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Who can appoint brokers in terms of the Regulations to the Medical Schemes Act

Authors: Sipho Mtsweni– Associate

Supervised by: SJ Thema – Director & Member of the Management Board


In 2010, the Council for Medical Schemes (CMS) published Circular 20 of 2010 in respect of the appointment of brokers by employers, trade unions, medical schemes and persons other than members.



Regulation 28(7) published under the Medical Schemes Act 131 of 1998 (as amended) regulates the appointment of brokers by members in that it provides that,

“28(7) A medical scheme shall immediately discontinue payment to a broker in respect of services rendered to a particular member if the medical scheme receives notice from that member (or the relevant employer, in the case of an employer group), that the member or employer no longer requires the services of that broker”.

The interpretation of the regulation as per Circular 20 of 2010 is that a member may appoint a new broker in the place of a broker previously appointed by a member and that, conversely, if a member was admitted to a scheme without the assistance of a broker, no other person or entity may act as an agent representing the member in appointing a broker, thereafter.


The effect of Circular 20 of 2010 is that a member holds the power to appoint a broker. The member can appoint a broker if the member was previously represented by a broker vis-à-vis the scheme. Furthermore, the member also holds the power to terminate such representation, without an express revocation of such mandate to represent, by appointing a different broker to act in the member’s stead.


As per Circular 20 of 2010, no other person or entity can assume the role of agent representing the member in appointing a broker thereafter, if the member was admitted to a scheme without the assistance of a broker. The effect of this is that, if the member was, without the assistance of a broker, admitted as a member of a scheme, no other person or organisation may represent such member in appointing a broker to represent such member.


This implies that if the member is an employee who was admitted to a scheme without the assistance of a broker, the employer cannot assume the role of agent representing the member in appointing a broker to represent such member thereafter, or any other person for that matter.


The concerns with the interpretation of Circular 20 of 2010 appear to be immediately imminent; the following are among others, some of them:

  • An employer cannot represent an employee in appointing a broker if the employee was admitted to a scheme out of his own accord.

  • It is not clear whether a member can appoint a broker subsequently when a member has, of their own accord and without the assistance of a broker, been admitted as a member of a scheme, without the assistance of any other person or entity in representing the member to appoint a broker.

  • The consequences of employee members unilaterally appointing brokers by notice to a scheme replacing previous brokers when the employer had assumed the role of agent representing the member in appointing the previous broker.

  • The relationship and consequences between a member, an appointed broker and an employer in circumstances where the employer assumed the role of agent representing the member in appointing the broker and where the employer is acting as agent representing the member in appointing a different broker.

In 2022, the CMS published Circular 35 of 2022 regarding the CMS’s proposal to revise Circular 20 of 2010 pertaining to the appointment of brokers by a member and/or employer in terms of Regulation 28(7) of the Medical Schemes Act. The Circular is on the back of numerous enquiries and complaints from brokers and other interested parties seeking further clarity on the interpretation of Regulation 28(7), following the publication of Circular 20 of 2010.


The CMS is of the view that the fact that the employer has the right to terminate the broker appointment on behalf of the employees implies that the employer has the right to appoint a broker on behalf of its employees. It further believes that the employer’s right to appoint a broker on behalf of employees constitutes a limitation on the employees’ right to choose who they wish to deal with and/or a limitation on the employees’ freedom to contract with the broker of their choice. Hence, the employer’s right to appoint a broker on behalf of employees must be exercised reasonably.


The CMS’s preliminary proposal regarding the interpretation of Regulation 28(7) insofar as appointment of brokers is concerned in Circular 35 of 2022 is noted as follows:

“In line with the provisions of section 7(a) of the Medical Schemes Act 131 of 1998 (MSA) which places a legal responsibility on Council to always protect the interest of beneficiaries, the CMS proposes the following guidelines in relation to the appointment of brokers by employers on behalf of employees:

4.1 Where an employer chooses to appoint a broker on behalf of employees, the employer must appoint a minimum of three brokerages to allow employees the freedom to choose any of the appointed brokerages as and when the employee so wishes.

4.2 The employer must make use of an open, transparent, and competitive process to appoint brokers.

4.3 The appointment must be of a fixed reasonable period.

4.4 When appointing and terminating a broker, the employer exercises power in terms of Regulation 28 (7) and therefore such appointment and termination are subject to monitoring and enforcement powers of the Registrar in terms of the MSA and any other applicable legislation.”


The Black Insurance Advisors Council v City of Tshwane Metropolitan Municipality matter.

In this matter, the Black Insurance Advisors Council brought an urgent application against the City of Tshwane Metropolitan Municipality to, in Part A , interdict and restrain the City, as a result of its decision to call for tenders for the appointment of service providers to provide medical aid brokerage services, from proceeding with the tender and causing it to be implemented and in Part B, to seek a declaratory order that it is the employees of the City that have an inherent right to appoint brokerage service provider for the purposes of securing medical aid scheme coverage for the employees.


The vexed question in this matter was whether it is the employee or employer that has the inherent right to appoint a broker. The Council argued that “it is only the inherent right of the employees to appoint a brokerage service (our emphasis) and that this view accords with Circular 20 of 2010. To the contrary, the City argued that “Regulation 28(7) makes it clear that an employer has the power to discontinue the service of a broker which includes the power to appoint a broker and that this is settled law”.


The court ruled in favour of the Council, thereby interdicting and restraining the City from implementing and/or causing to be implemented the processes envisaged by the tender and the tender itself. As this was an urgent application, the Court could not deal with the merits of the matter, in particular, the proper interpretation of Regulation 28(7), Circular 20 of 2010 and whether it is and/or only the employees’ inherent right to appoint a broker. The Part B of the matter to deal with these questions, we understand, is still pending.


Discussion

What appears to be common cause is that, on whatever interpretation that may be accorded on Regulation 28(7), Circular 20 of 2010, Circular 35 of 2022 and Council v City, employees have a right to appoint a broker. The interpretations appear to differ on the extent and scope of the right. In particular, the question is whether employees have the exclusive right to appoint brokers or not. If not, does the employee share the right with the employer, if employed, or does the employee surrender the exclusivity of the right, if it is exclusive, when the employee is employed by an employer. Further, whether employers do have the right to appoint a broker on behalf of its employees and what is the extent and scope of the employers right.


The CMS’s preliminary position as contained in Circular 35 of 2022 inadvertently proceeds from the premise that employees have the right to appoint brokers. However, it expressly states, in line with the City’s argument in the aforementioned matter, that the fact that the employer has the right to terminate the broker appointment on behalf of the employees implies that the employer has the right to appoint a broker on behalf of its employees.


It is notable that an interpretation of the employers’ right in this instance is implied rather than express. However, Circular 35 of 2022 quotes a decision of the CMS Appeal Committee where it was stated that “Regulation 28(7) allows an individual or his or her employer to appoint a broker”.


The CMS goes further to state that they believe that the employers’ right to appoint a broker on behalf of employees constitutes a limitation on the employees’ right to choose whom they wish to deal with or limitation of the freedom to contract with a broker of their choice and thus the employers’ right to appoint a broker on behalf of its members should be exercised reasonably.


The CMS proceeds to recommend guidelines for employers in relation to the appointment of brokers on behalf of its employees. The guidelines, among others, include the provisions of section 217 of the Constitution in that the employers must make use of an open, transparent and competitive process to appoint brokers. It is notable that the City intended to proceed on this basis when calling for bids in respect of the tender, which was subsequently successfully interdicted by the Council.


Conclusion

Finality in this matter notionally depends on the occurrence of two events. One, the CMS finalising and publishing the Amendment of Circular 20 of 2010, dealing with the question of who, between the employee or the employer, has the inherent right to appoint a broker. Two, the resolution of Part B of the Council v City matter and as at the preparation and publication of this Article, the matter was still pending before the High Court.


On the one hand, as known to many, the duration of litigation cannot be accurately determined. The Council v City matter may be subjected to several appeals to Superior Courts, which may take years to finalise before there is any finality to the subject matter.

On the other hand, the CMS’s finalisation of the amendment process may provide finality to the matter by determining, who, between the employee or the employer, has the inherent right to appoint a broker and the nature, extent and scope of such rights.


The CMS bears the task of proffering an interpretation that accords with the purpose, object and import of the Act. However, such interpretation should also strike the appropriate balance and maintain the relationship between the employer, employee and the brokerage services personnel in light of the pivotal role each play in furtherance of the purpose and objects of the Act.


Unfortunately, what the CMS cannot prevent is litigation by any interested party challenging the interpretation and enforcement of what would have been the clarification by an amendment of Circular 20 of 2010 or an amendment to Regulation 28(7).


 

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