SAHR 2007 - Health Systems Trust

Figure 2: Historic membership of medical schemes by type of scheme, 1990-2006
2 250 000
2 000 000
Number of members
1 750 000
1 500 000
1 250 000
1 000 000
750 000
Brokers begin
to operate
Broker practice
legalised
500 000
250 000
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Open schemes
Restricted membership schemes
Exempt/Bargaining Council schemes
Source:
CMS Annual Reports.
Brokers in medical schemes were only legally recognised
in 2000 and 5 867 brokers had received accreditation by
December 2002. In recent years broker fees paid by open
schemes have been accelerating resulting in increases
in broker fees now far exceeding increase in the number
of members. 16 The Registrar of Medical Schemes is rightly
worried about this problem. It is instructive to reflect
that by March 2007 there were 9 742 individual health
brokers accredited with the CMS. 7 The number of general
practitioners is estimated to be of the order of only some
7 000 individual doctors.
Open schemes, by using brokers to attract new members,
thus incur an additional layer of non-health care costs for
marketing and acquisition that most restricted schemes do
not incur. The total acquisition costs (included marketing and
advertising) incurred by open schemes was R930 million or
2.7% of gross contribution income in 2005. There were five
restricted schemes that paid brokerage but these operate in
markets where public sector workers at lower tiers of government
can still choose which scheme to join. Total acquisition
costs were 21.8% of gross administration expenses for
open schemes and only 0.7% for restricted schemes. If the
five schemes paying brokerage are excluded, then there
were no acquisition costs recorded for any other registered
schemes. Marketing and advertising expenditure was five
times greater in open schemes at 3.0% of gross administration
expenses, compared to 0.6% for restricted schemes.
The per member per month (pmpm) expenditure on brokers,
for open schemes, was found to be 41.1% higher for the
four largest schemes than for the other schemes making use
of brokers. The expenditure per scheme on marketing and
advertising was also found to vary strongly by scheme size
with the four largest open schemes incurring 30.1% of the
total open scheme expenditure in this category.
The presence of brokers in the open scheme market is intimately
connected to the competitive dynamics between
open schemes and the short-term nature of the industry.
Because broker commission is limited in percentage terms
there is also no incentive for brokers to encourage growth at
the low end of the market. The Low Income Medical Schemes
(LIMS) report, resulting from the consultative process around
developing financing products for low income households,
recommended that the current broker business model be
altered to enable distribution in the low income market. 26
It also suggested that distribution could be effected via
employers and trade unions.
Figure 2 represents data derived from the CMS Annual Reports since
1990.
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