The Financial Intermediaries Association of Southern Africa (FIA) has successfully lobbied government to follow the 'letter of the law' in reviewing the fees paid to medical schemes brokers.
Following various interactions between the organisation and the Department of Health (DoH) the latter announced on 20 March 2015 that the maximum fee payable to medical scheme brokers would increase to R75.00 plus VAT (per main member per month) with effect from 1 March.
"The Medical Schemes Act (MSA) is very clear when it comes to the determination of medical schemes broker fees in that it states that these fees must be reviewed annually in line with consumer price inflation (CPI), a process that has not been consistently applied since the introduction of the fee 'cap' in 2000," says Justus van Pletzen, CEO of the FIA.
The FIA has been in contact with the DoH and the Council for Medical Schemes (CMS) on the medical schemes broker fee issue going back a number of years. "We decided to escalate the matter following the 3% fee increase announced by the DoH in May last year (effective February 2014) as we felt the increase was inadequate both from a quantum and timing perspective," says Van Pletzen.
"We sought legal opinion on the wording and intention of the Act and then sent a letter to the DoH to urge it to follow the process as prescribed by the law, which requires the Minister to conduct an annual review of the fee 'cap' guided by the prevailing rate of inflation."
The DoH's responsibility to conduct an annual fee review in line with the prevailing CPI is mandated by section 65 of the MSA, read with Regulation 28(2)(a). Despite this requirement, reviews of the fee have been conducted haphazardly - often at intervals of two years or longer - and with little consideration for inflation.
For example, last year's increase, announced by Government Notice 367, amounted to 3% (only 1.79% when annualised). Not only was this increase well below the prevailing inflation rate at the time, but medical schemes brokers had waited 20 months for what was meant to be an annual review.
It is also worth considering the history of medical schemes broker fees since the fee 'cap' was implemented in 2000. Over the next 14 years the maximum monthly fee grew by just 2.33% compounded annually - from R50 to R69 - while CPI averaged closer to 5% per annum.
"Increases in medical schemes broker fees must also be viewed in light of the fact that the FAIS Act and other related regulatory measures have significantly increased the costs incurred by brokers in delivering services to their clients," says Van Pletzen.
"The FIA is pleased that the DoH, through its actions, has acknowledged the requirement that the review be conducted annually with due consideration for inflation," he concludes.
"We view the DoH's latest announcement as a validation of our position on the matter and as proof that our association does not shy away from the responsibility to ensure fair treatment for South Africa's risk and financial advisers."