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News Article : Unintended negative consequences for many
Category: Advisers & Brokers : Commission & Fees
Author:Friedman Twala
Email:[email protected]
Posted:11 Dec 2008

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BHF statement questioned

Statement issued by the Joint Broker Forum (JBF) on issues concerning proposals by the Council for Medical Schemes to revise the regulatory framework on health broker remuneration.

The JBF was established to represent the members of the Financial Intermediaries Association of Southern Africa (FIA), the Financial Planning Institute (FPI), Black Broker Service Network (BBSN), and the South African Health Intermediary Association (SAHIA) on this matter and will be making a submission to the Council for Medical Schemes (CMS) on or before the due date for submissions of 6 February 2009.
The JBF has fundamental concerns that there will be significant unintended consequences should the CMS proposals be adopted. 

These proposals basically provide for two categories of health broker, namely a scheme agent and an independent advisor. 

Scheme agents would need to select a particular medical scheme to market and would be paid, uncapped, by the scheme concerned. 

Independent advisors would provide advice to members and employers and would be paid an agreed fee directly by the member or employer.
The primary concerns that the JBF has identified with the proposals outlined by the CMS are:

The end of independent affordable advice for the majority of covered and uncovered members. 

Current legislation prohibits brokers from earning more than R60.70 (ex VAT) per family per month for advising members on which scheme to select, which option to select within that scheme, informing members on the details of their chosen option and protecting members’ rights from the incorrect application of underwriting rules and key legislation (eg. payment of treatment in terms of the prescribed minimum benefits), to name but a few services provided.

Should the CMS proposals be adopted, independent advice on these and other health related matters would, in many cases, be provided on an hour-based professional fee.

Lack of significant savings from the introduction of these proposals.

Uncapped agent fees and additional services that would have to be provided by the scheme or its administrator would consume much of what is currently paid to brokers, an average of 2.2% of contributions.

The resultant impact may even lead to an increase in contributions.

Increased member confusion. 

Hard selling scheme agents, marketing one scheme only, would need to continuously place new members with schemes they represent in order to earn ongoing income. 

The CMS has clarified that these agents would only be able to earn once-off uncapped “marketing fees” and this may result in massive churn between schemes, both in terms of members and marketing agents themselves.

Decreased competition. 

Bigger schemes with bigger marketing budgets and more prominent brands would have the most agents marketing their products.

These agents would be looking for new members from smaller, perhaps more vulnerable schemes. 

The end result may be that only a few large schemes remain, thus limiting member choice.

Independent fee earning advisors would have to consider this risk to the environment when providing their advice, possibly exacerbating the issue.   

The JBF is concerned that the Board of Healthcare Funders (BHF) and its member schemes may not have considered some of these issues in reaching their conclusion as set out in a press release issued by BHF on 10 December 2008. 

In this press release, they note that “the majority of medical schemes agreed with the Council’s proposals that there be a clear differentiation between independent advisors and marketing agents”.

Discovery Health recently resigned as a member of BHF. 
The JBF is further concerned about the process followed by BHF in reaching this conclusion.

However, the substance of the discussions recently held in the two BHF regional meetings, on which their conclusion is based, has not been made clear and there are concerns that a conclusion was sought without proper due process or investigation into the true impact on the industry going forward.
The JBF will be engaging with BHF and medical schemes and will suggest that a more formal process be adopted prior to the determination of a medical scheme industry conclusion. 

The JBF suggests that BHF:

  • Canvass opinion on the CMS proposals from open schemes only – restricted medical schemes are not affected by the proposed change;
  • That the schemes submit their decisions to the BHF in writing;
  • That these scheme decisions reflect the positions of the respective Boards of those schemes; and
  • That information is published on the outcome of that process in terms of numbers of schemes (representing “x” members) with particular views one way or another. This will serve as an important barometer that will assist in accurately gauging the true BHF sentiment and the extent to which this sentiment is held.

The JBF supports ethical practices and the current situation is one where the actions of a few may have led to changes that could have unintended negative consequences for many.

Friedman Twala is the Chairman of the JBF

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