NHIF outpatient cover raises stakes in insurance sector

NHIF Headquarters in Nairobi. /Fredrick Onyango
NHIF Headquarters in Nairobi. /Fredrick Onyango 

The launch of outpatient medical insurance cover by National Hospital Insurance Fund is set to pave the way for stiff competition in Kenya’s middle class-leaning medical insurance industry.

Low income earners will be the biggest beneficiaries of the new scheme that is set to drastically reduce their out-of-pocket spend on medicines.

Medical insurance companies said although they expect intense competition because of the competitively-priced product from the NHIF, it will also help ease the utilisation burden of their covers because all privately insured persons must have NHIF cover.

“We take it as reserve cover and pay claims over and above the cost paid by the NHIF,” said Peter Nduati, the CEO of Resolution Health East Africa.

This means the burden of outpatient care will be eased considerably as the fund previously only provided rebates for bed and specific cost of surgery.

But medical insurers could also be the losers if the new product becomes the preferred choice of some of their current clients, especially those employing a huge pool of low income workers.

The industry however insisted that the income group targeted by NHIF is different from that targeted by the mainstream insurance industry and that the fact that the outpatient cover is not comprehensive will ensure that the middle class seeks out products that offer more.

“There is the possibility of some employers shifting to this cover but overall, it will act as a compliment to our services and ease the utilisation burden of our products,” said Lydia Kibaara-Nzioki, the head of medical business at the Jubilee Insurance Company.

NHIF on Monday launched a six-month pilot project on the outpatient cover targeting Mumias and parts of Nairobi.

NHIF communications officers Stephen Wangaji said the cost structure of the outpatient cover will be similar to that of the inpatient cover where clients pay between Sh30 to Sh320 depending on the nature of employment and monthly earnings.

The scanty information available indicates that hospitals providing the outpatient cover will be given caps on how much a patient can use for every purchase to prevent abuse of the cover.

Among insurance companies currently providing medical cover, outpatient services account for 60 per cent of the medical cover utilisation.

The NHIF cover will be a boon to partnering hospitals and doctors who will be assured of steady flow of business even when patients do not have money to purchase medicine.

The successful roll out of the outpatient product will result in a major reawakening of the medical insurance business in Kenya, which has for long given low income people a wide berth.

Indeed, some medical insurance companies even decline to offer individual medical covers, opting exclusively for corporate business.

This competition will eventually lead to a reduction in the cost of outpatient services, said Dr Edward Rukwaro, the general manager of AAR Health Services.

Industry estimates show that only about 600,000 Kenyans have a medical insurance cover.

The NHIF has 2 million under its cover but that number should ideally be at least 9 million which is the number of Kenyans currently in employment who can afford at least Sh30 in monthly premiums.

But the fund has failed to attract the numbers because of the poor marketing and public education on its side.

If this does not change, then when the new product will face similar low intake.

Medical insurance business in Kenya is still trying to crawl as indicated by the dismal profits the industry made in 2008, putting pressure on the industry to come with better pricing models, increase use of information technology to cut down on costs and fraud.

Statistics from the Association of Kenya Insurers (AKI) indicate that 15 medical insurance companies made a combined profit of Sh33 million, which translates into Sh2.2 million for every company.

Seven or 46 per cent of the companies made an underwriting loss.

Players say medical inflation, poor pricing models and fraud that eats 35 per cent of total claims are among the major problems affecting this business.

Pricing of medical insurance products has been a major issue because the country lacks adequate data developed over time to help know the exact cost of medical services among social groups including the frequency of hospital visits.

Part of the problem is that data capturing and processing within the hospitals in Kenya is not given adequate importance and there are not linkages between the hospitals and insurance companies on data sharing.

The industry now wants NHIF to share the date that will be collected from its pilot project, so that private companies can use it to develop equally competitive priced products.

“We would like to see the scenario where medical insurance is made mandatory, just like vehicle insurance,” said Rukwaro.

But to ensure that mandatory health insurance works, he said there is a need for a stronger player like NHIF with ability to reach the poor and also need to have more providers offering competitive products to give consumers options.

“That is why its important for companies like ours to access the NHIF data to create a level playing field,” he said.

If successful, it means that low income earners with NHIF cover will need to have to pay for medical services, including buying medicine using their pocket money.

This is a major win because Government data shows out-of-pocket expenditure accounts for 53 per cent of the total cost of healthcare, with the remainder being Government contributions from general taxation at 25 per cent, NHIF at 15 per cent, private prepaid health plans at five per cent and non-profit institutions expenditure at two per cent.

Beyond competition, the Fund will have to find ways of defeating high incidence of fraudulent claims prevalent in the outpatient medical insurance segment.

In earlier interview, Mr Wangaji had said the fund was in the process of acquiring a new information communication technology system that will allow instant verification of the claims.

The new NHIF card will include contributor’s bio-data to allow instant processing by electronic reading machines.

But even with the use of biometric card, the fund will have to find ways of dealing with cases where doctors collude with patients to inflate the medical bills and offer treatment for non-insured disease then bill the insurance company.

“The solution to this is continuous public education to inform the users there is no gain in this being part of fraudulent claims,” said an industry source.

NHIF said only hospitals with functional ICT systems including the internet will initially be selected to participate in the project.

The pilot project involves 250,000 outpatients in Nairobi and another 50,000 in Mumias.

To meet the new financial demands by the outpatient services, the fund said it will increase operational efficiency to enable it save on the operation costs.

The fund said it has managed to reduce its operational expenses from 80 per cent of total collection in 1998 to 30 per cent by 2007.

The fund currently collets Sh4.7 billion every year. 48 per cent of this money is used to pay medical claims while 22 per cent is invested.

NHIF has about 2 million contributors spread across 41,000 employers.

But this is seen as a failure of the fund’s part, because there are still more than 7 million formal and informal workers that the fund is yet to reach out to.