Rising medical claims and wages are eroding the cash reserves of National Hospital Insurance Fund, a trend that could make it difficult for the public insurer to meet its obligations.
Its surplus has shrunk from Sh990 million in 2006 to Sh173.4 million last June in a period that has seen salaries and claims more than double.
This has seen the fund peg its future performance on increasing its premiums—a move that has previously been blocked by workers’ unions and employers.
The thinning reserves are also hurting the fund’s ambitions of having a larger investment kitty that will allow it to put money in bonds and properties to generate an income that will further boost its financial war-chest and modelling it around the National Social Security Fund (NSSF).
“We have to increase our rates and the longer we delay in doing this, the closer we move towards being unsustainable,” said Richard Kerich, the firm’s CEO.
NHIF is seeking to raise its monthly contribution that range between Sh30 and Sh320 — which was last revised in 1989 — to match the steep rise in hospital charges over the years.
The fund’s managers say the increments are necessary to boost the scheme’s ability to meet the high cost of medical services that have increased five-fold since 1990, pushed by a steady rise in doctors’ fees, food, medicine and equipment.
This has seen its claims more than double to Sh3.1 billion from Sh1.1 billion, which has also been driven by rising membership from 1.7 million to 2.8 million contributors in the review period.
Its average claim has increased to Sh10, 028 from Sh6, 986 in 2006. Its employee costs has risen from Sh978 million to Sh1.6 billion, representing a 63.5 per cent increase. Member contributions — which account for 95 per cent of total income — stood at 5.7 billion in 2010, growing by 67 per cent from Sh3.4 billion in 2006.
The fund operates a measly investment fund since much of the contributions are consumed by administrative and operational expenses.
Analysts led by Deloitte reckon that the fund should restructure its asset base and put more money on income generating assets such as bonds and equities, which will reduce its dependence on contributions in a market where various publics are against raising the premiums.
The fund had Sh398 million worth of bonds by June 2010, Sh322 million in cash and Sh11.8 billion in real estate—which does not generate much income as NHIF occupies the bulk of the space on its property.
“Only a small portion of assets is income generating. Majority of assets comprise non-income generating property assets,” says Deloitte.
“NHIF’s return on investment has been affected by the weight of low returns from the fixed assets. Total return on investments was 3.37 per cent,” added Deloitte. The Philippine Health Insurance Corporation, for instance, has 97 per cent of its assets in government bonds and bills and holds only one per cent of assets in fixed assets.
At 3.37 per cent, the fund has trailed the stock market, bond and real estate markets that analysts at CFC Stanbic say generated double-digit returns in 2010.
But the narrowing reserve look set to hurt its investment income further as the fund continues to channel most of its contributions to meeting members’ hospital bills.
The firm has said that it needs to urgently raise members’ contribution rates in line with rising cost of medicare and to provide comprehensive health insurance, and is asking employers and government to also contribute to its kitty.
But this is set to receive stiff opposition from workers’ union and employers — making a larger investment income a key plank of the fund’s financial health.
“There is need for gradual disposal of illiquid assets and improve the current investment policy to focus on liquidity, solvency and ensure adequate returns,” says Deloitte.
The government is betting on a richer NHIF to provide comprehensive health insurance, including maternal care and outpatient cover to all social classes from next year, which is critical now that the fund is keen on bringing the poor within the health insurance bracket.
