Review of medical covers looms as hospitals raise fees

Major private hospitals have increased their charges by up to 10 per cent, setting the stage for higher medical insurance premiums.

Aga Khan, MP Shah and Avenue Hospital (Nairobi) are the latest to increase their charges, joining Nairobi Hospital, Gertrude’s Hospital, Guru Nanak and Karen Hospital whose prices went up between August and November last year.

The hospitals attribute the higher charges to increased operating costs and the new value added tax (VAT) law, which has inflated the prices of medical equipment and products.

The VAT Act 2013 removed exemptions on the items, effectively increasing their prices by 16 per cent.

Insurers say the escalating costs of healthcare will be reflected in higher premiums when corporate and individual policies come up for renewal.

“The higher hospital charges will have an impact on insurance costs,” said Lydia Kibaara-Nzioki, the chief operating officer at Jubilee Insurance.

Some of the hospitals raised their charges twice last year, saying they had been hit by rising costs of labour, drugs, and utilities.

This trend is set to pile pressure on corporate and household budgets at a time when three-quarters of the population has no access to quality healthcare due to low incomes.

Medical insurers say the cost of covering an employee with four family members is between Sh20,000 and Sh60,000 per year depending on the set ceiling and benefits.

The premiums are higher for individuals whose medical insurance policies typically cost more than the corporate schemes. Only a quarter of Kenya’s population has medical insurance —mostly provided by employers.

The new charges have seen the cost of accommodation and medical services rise by thousands of shillings, increasing the cost of complex treatment that demands longer in-patient attention.

Avenue Hospital (Nairobi) will from next month (March 1) be charging Sh6,000 for a general ward bed per day while its maternity package will cost Sh100,000 for a normal delivery.

Nairobi Hospital currently charges Sh8,100 for a general ward bed per day and its normal delivery maternity package is Sh98,000, according to its September price schedule.

Aga Khan Hospital (Mombasa) said its prices rose by an average of eight per cent across the board from January 1.

While healthcare costs have been rising annually, last year saw a sharp increase in key factors in medical services pricing.

These include utilities such as electricity, labour and medical equipment whose prices rose by double digits following the elimination of VAT exemptions on more than 400 items in September last year.

“In view of the unrelenting cost increases in commodities, utilities and other services, we find ourselves compelled to marginally increase the price of some of our products and services,” Nairobi Hospital said in an October letter to its clients.

Electricity charges for large consumers like hospitals rose by double digits starting December after Kenya Power raised the consumption charge for commercial users by over 30 per cent.

Power tariffs will rise further in July, signalling higher costs for commercial users who pay more the higher their consumption.

Payroll costs for some private hospitals also rose by double digits last year after they were forced to increase salaries for their nurses and doctors to match or beat that in the public health sector.

The government in 2012 gave its healthcare staff large pay rises with the least paid worker earning Sh110,000, sparking a talent war. Private hospitals are now paying an entry-level nurse at least Sh30,000 while doctors are starting with a salary of over Sh100,000.

Gave workers a pay rise

Gertrude’s Hospital, MP Shah, and health management firm AAR gave their workers a pay rise of between Sh40,000 and Sh60,000 in the battle to attract and retain talent in the healthcare industry.

Hospitals say the new VAT law has pushed up the cost of medical equipment and products such as X-ray machines and laboratory reagents by more than 20 per cent.

“Medical equipment and products now cost more than before on account of the new VAT law and discretionary supplier pricing,” said Godwin Odundo, the CEO of Gertrude’s Hospital.

The persistent surge in medical costs will in turn force a rise in premiums, further dampening hopes of a broad uptake of insurance that remains stuck at less than four per cent.

It will also pile pressure on the medical insurance business which has the highest loss ratios, with most premiums collected paid out in claims. Medical insurers recorded the highest growth in premiums at 46.8 per cent to Sh13 billion in 2012, according to the Association of Kenya Insurers.

However, they made the largest underwriting loss of Sh336 million followed by private motor insurers which posted a Sh100.4 million loss.

Insurers have linked the huge losses in medical insurance to fraud, with more underwriters issuing smart cards to stop dubious claims.

Jubilee controls the largest portion of the medical insurance market at 24 per cent followed by CIC and UAP with a 14.6 per cent market share each.

Medical insurance has 15 players battling for the Sh13 billion gross premiums, with rivals betting on new low-cost products to rope in more customers.

Insurance uptake has generally suffered from consumer apathy, high premiums and collapse of more than 10 service providers.