ‘commission’ heading and repositioning it. Under their proposal the commission expenditure will fall through the cracks. Some will be hidden in medical schemes ‘general expenditure’ accounts and the balance will be paid directly by medical aid consumers as financial advice fees. They’re solving the commission problem with a clever smokescreen which allows the medical schemes to look good (and probably corner a slice of the money that would usually have gone to brokers) and leaves the consumer thinking they’re paying less for medical aid when in fact they’re paying slightly more!
Article provided by: FAnews