With almost 50 open medical schemes on the market, consumers and employers are usually in the lap of brokers when it comes to choosing a scheme.
Those with a sound knowledge of comparable benefit and contribution structures and the expertise to match them with clients' needs have a valuable role.
But problems arise when a broker becomes aligned with the interests of a particular scheme or administrator through various incentives.
In the past, some brokers have abused their position, unnecessarily shifting members between schemes purely for the commission or so-called co-administration fees .
Member movement between medical schemes (member churn) is high in SA; some commentators estimate that up to 25% of all beneficiaries move between schemes each year. Churn is only 0,5%/year in Belgium, which has more people covered by health funds than SA but no brokers.
Though brokers' influence on member churn is difficult to quantify, the industry watchdog, the Council for Medical Schemes, was sufficiently concerned last year to move to tighten up broker regulations.
The council's head of research and monitoring, Stephen Harrison, says the old regulatory framework capped commission payable by medical schemes to brokers at 3% of contributions in the first year after the introduction of members. This gave brokers an incentive to move members after 12 months to get the introductory commission from a new scheme. To prevent this, potentially perverse payment arrangements developed between administrators and brokers.
The new regulations, which took effect in January, state that only medical schemes and not administrators may pay brokers. Payment is limited to a maximum of 3% of the monthly contribution, or R50/member/month (whichever is lesser), for as long as the broker continues to be retained by the member.
Brokers are now subject to the health protection requirements of the Medical Schemes Act as well as the code of conduct and other statutory requirements of the Financial Advisory & Intermediary Services Act administered by the Financial Services Board. Withdrawal of licensing or accreditation under one act automatically results in its loss under the other. Consumers thus have protection from two regulators.
The new regulations also provide a more comprehensive framework for the sanction that may be applied by the council against brokers who do not act in the public interest.
The new regulatory framework has been welcomed by many industry players, including broker organisations, as offering far more effective protection for consumers.
"These regulations are an opportunity to clean up the industry and ensure that brokers are rewarded for the value they add to the industry," says Harrison.
