Medical aid and benefit cost increases of 3 - 5 x inflation destroy value

At a time when Discovery Health Medical Scheme Reserves (and the revenue from it to Discovery (Pty) Ltd) are soaring by billions annuallythe biggest schemes set an expensive tone of 9% - 11% increases for half of all open medical scheme members in South Africa.

Bonitas, the second biggest open scheme, was hot on its heels with increases of up to 12%, with other schemes such as Sizwe up to 20%.

This, despite annual inflation (CPI) being only 4%, and many employees receiving no or less than 6% increases in pay before tax, is more than disturbing. It is unaffordable, excessive and no amount of PR spin and quasi-science Vitality marketing mumbo jumbo can justify it.

Where is the stabilising and regulatory hand of the Council for Medical Schemes?

Worse, it ramps up the cost of benefits to employers and employees alike and threatens to bankrupt companies that are perilously hanging on despite the hardships of an economy in recession in real terms (what it 0.7% growth after 4% inflation, after all?)

Meanwhile, follow the honey.... Administrators and Third Parties prosper

Conspicuous wealth of the administrators, managed care, distribution and other fingers in the pie - usually incestuously closely linked - milk at least 10% off cashflow and another similar slice off investment of reserves; perverse incentives fuel the bonfire with in the pocket, uninformed and incompetent officials at regulators feeding their own careers.

Pension Funds are already being robbed - no need to fear the State

The feast of fees extends throughout the retirement fund and financial services industry, both active and passively managed asset managers, administrators, insurers and consultants take a disproportionately large slice of the pie simply because, bluntly, company HR managers are too mathematically stupid to know the difference.

For most members of a retirement fund in South Africa, real after cost and inflation returns have been negative for a long time - yet still, the "financial services sector" thrives on ever fatter purses.

Companies, people need new tools

Navigating this mess will determine whether companies and individuals build real wealth, or transfer their hard earnings into the pockets of slick marketers and gimmicks.

* Quantitative tools to measure cost vs benefits. Call it "analytics" if you prefer to pay large sums of money to do arithmetic and spreadsheets

* Fee based consulting instead of hidden, multiple commissions and fees

* "GPS" that match needs, demographics and budget to the appropriate options and vehicles

* An open mind that uses vehicles such as health insurance, primary care, NHI-enable Gap cover in addition to medical schemes

* A complete review of retirement funding and staff savings, reviewing asset allocation models that reward asset managers with exhorbitant fees on the unproven basis that the "JSE must bounce back".

It is time to face facts - benefits make up more than 20% of the pay bill, and employers and their staff - too often, are being taken for a ride.

Our staff are being ripped off, and we are letting it happen.

Let's get smarter, sooner rather than later.