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HEALTH PORTFOLIO COMMITTEE
20 September 2002
MEDICAL SCHEMES AMENDMENT BILL: HEARINGS
Chairperson: Mr. Ngculu (ANC)
Documents handed out:
Medical Schemes Amendment Bill [B37-2002]
Financial Planning Institute Powerpoint Presentation
Old Mutual Powerpoint Presentation
e-mail email@example.com for following documents:
Health Key submission
Hospital Association of South Africa submission
Resume of Leon William Liedeman.
The Medical Schemes Amendment Bill was faulted for not making provisions to empower the Minister to regulate the payment of compensation in respect of the ongoing provision of service by brokers. The Committee was informed that the Bill did not give any indication to the Minister as to how this power was to be exercised. The Minister could therefore choose not to prescribe any compensation for the ongoing provision of service or advice by the broker. This would leave schemes facing the current problem where the twelve-month compensation period caused churning of members by brokers.
The Chair invited Adv. Worral-Clare from the Hospital Association of South Africa to tender his presentation.
Ms Kalyan (DP) requested that the presenters point out which areas of legislation they wished to
Mr Ellis (DP) drew the Chair's attention to the presentation by HASA and noted that what the presenter was addressing had nothing to do with the amendment section the Committee was dealing with at this juncture.
The Chair admitted that he had not perused the submission as yet. He called upon the presenter to clarify precisely which section of the amendment bill he wanted to address the Committee about and whether the said submissions were relevant to the Committee's business of the day.
Adv. Worral-Clare said that from reading the advertisement that solicited for submissions he was under the impression that the Committee was looking at the regulations to the Act as well. In view of this misunderstanding he offered to withdraw from addressing the Committee.
The Chair called upon other presenters to indicate to the Committee whether their presentations were in tune with the agenda of the Committee.
Mr. Yankee Makoena of Healthkey and Mr. Leon Liedman - acting in person - also requested the Committee to release them in view of the clarification that the Committee was only concerned with the amendment to the section dealing with the code of conduct and remuneration of brokers and no more.
Dr. Rabinowitz (IFP) expressed concern that presenters had at a great expense made an appearance before the Committee only to be turned away without making a contribution. She asked whether there was a way in which these people could be accommodated.
Ms Kalyan said that the confusion must have come from the side Committee otherwise she failed to see how three entities could get the message wrong. She pointed out that the specific section under review should have been cited in the invitation advertisement.
The Chair said that the Committee had entertained several presentations before on the strength of the same invitation and that indeed some of the presenters got the message right. He asked those who could not brief the Committee to pass their submissions to the Department and the Council for due consideration. He said that the Committee did not in any case legislate regulations.
Mr. Stephen from Medical Schemes Council pointed out that the issues addressed by the presenters touched on a set of draft proposals and not the current Bill. He asked the presenters to submit their contributions to the Council for due consideration and where appropriate to be incorporated into the body of regulations, which in any case, as the Chair has correctly pointed out, was not the province of the Committee.
The Chair then invited Mr Ralf Metz, who had earlier indicated that his contribution was relevant to tender his presentation.
Old Mutual Submission by Ralf Metz - Legal Adviser
Mr. Metz informed the Committee that Old Mutual Healthcare was part of the greater Old Mutual Group and focused on the traditional healthcare financing market, namely medical schemes. He said that as administrator of and advisor to medical schemes, Old Mutual Healthcare had profound insight into the workings of the broker market and its interaction with commercial medical schemes.
The Bill should address two salient questions - namely what should brokers be compensated for and by whom should this compensation be payable. He faulted the current Bill for not making provisions to empower the Minister to regulate the payment of compensation in respect of the ongoing provision of service by brokers. He lamented that the Bill as it stood failed to give any indication to the Minister as to how this power is to be exercised.
The Minister could in the present set up quite well choose not to prescribe any compensation for the ongoing provision of service or advice by the broker. He cautioned that such a scenario would leave schemes facing the current dilemma where the twelve-month compensation period caused churning of members by brokers.
Mr. Metz contended that it was the prerogative of the legislature to determine whether or not compensation was to be paid for the ongoing provision of service. He continued that if the intention was that no compensation should be paid in respect of the ongoing provision of service, the Bill should unequivocally state as such. He stated, on the other hand that if the intention is that the Minister must fix a level of compensation, then the Bill should clearly state this provision.
In considering whether or not to allow the payment of ongoing compensation, restricting payment to a twelve months period might create a perverse incentive for schemes and/or administrators to look for other reasons why they should be remunerating brokers. He cautioned that such a scenario could lead to abuse.
The payment of ongoing compensation ought to be allowed in a properly regulated environment which practice he said would to a great extent diminish if not eliminate the need and the opportunity for other arrangements which would allow for the payment of additional compensation.
At present only medical schemes may legally compensate a broker for the introduction of members. He explained that a scheme, administrator or any other person, however, could compensate a broker for providing ongoing services to members. He noted that allowing or requiring different parties to compensate brokers for different services unnecessarily complicated the oversight role of the regulator and left potential avenues that were susceptible to abuse.
Mr. Metz concluded that based on his presentation, he would recommend that the Act mandate the payment of ongoing compensation to brokers noting that this would counter the current situation of member churning. He added that the provision would also largely eliminate the need and/or opportunity to abuse the system in respect of compensation payable to brokers.
Mr. Metz recommended further that only medical schemes be allowed to compensate brokers in respect of broker services and/or employers. He explained that this would enable the regulator to exercise closer control over the payment of compensation to brokers and that in addition it would narrow avenues for abuse.
Finally, Mr. Metz recommended that no compensation, other than compensation payable for the introduction of members may be paid by any person in respect of members being introduced to a scheme.
Ms Mnumzana (ANC) noted Mr. Metz's urge to protect small-time brokers but asked for a suggestion as to who would protect members of the public.
Mr. Metz replied that indeed the very action of adequately compensating the broker would cushion against churning of members, which in itself protected the interests of the public. He explained that it was the duty of medical schemes trustees and schemes to protect the public from unscrupulous practices but that this could only be achieved within the enabling framework of the Act.
Ms Mnumzana pointed out that cash payments for medical services were far below what was ordinarily charged to medical schemes. This arose from additional costs incurred by schemes in paying commission to brokers.
Mr. Metz disagreed with the allegation that high costs were a consequence of payment of commission to brokers. He attributed the incidence of high costs to the system that gave rise to high administrative costs and over-charging by health care providers.
Ms. Mnumzana attributed the mass movement of people from medical schemes to the high incident of costs and failure to settle legitimate claims. Was this the correct interpretation of the situation on the ground?
Mr. Metz disagreed. He explained that there were many why people moved from one scheme to the other and that some reasons ranged from a search for new products to the pursuit of additional cover.
Dr. Luthuli (ANC) queried the suggestion that the additional three percent compensation should be left to medical schemes to set the rate. This would have the effect of increasing the costs of the schemes which would be passed unto the consumer.
Mr. Metz said he did not propose that schemes be given the autonomy to set the rate of compensation payable. He pointed out that such a mandate was properly exercised by the Minister who would set the rate that would be in the interest of the public other than schemes who would be motivated by the urge to rake in huge profits hence to the detriment of the general public.
The Chair asked why a broker should be entitled to ongoing service payments when they had already been paid for services rendered in introducing a member to the scheme.
Mr. Metz explained that in the legislative structure, members of a scheme need to be managed throughout their membership tenor and this included being introduced to new products and made aware of changes in policy and even legislation as it unveiled. This, he noted was properly an ongoing service for which brokers were legitimately entitled to be compensated accordingly.
Dr. Rabinowitz (IFP) expressed the frustration of having to quantify the cost implication in brokerage commission without the guidance of actuaries. The Committee wanted to drastically reduce the costs of medical cover to the public. She lamented that she was unable to decipher precisely how the presentation would help in this respect.
Mr. Metz concurred with Dr. Rabinowitz that the object should be to reduce costs but noted that trying to ignore the services rendered by brokers would not help matters either. He contended that the economic reality was that people were entitled to be remunerated for services rendered and that therefore the logical thing to do was to recognise them but set a reasonable limit on their entitlement.
Ms Mathibela (ANC) asked about the fate of schemes that tend to take advantage of members.
Mr. Metz replied when schemes fail to honour their contractual obligation that was a regulatory problem that should be addressed by the Medical Schemes Council. He hastened to clarify, however, that it often turned out that for the most part non-payment was due to a misunderstanding between the Scheme and the member with regards to the benefits the latter was entitled to.
Dr. Cachalia (ANC) asked what happened when a member terminated a scheme in respect to the broker's commission.
Mr. Metz explained that when a member left a scheme the broker was not entitled to further commission payment with respect to the departed member.
Financial Planning Institute submission
Mr. Jacobs informed the Committee that his organisation represented 1500 CMS accredited healthcare intermediaries and that membership consist of corporate Brokerages, SME Brokerages, Individual Health Brokers and Composite Brokers. He pointed out that the current submissions had the full support of the membership.
Mr. Jacobs reported that there was a conflict between section 28(3) Regulations and the proposed amendment Bill in that the current Regulations provide for compensation by a medical scheme only for the introduction of members.
It was proposed that remuneration for brokers be paid on a monthly basis and not on an annual basis up-front as was the current practice. He recommended that this proposal be phased in over a period of three years. He pointed out that his organisation supported the amendment Bill's proposal that the respective medical schemes pay all broker remuneration and that no differentiated contribution rate tables should be maintained.
The proposed wording of section 65 created an unintended consequence whereby unaccredited non-brokers may be remunerated by medical schemes for introduction of members and ongoing services advice. He noted that FPI understood that it was not the intention of the legislature to allow for remuneration of persons other than accredited brokers.
He therefore faulted the proposed insertion of section 65 (7) which he said does not remedy the defect as it did not expressly exclude persons falling within categories specified in sub par. i) , ii) and iii) of the definition of a "broker" from being compensated by medical schemes. He therefore proposed that the wording be redrafted to correct this anomaly. He said that IFP proposed the insertion of sub-section (8) to forbid compensation being paid to non-accredited persons who act as brokers.
Mr. Jacobs referred to Clause 3 of the amendment Bill and the last proposed paragraph to section 67(n) which he said was inappropriate as it did not adequately reflect the agreement between the Council for Medical Schemes and the Financial Services Board. He explained that the FSB regulated market conduct and CMS regulated prudential issues such as brokers. He therefore suggested that Clause 3 should be revisited in conjunction with the FSB.
In conclusion, Mr. Jacobs reiterated that the FPI supported the amendment Bill in general and welcomed the recognition of the ongoing role of the broker in the industry. He said that the FPI encouraged the confluence of Regulations with the amended Act as this would protect the rights of consumers and brokers who add value to the industry.
The Chair asked why brokers should be entitled to ongoing commission when their job was done and already paid for.
Mr Jacobs replied that this controversial issue had been discussed before. The Act recognised the role of the broker in not only introduction but also retention of the member. The broker was obligated to update the member and instruct them on benefit changes, rules, regulations and general advice for which the broker was entitled to remuneration.
Dr Jassat (ANC) asked if incentives other than financial would be adequate in this case.
Mr Jacobs replied that services in general were of such a nature that one must be compensated for delivery of it. He said that the trustee assumed a fiduciary relationship with the broker to account for members why such compensation is necessary but not to advocate blanket incentives to brokers. It was the responsibility of the trustee to ensure value for money.
The Chair pointed out that the presenter had used the words 'person' and 'broker' interchangeably and wondered whether this was not confusing.
Mr Jacobs said that this was specifically the basis for the proposal that dealt with these categories of person. He reaffirmed that his suggestion was that provision be made, for the avoidance of doubt, for a definition that clearly stated that those who wanted to be remunerated must be accredited first.
Meeting was adjourned.