Kenya's healthcare financing plan may be flawed

Kenya's healthcare financing plan may be flawed

The plan to reform Kenya's healthcare financing is described in the Social Health Insurance Bill. The bill seeks to fix the problems that have cropped up over the nation's health insurance fund and broaden health insurance coverage.

While some proposals can potentially increase financial access to healthcare, others are likely ineffective, if not destructive.

Let us start with the beneficial aspects of the bill. As a result, the decision to allocate resources to cover emergency and chronic care may offer much-needed relief.

It will also enhance access to emergency care, avoiding situations in which accident victims without the means of payment are either turned away from hospitals or hospitals are forced to bear costs without proper compensation.

Another positive proposal is the allocation of resources to primary healthcare. This is a significant break from the hitherto hospital-centric NHIF, which has privileged expensive tertiary and secondary care.

PHC is capable of meeting up to 90 percent of the population's health needs. With a return on investment of up to Sh16 for every Sh1 spent, it's budget-friendly. PHC is more fair, reaching more people, especially the poor.

NHIF staff get a one-year grace period to reapply for jobs.

Another excellent aspect of the bill is the proposal to limit administrative expenses to five percent of the health insurer's expenditures. While the NHIF has reduced administrative costs from 50 percent over a decade ago to less than 15 percent, imposing a cap will ensure that these efficiency gains are sustainable.

However, the proposed law is hindered by various ill-informed recommendations, conspicuous omissions, or obscurity.

It is unclear whether the newly introduced funds - the PHC fund and the emergency and chronic care fund - will benefit all Kenyans or only those who pay into the SHI scheme.

If this is true, these arrangements will exacerbate inequities, as government financing benefits the non-poor, given that participation in SHI in Kenya is heavily skewed towards the rich.

It is also unclear how the proposed SHI scheme will be financed. The bill states that some financing will come from government revenue allocations, which is a good idea.

However, the reforms are anchored in the fundamental assumption that funding will be obtained primarily through premium contributions, which is not a good idea.

It differs from worldwide evidence and the country's nearly 60 years of NHIF experience that shows that premium payments are unreliable for healthcare resource mobilisation in a country with substantial poverty and informal labour markets.

Relying on voluntary premium contributions and basing entitlement on contributions entails numerous individuals who are unable to pay, entrenches inequalities, mobilises minimal revenues, achieves low population coverage, and incentivizes adverse selection.

The plan to tackle this issue by making SHI mandatory is impractical because it is difficult to enforce.

While the proposal to provide health insurance subsidies for the poor might alleviate some of the anticipated inequities, the plan to employ means-testing to identify the poor will face globally-documented challenges that will likely attenuate any potential benefit. Would spending more money on healthcare improve the quality of life and well-being of the population? It is also error-prone, with some unidentified individuals being classified as poor while some deserving poor are excluded.

The proposal for collecting revenue from the informal sector is mainly impractical. The idea that means-testing might be used to estimate income levels of informal workers to indicate premium determination is non-workable for the reasons previously described.

The proposal that informal sector premium contributions be made annually instead of monthly would impose a great financial strain on Kenyans, causing attrition of existing NHIF enrolees while discouraging new membership.

The SHI bill is not addressing a key aspect, which is the process for defining healthcare benefits covered by the SHI scheme. The NHIF's lack of a systematic, evidence-based approach for implementing an affordable and cost-effective benefits package has been a major weakness of the organization.

The benefits package has become unsustainable, promising a lot on paper but providing significantly less in practice.

The bill offers an excellent - but hitherto missed - opportunity to enact a systematic and evidence-based procedure for benefits package development.

The bill's proposal to outsource claims processing to third parties poses a significant risk introducing inefficiencies and perverse incentives. Third-party claims management firms will levy a fee, raising administrative expenses unnecessarily.

The fee is likely to be a percentage of the volume and value of processed claims, which will encourage them to maximize both.

As commercial health insurers are competing in the same market as the NHIF, they create a conflict of interest by using them as third-party claims-handling agencies.

The government's aim to extend coverage to all Kenyans is a laudable one. But the specific arrangements proposed in the SHI bill call for a rethink.

The writer serves as director of the KEMRI-Wellcome Trust Nairobi and Professor of Health Economics, University of Oxford.