Health insurers turn to cost-sharing as medical bills soar

Health insurance companies have adopted a new pricing system that asks patients to foot part of the bill in hospitals before accessing treatment, a move which they say has been prompted by the rising cost of medical services.

The new system, dubbed co-payment, is increasingly showing up in medical insurance plans that people buy individually or acquire through employers in response to the need for affordable premiums by corporate Kenya, industry players say.

A significant number of health providers have been increasing their charges yearly over the past three years, citing the rising cost of medicine, food and equipment —which have pushed them to increase premiums to protect their profit margin.

Insurers say the costs have been increasing by an average of 20 per cent yearly over the three-year period in line with the pace at which the cost of medical services has been rising.

With corporate Kenya not willing to absorb higher premiums any more and insurance firms not keen to lose business, insured patients are being asked to meet a portion of expenses for each hospital visit.

The top-up charges range between Sh100 and Sh1,000 depending on the class of hospitals, cost of drugs and medical procedures on outpatient services.

The top four medical insurance providers say that the number of individuals or corporate firms under the co-payment system doubled this year, adding that the number will continue to rise in line with expensive health care.

Ms Lydia Kibaara-Nzioki, the head of medical business at Jubilee Insurance Company, Kenya’s largest medical insurer, says that the incidence of co-payment has been driven by the rising cost of medical services, arguing that holders of corporate schemes want the cost of their premiums to remain the same or increase moderately.

“Employers have been asking for co-payments as a cost-cutting measure since it leads to reduced premiums,” she said.

“Five years ago it (co-payments) was virtually nonexistent. But now it is the fastest-growing segment in private insurance,” she added.

At Jubilee, 26 per cent of their schemes are now on co-payment, up from 12 per cent last year, according to Ms Kibaara-Nzioki.

She did not want to reveal the firms, citing client confidentiality.

But Jubilee, which had premiums worth Sh1.4 billion in 2008 under its watch, is not alone.

Other top players in the medical insurance including APA, UAP and CFC are recording a similar shift.

“Co-payments are becoming the order of the day as policy holders look for affordable premiums,” said Mr Ashok Shah, the CEO of APA Insurance.

Firms such as Kenya Data Networks, Gulf African Bank and Transnational Bank turned to co-payment this year.

The emerging pricing system means that the burden of expensive health care affects insured people too.

It also upsets the tradition of insurance where members bear the same cost burden despite their varying degrees of illness by spreading the costs.

Players in the industry expect the co-payment system to be entrenched in the healthcare industry as medical costs rise.

This means that households, already grappling with high food, transport and utility costs, will have to find money to pay for the medical expenses despite insurance cover.

Insurance companies have been forced to play ball with corporate clients in their cost-cutting drives for fear of losing business to their rivals in a market where the cost of premium is emerging as an arsenal for market share growth.

Medical insurance providers generate the bulk of their earnings from the companies since 85 per cent of policy holders are recruited through corporate schemes.

The rising uptake of co-payment plans comes at a time when corporate Kenya has trained its sights on cost-cutting initiatives as a profit driver in a business environment that has been delivering flat sales.

This has meant that expenditures such as medical bills that have no direct bearing on sales have been the first to face the chop.

Insurance companies are using the co-payment plan to control the amount of claims they pay out to doctors and hospitals amid claims that insured patients are being subjected to unnecessary and expensive medical procedures.

“Hospitals are doing more tests than they should using expensive equipment,” says Mr Shah.

Though the co-payment is often a small portion of the actual cost of the medical service, it is meant to prevent people from seeking medical care that may not be necessary.

The thinking is that without the co-payment system insured patients seek treatment more frequently than if they were paying for all or some of it.

Insurance players say doctors have ignored the set guidelines on medical costs in favour of an open market where they vary charges by as much as Sh500.

Consultation fee

The Kenya Medical Practitioners & Dentists Board, the regulator, says it has no powers to enforce the price guidelines.

Medical costs have nearly doubled over the past three years, growing at the fastest pace last year on rising ward charges, medicine and medical equipment cost and doctors fees.

The rise in the cost of medicine and medical equipment is however being attributed to a recent weakening of the shilling which has lost nearly 20 per cent of its value against the dollar since mid 2008.

This comes at a time when the top end hospitals have gone overdrive in revamping their equipment egged by the rising cases of lifestyle diseases and cancer.

Kenya imports 60 per cent of its medicines and 90 per cent of medical equipment.

The surge in medical costs has been steepest among top-end hospitals in Nairobi such as Nairobi Hospital, Aga Khan, Mater and Gertrude’s Children Hospital — which together take about half of the entire claims paid out by the insurance firms.

At Nairobi Hospital for instance, the consultation fee for general practitioners has risen to Sh2, 000 from Sh900 last year, while the Aga Khan University Hospital now charges Sh1,200 from Sh900 last year.

Specialists such as gynaecologists, dentists and oncologists in the two hospitals have however increased their consultation fees by even larger margins to between Sh2, 000 and Sh3, 000 from a range of between Sh1, 500 and Sh1, 800 last year.

Because of this increase, clients— largely the corporate schemes— are offering renegotiations with insurers to make the cost of the premiums remain the same or gain a moderate increase.

Some insurance companies have stopped offering outpatient services for new clients, saying the rising claims were eroding profit margins

Private medical insurance providers reckon that outpatient services account for between 65 and 80 per cent of their members’ hospital bills.

“We have put on hold the inpatient services since we are reviewing our business,” said Dr Ambrose Nyangawo, the manager for health services at UAP insurance.

Others such as Resolution Health have stopped offering outpatient cover for patients attending top-end hospitals.

“We were even forced last year to make a board resolution that now prohibits our members from seeking medical services at some hospitals in the country after they sharply adjusted their rates upwards,” said Mr Peter Nduati, the Resolution Health CEO.