Med scheme members shouldn’t meekly accept trustee fees

By Time of article published Sep 8, 2014

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As a member of a medical scheme, you need to pay attention to what your trustees are paying themselves. The more your scheme spends on the remuneration of trustees – and other non-healthcare expenses, such as administration – the less it has to spend on your health benefits.

This is the message from Stephen Mmatli, the head of compliance and investigations at the Council for Medical Schemes (CMS).

The council this week released its annual report for 2013/14, which shows that the highest-paid trustees are earning R568 000 a year, or R47 000 a month.

Medical schemes operate on a not-for-profit basis. Mmatli says you need to ask your trustees to justify why they ought to be remunerated, and if they can justify being paid, they must be able to convince you that their fees are reasonable.

The issue of trustee remuneration has been on the regulator’s radar for many years, and in 2011 the council released a draft discussion document on the subject. However, “fees are not coming down”, Mmatli says.

Last year, the council commissioned professional services firm Ernst & Young (EY) to conduct a study on trustee remuneration practices, to make recommendations and to propose a benchmark guideline for the industry.

The council plans to release a document next week that will cover the findings and recommendations of the EY study, as well as the requirements for disclosure of trustee remuneration to the members of schemes and to the CMS.

Mmatli says the initial findings of the EY study show that there is “clearly a legislative gap”. The council does not regulate the amounts paid to trustees and is reluctant to prescribe amounts, he says. But the Medical Schemes Act does require schemes to disclose to their members, annually, what they are paying trustees.

The disclosure of trustee fees is made at the scheme’s annual general meeting (AGM), but Mmatli says members are “clueless” when asked to approve trustee fees. “It comes up as an item on the agenda. There’s a show of hands and the fees get approved.” Mmatli says there’s no explanation as to how the fees are set, what they cover or why they need to be increased.

Mmatli says the EY study found partial compliance with the disclosure provisions in the Act and that there is no clear understanding of the role and functions of the board of trustees.

The study also found that:

* Not all schemes remunerate their trustees;

* 45 percent of restricted schemes pay their trustees;

* 45 percent of schemes that remunerate pay per meeting;

* 18 percent pay an hourly rate;

* 30 percent pay a fixed monthly fee; and

* Eight percent of schemes pay trustees consulting fees in addition to remuneration.

The council is firmly against the payment of consulting fees to trustees. “You must be a trustee or a consultant, but you cannot be both, because this introduces a conflict of interest,” Mmatli says. For example, an accountant, lawyer or actuary may be a trustee who also consults to the scheme, and could advise that the scheme use him or his practice for auditing, legal or actuarial services.

”Medical schemes are not-for-profit entities, not private companies. They must operate for the benefit of all. The role of members is critical, but there is poor attendance by members at AGMs and a lack of participation by those who do attend,” he says.

Mmatli says members of some schemes have complained to the council about the inconvenient times at which meetings are held and the lack of accessibility. They have also claimed that members’ motions are sometimes not tabled for discussion, agenda items are not properly discussed and that the process of electing trustees is often manipulated.

Dr Bobby Ramasia, the principal executive officer of Bonitas, has hit back at the council, saying that trustee remuneration should be viewed in context.

“Although medical schemes are non-profit organisations, the complexity and level of responsibility involved should not be underestimated. Effective management of a medical scheme the size of Bonitas requires the services of highly skilled trustees,” Ramasia says.

The board of a medical scheme operates at a similar level to that of a large private company, he says.

“Medical schemes must compete with the market to attract and retain management talent and, as such, remuneration must be market-related,” he says.

But Mmatli says trusteeship should not be compared to non-executive directorship. Trustees are there to provide an oversight role and should not engage in the day-to-day affairs of the scheme. There needs to be a delineation of the roles and functions of the board versus that of the executive, he says.

Schemes should develop a trustee remuneration policy detailing their approach to remuneration, and the policy must be approved by the board’s remuneration committee and tabled at the AGM for approval.

He says trustees should not be paid for attending conferences or undergoing training.

Last year, Mike van der Nest, the chairman of Discovery Health’s board of trustees, told Personal Finance that the scheme’s trustee fees are benchmarked by PricewaterhouseCoopers, considered by a remuneration committee and put before the board for consideration.

“Trustees do not get paid any other professional fees. The only fees trustees are paid are those set out in the annual report.”

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