Market Assessment of Private Prepaid Schemes in Kenya

Transcription

1 Market Assessment of Private Prepaid Schemes in Kenya

2 Market Assessment of Private Prepaid Schemes in Kenya October 2011

3 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Disclaimer This report has been prepared principally from information supplied by and obtained from discussions with the National Hospital Insurance Fund ( NHIF ) and various private insurance and health stakeholders pursuant to the scope of the work contained in the terms of reference. Our services do not constitute an audit conducted in accordance with generally accepted auditing standards, or an examination of internal controls, or other attestation or review services, in accordance with standards established by ICPA (K). Neither Deloitte nor this report nor any other communication on this report, expresses an opinion or any other form of assurance. We accept no liability to any party in connection with this report. This document has been prepared exclusively for the International Finance Corporation ( IFC ) of the World Bank Group, under a joint Cooperation agreement with the Ministry of Medical Services ( MOMS ) and the National Hospital Insurance Fund ( NHIF ), Kenya. It should not be used, reproduced or circulated for any purpose in whole or in part, electronic or otherwise, without prior explicit written consent from Deloitte and the Project Steering Committee comprising IFC, NHIF and MOMS. 2

4 MARKET ASSESSMENT of private ACKNOWLEDGEMENT prepaid services 1 Acknowledgement This Assignment: A Strategic Review of NHIF and Market Assessment of Private Prepaid Health Schemes was carried out by Deloitte Consulting limited under the auspices of MOMS, NHIF and IFC. Deloitte Consulting Limited acknowledges the leadership and guidance provided by the Project Steering Committee comprising MOMS, NHIF and IFC. Deloitte wishes to express our appreciation to the many stakeholders, public and private who provided indepth information for the assignment. In particular: NHIF management and staff, NHIF Board, MOMS and MOPHS, Donor Partners and the World Bank Group, AKI, KMA, COTU, FKE, KEPSA, KHF and many other stakeholders including the private health insurance industry who were contacted during the assignment. We wish to express our appreciation again to the International Finance Corporation and the National Hospital Insurance Fund for providing the funding for this assignment. In turn, the Health in Africa Initiative ( HIA ) of the World Bank Group wishes to acknowledge the direct funding support from the the Bill and Belinda Gates Foundation and the Netherlands IFC Partnership Program (NIPP) on this report preparation. The findings and conclusions contained within are however, those of the authors and do not necessarily reflect positions or policies of Gates Foundation, NIPP or IFC. HIA also gives thanks to our many colleagues in the World Bank who provided advice and insights on the assignment. Finally, Deloitte wishes to acknowledge the participation of several associates both in Kenya and abroad for their immense contribution to the assignment. 3

5 4 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes

6 MARKET ASSESSMENT of private prepaid services PREFACE 1 Preface The development of a broad strategy on the sustainable financing of healthcare in Kenya has been a concern of all Kenyans. This is because many Kenyans have directly had to pay for health services whenever they need them, and sometimes at levels that can impoverish the family unit. Payment of out of pocket expenditures for health services has become a major barrier to access currently estimated at about 40 percent of total health expenditure. Efforts by the government and development partners to progressively increase funding to the health sector has not led to drastic improvement of health outcomes because of the way the funds are channeled. The first major attempt to develop a comprehensive and sustainable financing framework was started in 2004 through the efforts of the Ministry of Health and other stakeholders. These efforts saw the development of the National Social Health Insurance Fund Bill, whose objective was to pool resources for a universal access to healthcare to the population. However, though passed by Parliament, it did not translate into law due to issues of sustainability and vested interests by some of the stakeholders. Since 2006/07, there were concerted efforts by the government and stakeholders to ensure that the process moves forward. As a result, there were various studies that were undertaken to provide evidence for the overall strategy that would provide for affordable, accessible and quality healthcare services in the country. These studies were complemented by visits to other countries to get lessons on some of the best practices. The launch of the Kenya Vision 2030 also provided more impetus for the fast conclusion of these processes. The subsequent consultations that followed in developing the strategy underscored the need for the National Hospital Insurance Fund (the Fund) to play a major role in the pooling of resources for social health insurance for the population. The complementary role of the private sector was also recognized. However, in order to position the Fund for the enhanced role, it became necessary to carry out a strategic review of the Fund and a market assessment of the prepaid schemes in order to come up with recommendations that would be used in expanding social health insurance and private health insurance in Kenya so as to cushion Kenyans from catastrophic expenditures. It is due to the foregoing that my Ministry partnered with the International Finance Corporation (IFC) of the World Bank and the Fund to carry out a strategic review of the Fund and a market assessment of the private health insurance providers. The focus of the review of the Fund focused on the adequacy of the Fund and its operational systems, including identification of gaps that could be addressed to meet the larger expectations of the people. The market assessment of prepaid schemes focused on reviewing of all previous work commissioned by the Government of Kenya, donor groups or others as well as relevant data that could allow for recommendations that could be implemented to strengthen the role of the private health insurance players. The results from the two surveys have been well received by stakeholders in the sector and other supportive sectors. The recommendations from these studies will facilitate the firming up of the recommendations proposed in the broad draft strategy on healthcare financing. In particular, the recommendations will greatly assist in implementing policies and strategies that will help the government and the country as a whole meet the requirements of the Constitution, which makes access to quality healthcare on of the fundamental rights 5

7 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes in Bill of Rights. It is also my hope that the information and recommendations from these studies will not only help address the broad needs of the reform agenda in the sector, but also assist in strengthenng the role of the private health insurance providers. I wish to thank the International Finance Corporation for supporting this exercise and the consultants, Deloitte East Africa Limited for the good work and the stakeholders for the fruitful contributions during this exercise, and in other areas of partnerships. Finally, I would like to congratulate the Board and Management of the Fund for taking the bold step in opening up to public scrutiny. 6

8 MARKET ASSESSMENT of private TABLE prepaid OF CONTENTS services 1 Table of Contents Disclaimer 2 Acknowledgement 3 Preface 5 List of Tables 9 List of Figures 10 Abbreviations Executive Summary Background and Context Objectives and Methodology of the market assessment of prepaid health schemes Findings of the Market Assessment of Prepaid Health Schemes Recommendations Conclusion Introduction and Background Background and Context Healthcare Financing Status and Challenges in Kenya Summary of Kenya s Healthcare Financing System Scope of Work and Methodology Scope of Work Definition of Key Terms Assessment Design Limitations of Assessment Methodology Findings of the assessment Overview of Prepaid Schemes in Kenya Scope of Prepaid Health Schemes in Kenya Consumer Perception Of Prepaid Health Schemes Constraints for Strategic Growth and Effective Reach of Private Prepaid Schemes Recommendations Strengthening the Policy, Legal and Regulatory Framework Extending Health Insurance Coverage in Kenya Facilitating Strategic Growth and Reach of Private Prepaid Health Schemes Future Role of Private Prepaid Health Schemes in Contributing to the Achievement of National Healthcare Financing Goals Conclusions Recognition of the Mixed Model of Healthcare Financing in Kenya Leveraging the Competitive Advantages of Prepaid Health Schemes Role of Socio-economic Development 93 7

9 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes 6.4 Priorities for Change Appendices 95 Appendix 1: List of References 97 Appendix 2: Scope of Work 98 Appendix 3: Definition of Key Terms 102 Glossary of Terms* 102 Appendix 4: Key Documents Reviewed 106 Appendix 5: Stakeholders Interviewed 107 Other Interviews& Group Discussions 108 Appendix 6: Stakeholder Interview Guide 109 Appendix 7: Key Interviewees Survey Monkey 112 List of Some of the Key Stakeholders Sent the Online Survey Link 112 Appendix 8: List of Attendees 1 st Stakeholder Briefing Workshop 116 Appendix 9: List of Attendees, Deep Dive Workshop 118 Deep Dive Attendees 118 Appendix 10: Draft Healthcare Financing Policy Implementation Framework 120 Draft Healthcare Financing Strategy Implementation Matrix 120 Appendix 11: Data Sheet for Prepaid Health Schemes 122 Appendix 12: Summary of Recommendations 125 8

10 MARKET ASSESSMENT of private prepaid LIST OF services TABLES 1 List of Tables Table 1: Health worker to population ratios 32 Table 2: Global health financing data summaries for various regions (A. Preker et al 2010) 36 Table 3: Analysis of healthcare expenditure in sub-saharan African countries 2007 (Abt Associates HS 20/20) 37 Table 4: Private Health Insurance in Sub-Sahara African Countries (WHO Estimates 2005) 38 Table 5: General NHA summary statistics for 2001/2 and 2005/6 41 Table 6: Financing sources as a percentage of total health expenditure 42 Table 7: Household (HH) spending on Health 42 Table 8: Function distribution as a percentage of total health expenditure 43 Table 9: Various prepaid schemes in Kenya 57 Table 10: Gross premiums written in 2009 by risk pool vehicle. 60 Table 11: Community based health financing organisations data (KCBHFA report 2008) 63 Table 12: Contributions and claims summary Jamii Bora (Abt Associates, Catalogue of CBHF, 2006) 63 Table 13: Selected employer scheme data 65 Table 14: Estimates of 2010 population coverage of health insurance in Kenya 69 Table15: Level of population insurance coverage and GDP in selected Sub Sahara African countries from 2006 NHA s 70 Table 16: Level of population insurance coverage and GDP in selected countries 2008/09 estimates 70 Table 17: Possibilities of overlapping membership between NHIF and other prepaid schemes 71 Table 18: Health Insurance Range of products from various prepaid schemes in Kenya 72 Table 19: Comparison of premium rates for a family of four (M+3) in-patient cover of KSh. 500,000 per family per annum 74 Table 20: Benefit range of various prepaid schemes mapped against commonest causes of morbidity 74 Table 21: Benefit range of various prepaid schemes mapped against commonest emerging chronic diseases 75 Table 22: Summary of self reported hospital financing sources 80 9

11 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes List of Figures Figure 1: Kenya population (Kenya 2009 population and housing census report KNBS) 29 Figure 2: Trends in Infant mortality rates (KHDS 2008/09) 30 Figure 3: Leading causes of out-patient morbidity (MOH HMIS data) 30 Figure 4: WHO building blocks of health system 31 Figure 5: Healthcare financing system mechanisms (adopted from Skehri and Savedoff 2005) 35 Figure 6: Healthcare spending per country sorted out by GDP 37 Figure 7: Comparison of sources of total health expenditure OECD and selected African Countries 39 Figure 8: Government spending on health as a percentage of total government expenditure (MOMS data) 41 Figure 9: Private insurer s gross written premium written (source AKI Annual Reports ) 59 Figure 10: Gross premium MIP Figure 11: NHIF Member contributions (NHIF Accounts) 60 Figure 12: Payout ratios for private insurance (AKI Reports) 60 Figure 13: Acquisition, administration and payout ratios for NHIF: (NHIF Accounts) 61 Figure 14: Payout ratios for NHIF (NHIF Accounts) 61 Figure 15: Total administration expenses % for NHIF (NHIF Accounts) 61 Figure 16: Private health insurance gross underwriting profit/loss (AKI Reports) 62 Figure 17: Population pyramid with possible risk pooling financing of health to ensure universal coverage in Kenya 66 Figure 18: Insurance products current users would buy 68 Figure 19: Perceived barriers to accessing private prepaid schemes 78 10

12 MARKET ASSESSMENT of private prepaid ABBREVIATIONS services 1 Abbreviations Acronym AIDS AKI ANC AOP6 ARVs CBHF DANIDA DPHK FBO FONASA GDP GNI GOK HDI HH HIV HMIS HMO HSSF ICT IMF IPHI IRA ISAPRE s KCBHFA KDHS KFW KHHEUS KIHBS KPHSA KIPPRA KPLC KNBS MDG MIP NCAPD MOF MOH Details Acquired Immunodeficiency Syndrome Association Of Kenya Insurers Antenatal Clinic Annual Operating Plan six Antiretroviral Community based healthcare financing Danish International Development Agency Development Partners in Health Kenya Faith Based Organisations National Health Fund (Chile) Gross Domestic Product Gross National Income Government Of Kenya Human Development Index Household Human Immunodeficiency Virus Health Management Information System Health Maintenance Organisation Health Sector Services Fund Information communication technology International Monetary Fund International Private Health Insurance Insurance Regulatory Authority Instituciones de saludprevisional Kenya Community Based Health Financing Association Kenya Demographic and Health Survey Kreditanstalt fur wiederaufbau Kenya household health expenditure and utilisation survey Kenya Integrated Household Budget Survey Kenya Private Health Sector Assessment Kenya Institute for Public Policy Research and Analysis Kenya Power and Lighting Company Ltd Kenya National Bureau of Statistics Millennium Development Goals Medical Insurance Providers National Coordinating Agency for Population and Development Ministry of Finance Ministry of Health 11

13 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes MOM MOPHS NCAPD NESC NGO NHA NHSSPII NHIF OBA OECD OOP PEPFAR PETS PHI SHI RSBY SOW SS TB THE TPA TOR UNDP WB WHO Ministry of Medical Services Ministry of Public Health & Sanitation National Coordinating Agency for Population & Development National economic and Social Council Non-Governmental Organisation National Health Account National Health Sector Strategic Plan II National Health Insurance Fund Output-Based Aid/Approaches Organisation of Economic Cooperation and Development Out of pocket expenses President s Emergency Plan For AIDS Relief Public Expenditure Tracking Surveys Private Health Insurance Social Health Insurance RashtryaSwasthyaBimaYojna Scope of Work Sub-Sahara Tuberculosis Total Health Expenditure Third Party Administrator Terms of Reference United Nation Development Programme The World Bank World Health Organisation 12

14 MARKET ASSESSMENT of private prepaid services 1 1 Executive Summary 13

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16 MARKET ASSESSMENT of private prepaid services Executive Summary 1.1 Background and Context Socio-economic and health indicators in Kenya Kenya as a developing country in Sub-Sahara Africa is faced with major challenges in its endeavour to foster socio-economic development with the limited available resources. The Kenyan economy is still largely dependent on agriculture, with a GDP of US$ 763/capita in 2009 and a life expectance at birth of 55.6 years. The UNDP 2010 global human development index for Kenya was The structure of Kenya s economy is characterised by a relatively small and stagnant formal sector with about 1.9 million employees and large and growing informal sector with over 8.3 million employees (Economic Survey, 2010). Since independence, Kenya s total population continues to grow and is now estimated at 38.6 million (2009 Population and household census KNBS) with 68 % living in rural areas and the remaining 32% in urban areas. The population growth rate has been relatively high for the last 4 decades and this has major implications for sustainable socioeconomic development. The population is also urbanising and aging with the related impacts on socio-economic development. The Kenya Demographic and Health Survey (KDHS) shows a mixed picture with child mortality decreasing to 52/1000 live birth and under-five mortality to 74/1000 live birth from 77/1000 and 115/1000 live births respectively in KDHS in The number of fully vaccinated children was 77% (an improvement from 2003 when it was 57%) which is slightly below the WHO bench mark of 80%. However, the maternal mortality rate remained unacceptably high at 484/100,000 in While 92% of pregnant mother attend ANC care, only 43% delivered in a health facility. Wide regional variations exist in these important health indicators within the country. Preventable diseases which are easy and cheaper to prevent or treat continue to be the greatest contributor to morbidity. This is in the context of an emerging problem of non-communicable diseases which require greater resources to prevent and manage. At independence, one of the government s major commitments to its people was to fight diseases and provide free health for all. Today, the government remains committed to this goal as summarised by the current policy blue print for social and economic development to a middle income country status by 2030 (Vision 2030). The health vision as articulated in this document is to provide equitable and affordable healthcare at the highest achievable standard. While major strides have been made in achieving the set goals, achieving this commitment has been a major challenge and the attainment of acceptable standards of health in the general population in Kenya is yet to be fully realised Overall health system challenges Kenya has a mixed health system with the public sector as the main player. There is, however, a significant private and NGO sector (mainly faith based organisations). Kenya s health system is weak and still evolving like in most sub-saharan countries. In addition to being highly under-resourced in terms of financial and human resources, the system faces challenges such as erratic availability of health commodities, e.g. drugs and technologies and poor infrastructure. There are significant gaps in the efficient allocation and use of 15

17 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes resources with a skew towards curative care in urban based hospitals. The available resources also suffer high inefficiencies due to perennial leakages. One of the persisting critical challenges is shortage and mal-distribution of human resources especially in rural and remote areas. Upgrading and expansion of infrastructure for healthcare delivery has not been commensurate with increasing demand from a rising population, emerging and re-emerging diseases as well as changes and advancements in medical technologies and consumer choices and demands. The weak primary healthcare system contributes to a weak and failing referral system, thus the inability to ensure that healthcare needs are met at the most appropriate level for efficiency, effectiveness and equity. The health sector management capacity is also highly constrained, leading to sub-optimal deployment and utilisation of available resources. Despite recent advancements in the use of information communication technology to improve efficiency and productivity in other sectors, the health sector in Kenya has largely lagged behind in adopting the same. However, it is worth noting some successes especially in the adoption of medical technologies Healthcare financing status, structure and challenges in Kenya Mobilising adequate resources necessary for attaining and sustaining a globally acceptable standard of health in the population is a major challenge for all nations in the world and Kenya is not different. Recently the WHO reviewed the minimum per capita spending in health necessary to achieve the millennium development goals in health to $54 per capita. Other global targets include WHO s $41/capita in real dollar terms necessary for provision of the minimum package of health and $ 54 per capita to achieve the MDGs. Through the Abuja declaration of 2000, Sub-Sahara African countries committed to spending 15% of the annual government budget on health. The health expenditure estimates in the NHA 2005/6 indicate a per capita total health expenditure (THE) of $27. In 2010/11, the government total expenditure on health was 6.2% of the total government expenditure budget. Kenya s level of spending in health therefore falls well below the global and Sub-Saharan Africa benchmarks for achieving acceptable health standards in the country. The achievement of the set targets calls for a multipronged approach to mobilise necessary financial resources from the government, private sector, individuals and development partners to ensure universal coverage with an acceptable level of healthcare. Every year in Kenya, tens of thousands of households are pushed to extreme poverty due to catastrophic healthcare expenditure and needs to be addressed for equitable socio-economic development. A better understanding of the prepaid schemes in Kenya as they currently operate and the challenges and constraints to their growth and development is critical in understanding how they could play a more significant contribution to health financing and subsequent attainment of universal health coverage in Kenya Government healthcare financing policy initiatives and dialogue The overarching health policy in the health sector is the 1994 Kenya Health Policy Framework which is currently under review. Other key policies include the Vision 2030, National health sector strategic plans and ministries/ sector strategic plans 1. The key policy themes in healthcare financing in Kenya have been focussed on: Improvement of health sector financing through equitable allocation of resources for increased efficiency and effectiveness of resource allocation and use and shift from out of pocket expenses and user fees to Social Health Protection. Equitable access to quality care for all 1 A proposed Healthcare Financing Policy and Strategy for Affordable Healthcare has been developed through a consultative process but it is yet to be formally launched. A multi-sectoral technical working group on healthcare financing is also in operation under the healthcare financing Inter-agency Coordinating Committee (HCF ICC) and the Health Sector Coordinating Committee (HSCC). 16

18 MARKET ASSESSMENT of private EXECUTIVE prepaid SUMMARY services 1 Improved and efficient revenue collection and risk pooling mechanisms. Improved governance and transparency in the health financing system. More efficient and effective use of funds from development partners. Sustainability of the healthcare financing system. In order to realise the above goal, the general policy direction has been to develop a Social Health Protection Model which includes Tax financing (for the poor/indigent), Social Health Insurance (to be provided by one or more bodies depending on efficiency and effectiveness) and supplementary/complementary health insurance by private sector and communities. Healthcare financing structure The healthcare financing system in Kenya has developed over the years into a mixed healthcare financing system whose main components include: 1. General tax financing: This consists mainly of tax financed free healthcare services in public health facilities, later modified by introduction of user fees in National Hospital Insurance Fund (NHIF): This was established in 1966 to finance healthcare in both public and private facilities. The scheme is mandatory for formal sector workers. NHIF operates under the NHIF Act No. 9 of Private health Insurance: This has developed over the years becoming more visible in the early eighties with the introduction of HMOs and growth in health insurance portfolios of insurance companies. Insurance companies and MIPs are regulated by the Insurance Regulatory Authority (IRA) based on the Insurance Act Cap Employer Self-Funded Schemes: Employers provide health benefits as incentives to their workers and dependants through self-insured in-house medical schemes. The schemes are funded by the employer through annual budgets and are either managed in-house or through a third party administrator (TPA). A number of employers run their own healthcare facilities. There is no specific regulation as such for inhouse schemes. 5. Community based health financing (CBHF) schemes: community based financing schemes have emerged over time to meet the healthcare financing needs of low income earners who traditionally have been largely left out of private insurance and NHIF. There is no specific regulation for CBHF and most are registered by the Ministry of Gender and Youth Affairs. 6. Out of pocket (OOP) health spending: Like in most developing countries, OOP has been very high in Kenya although the trends show a reduction from 44.8% in 2002/2003 to 29.1% in 2005/2006 of the total healthcare expenditure (2005/06 NHA). OOP spending is a major barrier for accessing healthcare services and drives households into poverty through sale of assets and diversion of meagre income into healthcare services. However it also reflects a good opportunity to develop risk pooling mechanisms that provide better access to healthcare and reduce the vulnerability of households to uncertain financial shocks arising from healthcare expenditure. 7. Development partners & Non-governmental Organisations (NGOs): Various development partners and NGOs have traditionally contributed significantly to healthcare financing and provision. In the last decade, the proportion of healthcare expenditure contribution by development partners in healthcare financing has more than doubled (2005/6 NHA) raising concerns on the sustainability of the health system. 8. Other Mechanisms: Two other financing mechanisms in Kenya are worth mentioning namely: a) Health Sector Services Fund (HSSF) under MOPHS which was conceived some years ago but was launched It is a form of supply side financing to lower level health facilities (mainly health centres in the public sector but will also in future cover FBO/NGO providers). It is aimed at improving service availability and quality particularly for low income earners and the poor who are served by this level of 17

19 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes facilities. HSSF is governed by gazette notice 401 of 2007 which was amended in HSSF is funded mainly by development partners and the government. b) Output Based Approach Reproductive Health Voucher (OBA) is a form of demand side financing that targets the poor. The poor buy the health vouchers at token prices and the voucher is redeemed within a specific service provider network for specified health services. The OBA program is managed by NCAPD under Ministry of Planning, administered by a private firm and funded largely by donors key among them KFW and to a small extent the government. National Health Accounts Summary According to the NHA of 2005/6, the public sector, private sector (including out of pocket expenses) and development partners contributed 29%, 39% and 31% respectively of the total health expenditure. The total public expenditure for health was low at 5.2% of total government expenditure for 2005/6 6.9% in 2009/10) compared to the 15% agreed on under the Abuja Declaration in WHO recommends a per capita spending on health of $ 41% in real dollar terms for the minimum essential health package but in Kenya the per capita spending stood at $ 27 in 2006 (NHA 2005/6). In low income countries, out of pocket spending tends to be the largest source of financing followed by government and then minimal private risk pooling (insurance). Generally, in middle income countries the proportion of OOP falls significantly while public pooling becomes the largest financing mechanism. Private risk pooling also grows but remains in third position. In high income countries, OOP becomes the least source of funds while public pooling remains the largest source of healthcare financing but with a larger contribution of private risk pooling. It is possible Kenya may witness a similar trend as the healthcare financing system evolves and develops. The funds mobilised for healthcare financing are managed through various financing agents. According to the 2005/6 NHA, the financing agents that managed the funds include: Public Sector % including 3.7% by NHIF. Private Sector % including 4.1% by employers and 5.4% by private insurers. Development partners: There was a dramatic increase in the proportion of funds managed by development partners rising from 7.4% in 2002 to 20.8% in There is an opportunity to channel some of these funds into a more sustainable and broad-based risk pooling mechanism. The distribution of insurance funds between NHIF and private insurance was 40.6% for NHIF and 59.4% for private insurance as per the 2005/6 NHA. Only about 9.1% of THE (Total Health Expenditure) was in any formal risk pool in 2005/ estimates of the distribution showed the following: NHIF 36%, Private insurers 42%, MIPs 14%, international insurance 7% and CBHF 1%. The population coverage of private insurance is small, at about 700,000 lives, compared to NHIF s 6.6 million lives by 2010 estimates. Challenges facing healthcare financing in Kenya Kenya s healthcare financing system, as in other developing countries, faces several major challenges including: High and ever escalating poverty levels. About 46% of Kenyans live on less than a dollar per day and nearly half of this group is considered absolutely poor/indigent (no observable income). High burden of disease from preventable infectious diseases and an emerging epidemic of noncommunicable diseases. Inadequate funding of the health system. MOH Annual Operation Plan 6 (AOP6) for 2010/11 has an estimated funding gap of KSh. 31 billion. Inefficient and ineffective allocation and use of scarce resources. Promotive and preventive health used only about 12% of the total health expenditure while administration took about 14.5% (NHA 2005/6). WHO estimates that about 20 to 40% of healthcare spending is wasted through inefficiency. High out of pocket expenditure (OOP) in the context of a weak risk pooling system. 18

20 MARKET ASSESSMENT of private EXECUTIVE prepaid SUMMARY services 1 Significant inequality in access to healthcare services largely due to financial barrier. Most of the healthcare funds are not in any risk pooling mechanism hence reducing effectiveness and efficiency. Weak health systems as above. High dependence on development partners. 1.2 Objectives and Methodology of the market assessment of prepaid health schemes Objectives The overall objective of the assessment was to assess Kenya s prepaid health schemes including private health insurance and health maintenance organisations (HMOs now referred to a MIPs) and determine their scope and probable role in the ongoing healthcare financing reforms. The assessment of private health insurance and MIPs is also aimed at providing a basis for the strategic growth of the sector and to determine the best way to structure the sector to support the broader financing of healthcare in Kenya Methodology A qualitative study design was used to carry out the assessment. The following methodology was used in data collection: Desk review of selected relevant secondary data. Self-administered survey questionnaire administered to a purposive sample of relevant stakeholders. Due to poor response rates particularly from private prepaid schemes, no quantitative conclusions were drawn from the survey. Key informant in-depth interviews with a purposive sample of relevant stakeholders. Broad-based stakeholder consultative processes to get buy-in and validate the information gathered in the whole assessment cycle. Three consultative processes were held Definition of key terms For the purpose of this assessment, a prepaid health scheme was broadly defined as: Any system or mechanism of financing healthcare services for members of a scheme or health plan as provided by insurance companies, MIPs, Employers, Micro-Insurance and the Community organisations. This broad definition was intended to capture most of the existing healthcare financing mechanisms. A true technical definition of prepaid schemes would be narrow and excludes employer schemes and CBHF. Where relevant, public health insurance (NHIF) was used for comparison. The full list of key terms is detailed in Appendix 2 of this report. 1.3 Findings of the Market Assessment of Prepaid Health Schemes The scope of existing prepaid health schemes Demand and supply analysis The potential market size for prepaid health schemes was estimated in terms of population and the Kenya shilling value. 19

21 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Population estimate: In the 2009 census, the population was estimated at 38.6 million. The following segments pertinent to this review were identified: 9 million poor and 10 million indigent This segment will require government and development partner funds to be accessed. 11 million in the informal sector and agriculture most of this people are not covered by health insurance. They can afford some form of prepaid health scheme. However affordable and innovative products will be required and robust communication and distribution systems. 9 million in the formal sector - the majority of whom have some form of cover either with NHIF only or multiple covers NHIF, private insurance and in-house schemes. There is need to increase depth and height of cover for this segment. Shilling value estimate: Total household expenditure on health from NHA 2005/06 was estimated at Kenya shillings 25.5 billion. This would translate into an estimated KSh. 37 billion in 2010 assuming same growth rate between 2002 and 2006 NHA s. In 2009, the total premium for NHIF, private insurers and MIPs was estimated at about KSh. 14 billion or 35% of total house hold expenditure. From the above two estimates, it is clear that the market for prepaid schemes is large and unexploited. Demand framework Some of the demand constraints identified include: High levels of poverty (46% in Kenya) - fewer people can afford to pay health insurance contributions. Low level of awareness of risk pooling products and services. Misperception of personal risk level and low risk aversion. Irrelevant or unacceptable insurance products. Lack of trust of health insurance providers, poor image and reputation of insurance providers. Presence of health insurance substitutes which include welfare groups, merry-go-rounds, fundraising (Harambees in Kenya), family and community support and assets. Consumers considered health insurance as one of the most important insurance protection they need (second to life insurance). In terms of a decision to purchase health insurance products consumers mentioned the following factors in order of preference: Cost, benefits available, quality of services and trustworthiness of the provider. The high level of out-of-pocket spending points to potential for growing the use of risk pooling mechanisms to finance healthcare. However, for this potential to be realised, the above constrains need to be addressed. Supply framework Some of the supply constraints identified include: Health insurance is regarded by insurers as a costly and loss making product that is difficult to manage and control. Some of the main reasons behind this perception include, adverse selection, moral hazard, provider induced demand, claims fraud, lack of regulation of the quality and cost of healthcare services, lack of health insurance management capacity within insurers, lack of appropriate ICT and poor healthcare purchasing models. Overarching all these is a weak and fragmented healthcare financing regulatory framework. Rising healthcare costs: The costs of health commodities, drugs and new treatment technologies and weakly regulated professional fees. High entry barriers: Entry barriers for those wishing to provide health insurance products using innovative models that are different from the traditional health insurance company approach need to be reviewed (such as micro-insurance and provider-based plans). 20

22 MARKET ASSESSMENT of private EXECUTIVE prepaid SUMMARY services 1 Market failure occurs frequently in health insurance markets as evidenced through adverse selection by members, risk selection by insurers and MIPs (cream skimming), moral hazard by members in the claim process and provider induced demand. Regulation is frequently needed to correct market failures. Population coverage (breadth of cover) The estimated population coverage of insurance in 2010 is about 7.77 million (20% of population). Out of this coverage NHIF covers about 6.6 million individual (85%), private health schemes about 700,000 (9%) and the CBHF is estimated to cover 470,000 lives (6%). Most of the people covered are in the formal sector. According to the KHHEU survey 2007, membership to a health insurance scheme was related to level of education, level of income, whether one was in the rural or urban areas and status of employment. Over the years, both private insurers and NHIF have focused on the formal sector market segment (which has about 1.9 million employees and a total population of about 9 million). However we have seen initiatives from NHIF to reach the informal sector and low income earners with a voluntary health insurance cover whose membership has crossed the 500,000 mark. The private sector has also developed low cost private health insurance schemes for the informal sector and low income earners working through partner organisations. For both NHIF and private insurers, the informal and low income market segment presents future growth opportunities with over 8.3 million people with some regular income. The biggest challenges in reaching this market include how to design appropriate products, how to effectively market and distribute the products, how to effectively and efficient collect contributions and gaps in the service provision infrastructure in rural areas. A 2006 survey (under Partners for Health Reform plus Project) identified about 30 CBHF schemes at various stages of development. The ministries of health recognise the role of the CBHF schemes in the NHSSP II to improve financial access to health services at the community level. However, it lacks the mechanisms or legal framework to register or regulate the same. The schemes are currently registered by the Ministry of Culture, Gender and Social Services. There is also an umbrella association known as the Community Health Financing Association of Eastern Africa. Comparing Kenya with countries such as Rwanda (91%) and Ghana (60%) points to the fact that the country has potential to increase coverage significantly. Some of the enabling factors for Rwanda and Ghana include a strong pre-existing community-based healthcare financing system, strong solidarity concept, legal, regulatory and institutional reforms to mandate cover, government subsidies and donor support. Most stakeholders estimate that a further 25% of the population (mainly in the informal sector) can afford some form of prepaid scheme and this presents a low hanging fruit for increasing coverage. The biggest challenge is how to increase coverage to the 46% poor and among them 20% indigent. In addition to cross subsidies and solidarity from social health insurance funds, the government and development partners will be required to provide resources to cover this group. Range of benefits covered (depth of cover) The question of what is actually covered under a particular health insurance scheme has not received as much attention as the number of people covered yet it determines the cost of coverage, the degree of financial protection and the acceptability of the cover to members. Some countries have adopted the method of first predominantly increasing population coverage and then attempting to increasing depth of cover while a few others have tried to first predominantly increase depth of cover for specific population groups and then extend population coverage. Availability of adequate resources and ensuring efficiency in the health system have a strong bearing on the balance between breadth and depth of cover. 21

23 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes The benefits covered vary widely according to the product type (basic, essential or comprehensive/enhanced cover), target client and insurance provider. Not only does the number of benefits vary but also the attaching financial limits. Key highlights noted include: In-patient cover and group schemes are viewed as less risky and hence more available compared to outpatient and individual cover. Group schemes had better breath of cover than individual cover. The cost of the prepaid scheme premiums increased with the range of benefits covered and the financial limits provided. Enhanced or comprehensive cover options basically provide cover for the conditions traditionally excluded under health insurance covers such as chronic conditions, pre-existing conditions, HIV/AIDS, organ transplants, congenital conditions and maternity related conditions. Some prepaid schemes provide a wide range of benefits but restrict the service provision to government and mission hospitals where costs are lower. Issues of choice and quality may arise in such cases. Other schemes allow a wide provider choice but restrict the range of benefits and or financial pay-outs. Employer in-house schemes tend to have a broad range of benefits. Advances in medical technologies has led to more advanced and more expensive healthcare services which sometimes have not been fully assessed for cost effectiveness. In other cases technology has reduced costs by managing more conditions faster in ambulatory care. Certain conditions that were fatal in the past are now manageable as chronic conditions. This includes many forms of cancers and HIV/AIDS and this has implications on future healthcare costs. In comparing the range of benefits covered with commonest causes of morbidity in Kenya, the following were noted: Both NHIF (comprehensive option) and private prepaid schemes provide cover for the commonest causes of morbidity particularly primary care and communicable diseases. HIV/AIDS is unique in that though it is a communicable disease, its management is like that of a chronic condition. Cover for HIV/AIDS is now commonly available in the market with some limitations Cover for chronic conditions, while available, has a number of limitations which include one or more of the following: waiting periods, financial pay-out limits, copayments, provider restriction, limited treatment options and premium loadings. NHIF contract A (bed charge only for larger private hospitals) has the thinnest benefit range although this affects more of the higher income groups. With the proposed increase in NHIF premium rates there may be a clamour for more benefits under this contract. In order to better the depth of cover for both public and private health insurance, there is need to address the following key issues: Regulation there is need to agree on a minimum benefit package that each registered scheme must provide over and above other services. Healthcare purchasing needs to be made more efficient and effective. Standardisation and coding of services, provider contracting, tariff structure negotiation, provider behaviour (supplier induced demand), incentives (which can be addressed through payment modalities) and regulation of quality and costs will need to be relooked at. Height of Cover - Proportion of actual direct health expenses borne by the insurance cover and by the client Most health insurance schemes provided by private health insurers and MIPs do not have a significant level of co-payments, deductibles or co-insurance for in-patient services. However a number of out-patient schemes (private insurers, MIPs and employer schemes) apply varying forms of co-payments ranging from KSh. 50 to KSh. 500 per visit. The rationale of co-payments is to incentivise the insured members to be conscious of costs and use their health benefits entitlements judiciously (reducing moral hazard). 22

24 MARKET ASSESSMENT of private EXECUTIVE prepaid SUMMARY services 1 The effect of financial pay-out limits (financial cover limits) on height of cover needs to be taken into account particularly where the financial cover limits are low and members have to pay out of pocket when the limits are exceeded. Prepaid health schemes do not cover the indirect costs of seeking care (such as transport, human-hours lost or revenue forfeited). These costs are an important barrier for the poor. Financial advantage to insured members This was assessed by looking at benefit payout ratios and administration expense ratios. In 2009, an estimated total of KSh. 14 billion was raised as health insurance premium by prepaid schemes including NHIF but excluding CBHF. Both NHIF and private prepaid schemes have reported significant growth in gross premium written over the last four years. NHIF reported payout ratio has increased from 32% in % in 2009 and during the same period administration cost ranged from 39.5% to 42.6%. From AKI reports on medical insurance for , the payout ratio for private insurance companies ranged from 65% to 69% and administration costs ranged from 18% to 22%. The business acquisition costs for the industry was 13.8% of gross premium as statutory commissions to intermediaries. One MIP reported payout ratios that ranged from 46-61% between 2006 and 2009 with administration cost that ranged between 15-25% for the same period. The business acquisition cost for this MIP was 14% of the gross premium. One large CBHF entity which is affiliated with a microfinance institution reported very high payout ratio ranging from 94% to 102 % for the period The global best practices allow for benefit payout of 70-80%, administration expenses of up to 10% for social health insurance and up to 20% for private insurance. NHIF and private prepaid schemes need to strive to achieve these benchmarks. The issue of administration expense for NHIF and acquisition costs for private insurance needs attention. All the prepaid schemes need to improve their payout ratios, more so in the case of NHIF. Perceptions of prepaid schemes clients The views so far gathered from various categories of consumers and clients are summarised below: General public: They complained of lack of awareness of the benefits of risk pooling and had a poor image of insurance companies and expressed little trust. They also mentioned cost and relevance of products as an issue. Prepaid schemes members: They had similar views but in addition complained of much exclusion, complicated and tedious claim processes, delayed payments and complex insurance products and language (small print). There were no clear complaints handling systems in place in many cases. However, they were pleased with cashless (at the point of use) access to healthcare providers of their choice when in need. Health Providers: The main issues raised by providers include complicated, laborious and inefficient claims settlement systems, delayed payments, rejection of claims due to exclusions and other scheme rules and risk of revenue Prepaid Schemes Key Performance Indicators Summary Risk pooling funds mobilised in 2009 in KSh: Private insurance companies 5,887,151,817 NHIF 5,079,569,000 MIPs 2,000,000,000 International Private Insurers 1,000,000,000 - Community based schemes 150,000,000 Total risk pooling funds 14,166,720,817 Level of coverage Estimates: Private insurers and MIPs 700,000 (1.8% of population) NHIF 6.6 million (17% of population) CBHF 470,000 (1.2% of population). Payout ratios range : NHIF 32% to 55% Private Insurance companies 65% to 69% MIP 46% to 61% CBHF 95% to 102% ( ) Administration expenses ratio range : Private insurance companies 19% to 22% MIPs 15% to 25% (and 14% statutory commissions). NHIF 39.5% to 43.5% Per member ratios private insurance 2009: Premium per person - $134 pa Claims per person - $ 94 Administrative costs per person - $ 22 23

25 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes loss due to poorly performing schemes. The relationship and trust with insurance providers could be improved. The turnaround times for claims settlement was reported as extremely variable, ranging from 14 to 30 days for good performers and up to 90 days for poor performers. Larger providers seemed to be better able to push for faster payments. In general, customer satisfaction surveys are not regularly done and are not a regulatory requirement. There were no clear complaint appeals mechanisms for dissatisfied clients. Constraints for strategic growth and effective reach of prepaid health schemes The key constraints to the growth of prepaid health schemes with specific emphasis to increasing coverage to underserved groups include: The policy, regulatory and legal frame work is fragmented and has major gaps (there is no agreed healthcare financing policy and no specific health insurance law in Kenya for example). The current structure of the private insurance sector where health insurance was not recognised (until this year) as a distinct class of insurance and is provided as just one of the many general insurance products. Most of the pools in the private sector are small (none is larger than 150,000 lives) and inefficient in terms of risk pooling and cross subsidisation. Limited technical and management capacity for running prepaid health schemes and inadequate deployment of ICT platforms. Incentives for consumers such as tax benefits are not adequate and known. There are no clear incentives for prepaid schemes to develop micro insurance products to reach the underserved groups and complement government efforts to increase coverage. The other constraints are mentioned in the demand and supply analysis above. 1.4 Recommendations Prepaid schemes can contribute more significantly in the financing of the healthcare sector in Kenya through increased risk pooling and provide a mechanism that will contribute to the achievement of universal coverage as well as protect households from impoverishment due to catastrophic health expenditure. The key recommendations to achieve this include: Strengthen the policy, legal and regulatory framework to foster a stable and sustainable health insurance market: - Conclude the healthcare financing policy and strategy - Develop a legal framework for health insurance and universal coverage. This will include a health insurance law, prescription of minimum benefits and redefinition of insurance carriers and their capitalisation. All financing mechanisms (including employer in-house schemes) should be recognised and regulated. - Set up a specific regulator for health insurance either within IRA or as an independent entity to unify regulation, give adequate focus to healthcare financing and strengthen regulatory capacity. 24 Extend health insurance coverage to the rest of the population. This is a gradual process that will include: - Selecting the appropriate model for delivering universal health insurance coverage (see sister report on Strategic Review of NHIF for details). - Develop an implementation framework with clear milestones. Appendix 9 details previously proposed frameworks under the draft healthcare financing strategy that can be a good starting point. - Mobilising additional recourses for the health sector and ensuring that most funds a channelled through a risk pooling mechanism.

26 MARKET ASSESSMENT of private EXECUTIVE prepaid SUMMARY services 1 - Implement agreed reforms with initial focus on institutional and legal frameworks. Define the role of the private prepaid schemes in achieving universal coverage and provide a supportive environment for them to play that role effectively. The key changes required for private prepaid schemes to play their role include: - Regulatory and legal reform as mentioned above. - Restructuring and some form of consolidation to form larger more efficient and sustainable risk pools. - Measures to improve efficiency of pooling and purchasing. - Consumer protection. Some of the possible future roles that private prepaid schemes can play in achieving universal coverage include: - Participation in healthcare financing policy formulation as an important stakeholder. - Provision of supplementary health insurance coverage to those already covered by public, employer and other financing mechanisms. - Provision of complimentary health insurance products to cover what is left out in statutory public insurance. - Provision of substitutive social health insurance products for selected market segments such as the informal sector and indigents (under government funding). This may provide healthy competition with statutory public insurance to provide choice and incentives for quality and responsiveness. - Administration and marketing services for public insurance and employer schemes. - Facilitating investments in high quality healthcare services by promoting demand side financing. Consumer protection: The interests of prepaid schemes consumers need adequate protection under the revised legal and regulatory framework. Some of the key aspects of consumer protection include: - Ensuring consumers have adequate information to purchase prepaid schemes. Marketing and information disclosure standards will need to be developed. - Ensuring consumers obtain value for money for the products purchased. It is important to come up with some form of prescribed minimum benefits that each product must have before being allowed into the market. - Grievance handling structure and procedures. There should be a well known and easy to use complaints system for consumers who are dissatisfied with products or levels of service. 1.5 Conclusion The healthcare financing system in Kenya, as in other developing economies, is faced with major challenges. The principal challenges include being under-funded, inefficient and poorly structured. The need to mobilise additional resources from both public and private sectors calls for more innovative strategies. Prepaid schemes can play a critical role in generating and pooling financial resources for the healthcare sector. Priorities for change going forward include: Concluding the political process of consensus building on healthcare financing. All relevant stakeholders within government (including Ministries of Finance and Planning and IRA) and non-state actors (private, FBO/NGO) and consumer bodies need to be carried along. Policy, legal and regulatory review. Institutionalising reforms and critical health systems strengthening activities Mobilising for additional funding for the health sector (from government, private sector and donors) to achieve regional and global benchmarks. Extending health insurance cover using existing risk pools as a starting point. 25

27 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Improving efficiency of healthcare financing (ensure most funds are risk pooled) and provision. Deepening health insurance benefits. One of the critical success factors for this reform process is the stewardship role of the government over the health sector. 26

28 MARKET ASSESSMENT of private prepaid services 1 2 Background and Introduction 27

29 28 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes

30 MARKET ASSESSMENT of private prepaid services Introduction and Background 2.1 Background and Context Socio-economic and Health Indicators in Kenya Relevant demographics Kenya s total population according to the 2009 census results was estimated at 38.6 million. The population is mainly rural with 68 % living in rural areas and remaining 32% in urban areas. The population growth rate has been relatively high for the last 4 decades with the population increasing from 10.9 million in 1969 to 38.6 million in 2009, an increase of 254%. Such an increase has major implications for sustainable socioeconomic development including the need for universal health coverage. The graph below illustrates population growth trends in Kenya from 1969 to Populations (millions) Census Year Figure 1: Kenya population (Kenya 2009 population and housing census report KNBS) According to the 2009 population and housing census the population composition was 43% less than 15 years of age, 20.5% aged between year, 33% aged years and 3.4% aged over 65 years. Kenya s relevant health indicators From the Kenya Demographic and Health Survey (KDHS) child mortality stood at 52/1000 live birth and under-five mortality at 74/1000 live birth a significant improvement from 2003 when child mortality and <5 mortality were 77/1000 and 115/1000 live births respectively. The number of fully vaccinated child was estimated at 77% (an improvement from 2003 when it was 57%) which is slightly below the WHO bench mark of 80%. Kenya has a very high maternal mortality rate which stood at 484/100,000 in 2008 and while 92% of expectant mothers attend ANC care, only 43% are delivered in a health facility. There are wide regional variations in these important health indicators and also significant disparities between urban and rural areas. Neonatal mortality has been oscillating around 30/1000 live births since 1993 due to similar factors related to high maternal mortality, chief among them delivery outside a health facility with no skilled attendant. Infant 29

31 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes mortality rates had been rising from 1993 to 2003 after which there was a rapid drop as illustrated in the figure below. While opinion is divided as the cause of this significant drop, many view it as a combined result of improving public health prevention programs such as Malaria and HIV/AIDS and some reduction in poverty levels. A comparable picture is seen on the under-five mortality trends between 1993 and Trends National Infant Mortality rate IFR Figure 2: Trends in Infant mortality rates (KHDS 2008/09) Preventable communicable diseases which are easy and cheaper to prevent or treat continue to be the largest contributor to morbidity in the context of an emerging epidemic of non-communicable diseases which require greater resources to prevent and manage. Figure 3 illustrate the commonest causes of out-patient and in-patient morbidity and the significance of this morbidity picture in healthcare financing will be revisited when looking at the depth of prepaid health schemes. Unfortunately these statistics do not have any costing figures. In the case of out-patient morbidity, three out of the top five causes of morbidity are related to the availability of safe water and sanitation. This reflects a failure of primary healthcare the importance of the other determinants of health outside the health sector Proportion (%) of out-patient morbility Year Malaria Diseases of Respiratory System Diseases of the skin (including ulcers) Diarrhoeal Diseases Intestinal Worms Figure 3: Leading causes of out-patient morbidity (MOH HMIS data) 30

32 MARKET ASSESSMENT INTRODUCTION of private AND prepaid BACKGROUND services 12 Kenya socio-economic indicators The GNI per capita estimate for Kenya was US$ 1,628 in 2008, with a Gini Coefficient of 47.7 (the global range is from 24.7 to 74.3) (UNDP 2010) indicating high level of inequality in income distribution. This inequality is currently reflected in the low penetration of both public and private health insurance schemes that currently focussed on the formal sector with relatively higher incomes. The UNDP human development index (HDI) 2010 report ranks Kenya in position 128 out of 169 ranked countries globally with a HDI of 0.470, a life expectancy of 55.6 years and mean years of schooling of 7. This level of HDI is categorised low but is just on the borderline to the medium HDI countries. In 2008 the structure of Kenya economy was characterised as composed of a very large informal sector (80%) and a small formal sector (20%) according to KNBS facts and figures. The 2010 Economic Survey further confirms this by reflecting a generally stagnant formal sector with about 1.9 million employees and growing informal sector with over 8.3 million people employed in it. The high population growth over the years implies the population has a high dependence ratio with median population age of 18.6 years and 42% of the population below 15 years of age. Similarly due to past economic stagnation and high population growth the level of unemployment especially among the youth is high. About 46% of Kenyans live below a dollar a day (approximately 19 million) and included in this category is about 20% of the population about 10 million) which is considered absolutely poor or indigent (KHIBS 2005/6). The category of the poor and indigent cannot afford to pay for any contributory prepaid health scheme whether public or private and requires innovative healthcare financing mechanisms to reach them Overall Health System Challenges WHO proposes a six-block framework in describing a health system as illustrated in Figure 4. These include: Governance Human Resources Health Financing Medicines and technologies Information Service delivery People are at the centre of any health system both as the ultimate recipients of its outputs and as actors and contributors to the system. Similar to most sub-saharan countries, Kenya s health system is considered weak and cannot in its current state adequately meet the healthcare needs of the population. Service Delivery Information Governance & Stewardship People Medicines & Technologies Human Resources Health Financing Figure 4: WHO building blocks of health system While several policies in health have been developed (such as the overarching 1994 Health Policy Framework, the NHSSP I and II and Strategic plans for both ministries of health and various program/disease specific policies and strategies) the key challenges have been stakeholder engagement and ownership, policy dissemination and implementation. The legal and regulatory framework has multiple laws (over 25 health Acts) which are poorly harmonised and have areas of real or potential conflict. The existing polices and laws have not been updated to reflect current health realities and issues such as healthcare financing through risk pooling and the roles of the various actors in the health sector to name a few. A number of initiatives are currently going on to address this governance gaps. One of the other critical continuing challenges is shortage and mal-distribution of health workers especially in rural and remote areas. The various population-to-health worker ratios are indicated in Table 1 below for Kenya and a number of other countries as at 2006/

33 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Table 1: Health worker to population ratios Country # Doctors/100,000 # Nurses & MW/ 100,000 # Health Workers 2 /100,000 Kenya (2007) Kenya (2003) Uganda Malawi Mozambique South Africa USA ,147 UK 222 1,170 1,552 WHO minimum standard Sources: World Health Report (2006); Help Wanted: Confronting the Health Worker Crisis, MSF Experiences in Southern Africa, MSF (2007). MOH Update data 2007 Although Kenya suffers healthcare worker shortages, its ratios compare favourably with other countries in the region. However the ratios are still below the WHO standards for all healthcare workers. Upgrading and expansion of infrastructure for healthcare delivery has not matched increasing demand from arising population as well as changes and advancement in medical technology and consumer demands. The referral system is weak and has failed to ensure that healthcare needs are met at the appropriate level. Erratic supply and availability of drugs and other health commodities continues to plague the health system particularly in the public sector. The health sector management capacity is also highly constrained which leads to poor utilisation of available resources. There has been inadequate focus on outcomes measurements, performance management and quality improvements. The Kenya quality model was developed but never fully implemented. A modified version of the quality system was later designed (largely focussed on the public sector) but implementation remains a challenge due to capacity and resource constraints. There is no single and unified facility regulatory body with the mandate to licence and monitor healthcare facilities. The various professional regulatory boards have stepped in to form a kind of consortium that carries out this function. Most of the professional regulatory boards have wide mandates over their professional cadres but lack the capacity to adequately and consistently enforce standards and they are highly centralised (KPHSA 2009). This state of affairs has implications on plans to extend risk pooling mechanisms since the health system is constrained in assuring quality and cost effective healthcare services. Without quality and costeffective services it is difficult to develop efficient financing mechanisms. Accurate costing of health services across the whole health sector (and assessment of factors driving up costs) is seldom done. The last broad costing study was done in 2007 but apparently it was never concluded and disseminated. Robust costing models are the bedrock of reforming healthcare financing and designing sustainable health insurance schemes. Despite recent advancement in the country in use of information communication technology to improve efficiency and productivity, the health sector has lagged behind in adopting the same. Most of the existing ICT systems are fragmented, program specific and are not or cannot be integrated. It is estimated for example that there are over 76 different ICT systems in the public health system. The healthcare financing system has major challenges that are detailed in subsequent sections. It is suffice to mention that there is still no agreed and unified healthcare financing policy in operation. Drafts have been 32 2 Based on WHO standard of combined number of available doctors, nurses and midwives 3 Most recent figures for Kenya based on MoH IPPD data as of June 2007

34 MARKET ASSESSMENT INTRODUCTION of private AND prepaid BACKGROUND services 12 done but they are yet to be concluded, approved and implemented. There are significant gaps in the efficient allocation and use of resources with a skew towards curative care in urban based hospitals. Resource leakages continue to be a challenge according to various assessments done by the ministries of health. Therefore, any progress towards increasing health insurance coverage in Kenya will of necessity also require strategies and resources to reform and strengthen all the other building blocks the health system and their interaction. In addition to the looking at the system building blocks underlying values will also need to be agreed on. 2.2 Healthcare Financing Status and Challenges in Kenya Brief Theoretical Overview of Healthcare Financing A theoretical overview of healthcare financing is important in creating the framework for this assessment of prepaid health schemes and contextualising the discussions. Healthcare financing is a critical building block of the health system and affects all the other parts of the system. It is a controversial subject globally and is determined by a wide variety of complex interacting factors that range from technical and system considerations to economic determinants and the often ignored but important political and social ideology. Any attempts to reform the healthcare financing system without considering all these factors often leads to failure as has been experienced in this country before. The key functions of a healthcare financing system include: Revenue collection: source of funds, their structure and means by which collected. Membership registration, administration and customer service. Pooling of funds for risk sharing and cross subsidization. Purchasing or transfer of pooled resources to health service providers in such a way that appropriate, quality and efficient services are available to the population. A healthcare financing system is judged on the basis of the following four broad parameters (Diane McIntyre, Global Forum for Health Research): Feasibility Efficiency Equity Sustainability. Feasibility is a critical but often overlooked criteria while assessing and designing healthcare financing options in a country. Feasibility relates to the following: Stakeholder s likely support or opposition to a given healthcare financing mechanism: A comprehensive stakeholder mapping including their interests, power position and relations is important. This should be followed by an effective engagement and communication plan. The political context and timing is also important in determining feasibility. Adequacy of administrative capacity for implementation: A careful assessment of existing capacity and gaps is essential for any proposed financing mechanism. The key capacity areas to consider include: - Existing or new institutions needed (both for administration and regulation) - Costing and actuarial services - Appropriate and integrated ICT systems - Human resources capacity - Revenue collection mechanisms - Risk pooling, purchasing and claims management skills and systems. - Customer service and communication systems 33

35 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Direct and indirect costs of reforming the healthcare financing and delivery system. Direct costs include costs related to stewardship of the system, revenue collection, risk pooling, purchasing of health benefits and sourcing for system enablers. For example between 2004 to 2009 Ghana spent about 6.6% of public health expenditure or 2.4% of total health expenditure on direct costs of reforming the healthcare financing system and building management capacity (Catalysing Change 2010, Rockefeller foundation report). Indirect costs include the political and social costs and the impact of reform on existing healthcare financing system. An efficient financing mechanism is one that generates a sufficiently large fund (and hence reduce but not necessarily eliminate) the need for multiple fragmented funding mechanisms).efficient financing mechanisms also have low costs of fund collection and administration hence allowing the bulk of the revenue to be used for actual health services provision and benefit expansion. It is critical for a financing mechanism to foster both allocative efficiency (doing the right thing)and technical efficiency ( doing it the right way ) in utilization of scarce resources (Diane McIntyre). The implication here is that the financing mechanism will need to have a robust purchasing function and an effective interface with healthcare service provision. Equity ensures financial contribution according to ability to pay and access to benefits according to need for healthcare. Risk pooling should provide cross subsidy from the rich to the poor and from the healthy to the ill. It should also provide financial protection by ensuring that households are not impoverished by the health needs nor do unexpected healthcare costs fall solely on an individual or household. A progressive (as opposed to regressive) system of contributions is considered most equitable and acts as a redistributive policy in low and middle income countries with huge economic and social disparities. Taxation and graduated contributions are considered progressive while fixed/flat contributions tend to be regressive (low income earners pay a higher proportion of their income than high income earners). However it must be mentioned that an equitable financing mechanism does not necessarily lead to equitable access to healthcare services since there are other barriers to access that are outside the scope of risk pooling. A sustainable healthcare financing system should have the potential to generate adequate revenue in a steady manner that guarantees provision of minimum package of healthcare services. As the health system matures and healthcare needs and costs change the financing system should have the capacity to expand the level of funding to sustain and grow coverage. Sustainability of the healthcare financing system is intricately linked to the level of economic development and improving household incomes and is also dependent on ongoing social and political support. Planning for resource mobilisation should consider current and projected future financing requirements. There is a strong link between health expenditure per capita and GDP per capita (WHO world economic outlook database & IMF) and therefore options for low to middle income countries lie mainly in influencing the mix of healthcare financing sources (for example shifting OOP to risk pooling) than in increasing level of health expenditure. Main mechanisms for healthcare financing There are several mechanisms for healthcare financing and various descriptions of the same but most categorisations include the following: General Tax funding (commonly manifested as free or subsidised healthcare services in public facilities). Health insurance/risk pooling mechanisms - Mandatory national or social health insurance. - Voluntary private health insurance - Community health insurance Employer health benefits schemes. 34

36 MARKET ASSESSMENT INTRODUCTION of private AND prepaid BACKGROUND services 12 Out of pocket payment where funds are not channelled through a financing mechanism. These include: - User fees paid directly to public facilities - Co-payment made by members of health insurance schemes - Partial reimbursement by insurance schemes - Direct payment to private providers Donor funds for general or specific health services. The key elements from the mechanisms highlighted are illustrated in a simplified framework in Figure 5 below. Healthcare providers Risk-pooling entity General taxation Social Insurance Private health insurance Out-of-pocket expenditure Tax collector Social Insurance revenue collector Taxes/contributions Employers and consumers Figure 5: Healthcare financing system mechanisms (adopted from Skehri and Savedoff 2005) The above mechanisms are not mutually exclusive but exist in a complex interacting mix that varies from one country to another. In most countries however one or two mechanisms play a predominant role. Donor funds frequently go directly to service providers through implementing agencies or the government. Few donor funds go into risk pooling entities. Prepaid healthcare financing (risk pooling), whether public or private, provides greater financial protection to households than out-of pocket healthcare financing and is therefore more preferable. Factors that determine the ability to develop and sustain effective risk pooling and achieve universal coverage include the following (Adopted from Carrin et al): Level of economic growth and household income - steady economic growth generally means more household incomes and higher potential for raising tax and other revenue for risk pooling. Structure of the economy: the relative size of formal and informal sectors of the economy is critical. The larger the formal sector the easier it is to implement a contribution based risk pooling mechanism. Distribution of the population; The more concentrated the population in circumscribed regions, the easier it is to reach them with risk pooling mechanisms and health services. Capacity to effectively and efficiently administer risk pooling mechanisms. Degree and acceptability of the concept of solidarity Stewardship role of the government and regulatory entities. 35

37 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Overview of Healthcare Financing: Global, Sub-Saharan Africa and Kenya An overview of global health financing status Global healthcare spending is estimated at $ 7 trillion per annum (Drouin, J.P, Hediger et al 2008) with wide variations on per capita spending and health indicators. According to WHO world health statistics 2010, low and middle income countries bear 93% of world disease burden yet account for only 11% of global health spending. Poor health is an impediment for social economic development by impairing people s health and lowering productivity of labour and the entire economy. The financial and institutional deficiencies in low and middle income countries significantly contribute to the current state. Table 2 below illustrates the state of healthcare financing in various regions of the world (A. Preker, et al 2010). Table 2: Global health financing data summaries for various regions (A. Preker et al 2010) Regions and income Sub-Sahara Africa (less South Africa) Sub-Sahara Africa with South Africa East Asia and Pacific Eastern Europe and Central Asia Latin America and Caribbean Middle East and North Africa Per capita GDP ($US) Per capita health expenditure ($US) Per capita health expenditure (PPP) THE (% GDP) Public (THE %) OOP (% THE) External (%THE) Life expectancy at birth (Years) Under 5 mortality rate (per 1000 live births) , , , , South Asia Low-income countries Lower 1, Middle Income countries Upper-Middle 5, income countries High-income countries The proportion for GDP spent in health ranges from 13 % (USA) for high income countries to 4.7% in low income countries as per the above Figure 8. Low and middle income countries are characterised by high out of pocket spending. Out of pocket spending ranges from 70% in low income countries, 48.6% in Sub- Sahara Africa and 16.6% in high income countries. Kenya spent about 4.8% of nominal GDP on health and out of pocket spending was 29.1% of total health expenditure (NHA 2005/06). According to some health economists, health spending as a percentage of GDP necessary to achieve universal coverage should be in the range of is 12% (Gupta et al 2001). 36

38 MARKET ASSESSMENT INTRODUCTION of private AND prepaid BACKGROUND services 12 WHO essential minimum package for health is estimated to cost $34 per capita per annum but in real dollar terms, it is about $41 per capita per annum. Globally only 15% of low income countries have reached the original target of $34 per capita. Recently WHO has estimated that in order to achieve the MDGs, countries will need to spend $ 54 per capita per annum. Few Sub-Sahara African countries have achieved either of the above targets. Figure 6 below illustrates the state of several Sub-Sahara Africa countries in achieving these targets based on 2007 government and private spending. Health expenditure ($US, 2007) $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 Government spending Private spending WHO target ($54) Burundi DRC Liberia Guinea-Bissau Ethiopia Gambia Malawi Sierra Leone Eritrea Rwanda Niger Uganda Tanzania Togo Madagascar CAR Mozambique Guinea Burkina Faso Mali Lesotho Chad Ghana Benin Nigeria Kenya Senegal Zambia Mauritania Cote d Ivoire Cameroon Sudan Zimbabwe Congo Swaziland Namibia Angola Mauritius Gabon Botswana <$250 $250-$499 $500-$999 $1000 Figure 6: Healthcare spending per country sorted out by GDP Only about 11 sub-saharan countries met the WHO healthcare spending target for the achievement of health MDGs. An analysis of national health spending (2007) for various sub-saharan African countries is illustrated in Table 3 below (Health Systems 20/20 Abt associates). Table 3: Analysis of healthcare expenditure in sub-saharan African countries 2007 (Abt Associates HS 20/20) Country Total pop % Rural GDP/ capita Per capita total expend. on health Gov t % of total expenditure OOP as % of total health expend. Total expend. on H as % GDP % population with health insurance Benin 9,025, $ $ % Cameroon 18,532, $ $ % Ghana 23,461, $ $ % Kenya 37,530, $ $ % Mali 12,334, $ $ % Niger 14,195, $ $ <5% Rwanda 9,735, $ $ % Senegal 12,411, $ $ % Tanzania 40,432, $ $ % Zambia 11,919, $ $ % Out of pocket spending ranged from 22.7% in Rwanda to 68.2% in Cameroon. Only Rwanda and Ghana had made significant progress towards universal coverage with health insurance. Rwanda was also close to 37

39 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes the recommended health spending as percentage of GDP of 12%. Cameroon and Rwanda had achieved the Abuja target of government spending on health. The above picture provides the basis for the urgent need to move away from excessive dependency on outof pocket-payment to finance health. Prepaid schemes, whether public or private offer a better alternative to finance healthcare and also provide financial protection to households. However low and lower middle income countries have significant financial and institutional capacity constraints to provide large scale health insurance coverage to their populations. In addition to the development of public health insurance schemes in many countries (either social health insurance or national health insurance), private health insurance (and other forms of insurance including community based schemes and employer schemes) have also contributed to raising resources for healthcare financing but on a lower scale. The contribution of private prepaid health scheme toward universal coverage is still limited globally with only 6 countries where payment for prepaid scheme exceeds 20% of total health expenditure. If one considers contribution of private health insurance exceeding 5% of total health expenditure, the number of countries that have achieved this level ranges from 35% of lower middle income countries, 28% of upper income countries and 35% of high income countries (A. Preker, et al 2010). According to the same source per capita spending on private health insurance premiums varies from $3 in Bangladesh to $ 1,064 in Barbados. The estimate for Kenya private health insurance spending per life covered was $ 152 per capita (2009) and for NHIF it was $ 11 (2009). Globally the private health insurance sector is growing faster than other insurance categories. Table 4 below illustrates comparisons of the relative importance of private health insurance is sub Sahara Africa according to 2002 national health accounts for the various countries. Table 4: Private Health Insurance in Sub-Sahara African Countries (WHO Estimates 2005) Country Importance of PHI* Country Importance of PHI* Benin 5.0 Niger 2.7 Botswana 7.6 Nigeria 5.0 Cape Verde 0.0 Rwanda 0.1 Chad 0.2 Senegal 1.9 Ivory Coast 4.2 South Africa 46.2 Ethiopia 0.2 Swaziland 8.1 Kenya 3.9 (5.4% 2006) Tanzania 2.0 Madagascar 5.0 Togo 2.1 Malawi 1.0 Uganda 0.1 Mozambique 0.2 Zimbabwe 18.8 Namibia 22.4 * Measured as expenditure on prepaid schemes as a % of THE in 2002 excludes countries with no prepaid schemes and where no data was available In this sub-saharan market, signs of market failure abound affecting both public and private insurance schemes. The indicators include (adopted from A. Preker, et al 2010): Generally less than 5% of total health expenditure is spent risk pooling mechanisms. Institutional and regulatory frameworks are weak or not developed. Most prepaid scheme target markets are small. Cover mainly the formal sector. Health sector heavily dependent on donors. Out of pocket expenditure is large. Community based mutual health insurance are on the increase. 38

40 MARKET ASSESSMENT INTRODUCTION of private AND prepaid BACKGROUND services 12 In order to attain health related MDG goals additional financial resources will have to be mobilized (WHO $ 54 per capita) and this will require more innovation and collaboration by all stakeholders including the private sector players. In developing economies the relatively low economic growth, limited capacity to collect tax revenues and competing priorities for resources significantly limits the tax revenue available for the health sector (A. Preker, et al 2010). A comparison between high income OECD countries and ten eastern and southern African countries shows that private sources of healthcare funding are almost similar ( 41% in OECD and 42% in the African countries) but the big difference is that private funding in the African countries is mainly from out of pocket spending (Health System 20/20 Abt Associates 2010). The main challenge therefore is to increase risk pooling mechanisms, both public and private. 100% Donors 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 59% 27% 30% Public 25% 16% 7% 36% Other Private Private (Out of Pocket) OECD AFRICA Figure 7: Comparison of sources of total health expenditure OECD and selected African Countries (T. Marek et al 2005) 2.3 Summary of Kenya s Healthcare Financing System Healthcare financing structure in Kenya The healthcare financing system in Kenya has developed over the years to include a variety of financing mechanisms in what is now a mixed healthcare financing system. In summary, the main components of this system include: General tax financing: This consists mainly of free healthcare services in public health facilities. The mechanism was later modified by the introduction of cost recovery in the form of cost sharing in 1989 as part of the structural adjustments programs within the public sector. National Hospital Insurance Fund (NHIF), established in 1966: This was among the earliest attempts at using risk pooling (insurance) to finance healthcare in both public and private facilities. The scheme was initially designed for formal sector workers (mandatory by law) and was restricted to financing inpatient care through a fixed bed rebate. It has undergone several changes over the years to include more benefits, target informal sector households and, recently, to introduce out-patient care. In its healthcare financing role NHIF collects revenue, pools funds and purchases care on behalf of its members. It is also responsible for determining the contribution (premium) rates and benefits packages. NHIF is regulated by the NHIF Act No. 9 of Private health Insurance (voluntary): Private health insurance developed over the years becoming more visible in the early eighties with the introduction of HMOs and growth in health insurance portfolios of insurance companies. The emergence and growth of private insurance mirrors and rides on the expansion and growth of private health provision through private facilities (private for profit and FBO). These developments were a direct consequence of the deteriorating public health facilities from the eighties that led to more people seeking care in faith based and private health facilities. A market for private health financing grew as a consequence. Currently private health insurance is provided through insurance 39

41 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes companies and Medical Insurance Providers (MIPs, formerly HMOs). Insurance companies and MIPS are regulated by the Insurance Regulatory Authority (IRA) based on the Insurance Act Cap 487. Employer Self-Funded Schemes: Large employers, particularly in the parastatal, agricultural and financial sectors, provide health benefits to their workers (and in many cases their dependants) through in-house medical schemes. The schemes are funded by the employer through annual budgets and are either managed in-house of through a third party administrator (TPA). A number of employers run their own healthcare facilities for both out-patient and in-patient care. Such employer self-funded schemes though contributing to healthcare financing are seen as part of employee benefits and there is no specific documentation and regulation as such. Community based health financing (CBHF) schemes: Several community based financing schemes have emerged over time to meet the healthcare financing needs of low income earners who have traditionally been largely left out of private insurance and NHIF. CBHFs vary greatly in type and scope and range from small funds run by community welfare groups to large NGO based schemes. The schemes often finance other needs outside healthcare. In Kenya information is only beginning to be gathered on their size, capacity, performance and roles in healthcare financing and vulnerability reduction. CBHF have formed an umbrella association (KCBHFA) there is no specific regulation for CBHF but the schemes are currently registered under the Ministry of Gender and Youth. Out of pocket (OOP) health spending: Like in most developing countries, OOP has been very high in Kenya although the trends show a reduction from 44.8% in 2002/2003 to 29.1% in 2005/2006 of the total healthcare expenditure (National Health Accounts - NHA). OOP spending is major barrier for accessing healthcare services and drives households into poverty through sale of assets and diversion of meagre income into healthcare services. However it also reflects a good opportunity to develop risk pooling mechanisms that provide better access to healthcare and reduce the vulnerability of households to uncertain financial shocks arising from healthcare expenditure. Donors & Non-governmental Organisations (NGOs): Various donors and NGOs have traditionally contributed significantly to healthcare financing and provision. In the last ten years the proportion of healthcare expenditure contribution by donors in healthcare financing has more than doubled (2005/6 NHA) raising concerns on the sustainability of the health system. Some of the major current donor commitments to the health sector include PEPFAR ($607 million, most of it for HIV/AIDS), Global fund for Aids TB and Malaria ($378 million) and World Bank (over $ 100 million). Other Mechanisms: Tow other financing mechanisms in Kenya are worth mentioning namely: - Health Sector Services Fund (HSSF) under MOPHS which was conceived some years ago but was launched It is a form of supply side financing to lower level health facilities (mainly health centres in the public sector but will also in future cover FBO/NGO providers). It is aimed at improving service availability and quality particularly for low income earners and the poor who are served by this level of facilities. HSSF is governed by gazette notice 401 of 2007 which was amended in HSSF is funded mainly by World bank, DANIDA, GoK among others - Output Based Approach Reproductive Health Voucher (OBA) is a form of demand side financing that targets the poor who in most cases except family planning services have to meet a specific criteria. The poor buy the health vouchers at token price and the voucher is redeemed within a specific service provider network for specified health services. The current vouchers cover maternal health, family planning and gender based violence. The OBA program is managed by NCAPD under ministry of planning, administered by a private firm and funded largely by donors, key among them KfW and to a small extent by GoK. The first phase in four districts run from 2005 to 2008 (6.58 million Euro) and the second phase started in 2008 and will run up to 2011 (10 million Euro). 40

42 MARKET ASSESSMENT INTRODUCTION of private AND prepaid BACKGROUND services 12 Analysis NHA data Table 5: General NHA summary statistics for 2001/2 and 2005/6 Indicators 2001/2 2005/6 Total population ,638,694 Exchange rate Total real GDP Ksh 1, ,868,506 1,519,400,000,000 Total real GDP US$ $14,233,866,012 $ Total Gov t expenditure Ksh 211,517,580, ,518,324,607 Total Gov t Expenditure US$ $2,691,063,365 $5,468,414,363 Total Health Expenditure(THE) Ksh 57,097,636,970 70,,807,957,722 Total Health Expenditure (THE) US$ $726,433,040 $964,357,613 THE per Capita KSh THE per capita US$ THE as a % of nominal GDP 5.1% 4.8% Gov t health expenditure as a % of Gov t total expenditure 8.0% 5.2% Adopted from NHA 2005/6 In terms of source of funding, the NHA of 2005/6 showed that the public sector, private sector and donors contributed 29%, 39% and 31% respectively of the total health expenditure. The total public expenditure for health was low at 5.2% of total government expenditure for 2005/6 compared to the 15% agreed on under the Abuja Declaration in 2000 by African heads of state and the African Union. Total health expenditure as a percentage of GDP was 5.1% in 2002 and 4.8% in Although this compares well with the average for sub-sahara Africa (4.7%) and lower middle income economies (5.4%) it is still not adequate to achieve universal coverage as mentioned before / / / / / / /11 (estimate) Government health expenditure as a % of Government total expenditure Figure 8: Government spending on health as a percentage of total government expenditure (MOMS data) Per capita spending on health from the government sources only (MOMS and MOPHS) was $10.2 and $ 11 in 2007 and 2008 respectively (MOMS, Facts and figures 2010). According to the same source, government spending on health as a percentage of GDP has remained at about 1.4% from 2007 to Total healthcare spending as a percentage of GDP was 4.8% compared to 12% recommended by experts (Gupta et al 2001). With rapid population growth, increasing healthcare costs and limited government funds it will be a challenge to increase this amount to the basic minimum required. 41

43 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Table 6: Financing sources as a percentage of total health expenditure Financing source 2001/2 2005/6 Public 29.6% 29.3% Private 54.0% 39.3% Donor % Other 0.1% 0.4% Adopted from NHA 2005/6 Table 7: Household (HH) spending on Health 2001/2 2005/6 Total HH spending as % of THE 51.1% 35.9% OOP spending as % of THE 44.8% 29.1% HH spending per capita (KES) OOP spending per capita (KES) Adopted from NHA 2005/6 Out of pocket (OOP) spending on healthcare is still high at 29.1% of total health expenditure although it is a significant improvement from 44.8% in However it is noted in the report that this reduction is largely due to increased donor funding (and the resultant free services for HIV/AIDS, Malaria and TB) rather than due to the desirable increase in risk pooling. This picture is common in many low and lower middle income countries. Generally, in middle income countries the proportion of OOP falls significantly while public pooling becomes the largest financing mechanism. Private risk pooling also grows and but remains in third position. In high income countries OOP becomes the smallest source of funds with public pooling still remains the largest source of healthcare financing but with a larger contribution of private risk pooling (Good practices in health financing. Lessons from reforms in low and medium income countries. WB 2008)It is possible Kenya may undergo a similar trend. The funds mobilised for healthcare financing are managed through various financing agents. According to the 2005/6 NHA the financing agents that managed the funds include: Public Sector (Ministry of health, NHIF, local government and other public bodies): The public sector managed the largest proportion of the funds at 42.7% including 3.7% by NHIF. This proportion has remained almost the same since Private Sector: The private sector managed the second largest proportion of the funds at 36.5% including 4.1% by employers and 5.4% by private insurers. The proportion managed by the private sector has gone down from 49.8% in Donors: There was a dramatic increase in the proportion of funds managed by donors rising from 7.4% in 2002 to 20.8% in This increase is largely due to PEPFAR and Global Fund for HIV/AIDS, Malaria and TB. There is an opportunity to channel some of these funds into a more sustainable and broad based risk pooling mechanism. The distribution of insurance spending between NHIF and private insurance was 40.6% for NHIF and 59.4% for private insurance as per the 2005/6 NHA. Private insurance contributed 5.4% of total health expenditure while NHIF was 3.7%. This picture may still be similar with private insurance and MIPs raising about 8.5 billion in 2009 and NHIF 6 billion. The detailed distribution of pooled funds according to 2009 estimates was NHIF 36%, Private Insurers -42%, MIPs 14%, international insurance 7% and CBHF 1%. However the population coverage of private insurance is small (about 700,000 lives) compared to NHIF (about 6.6 million lives). Based on 2009 coverage estimates, only about 20.5% of the population has any form of insurance (NHIF, private insurance and community based insurance) (see section for details).as per 2007 estimates the 42

44 MARKET ASSESSMENT INTRODUCTION of private prepaid AND BACKGROUND services 12 majority were covered under NHIF (83.4%), private insurance and employer schemes (19.9%) and CBHF schemes (0.6%) (KHHEUS 2007).It is reasonable to assume that all the formal sector workers covered by private insurance schemes (approximately 700,000 ignoring the few covered in the informal sector), also have NHIF cover (assuming 100% reach of NHIF in the formal sector where it is mandatory). There is also overlap of cover between in-house employer schemes and NHIF (and private insurance) and to a lesser degree NHIF and community based financing schemes. Unfortunately there is no specific data to give accurate numbers. Table 8: Function distribution as a percentage of total health expenditure 2001/2 2005/6 In-patient care 32.1% 29.8% Out-patient care 45.2% 39.6% Pharmaceuticals 7.4% 2.6% Prevention and public health program 9.1% 11.8% Health administration 5.0% 14.5% Others 1.3% 1.7% Adopted from NHA 2005/6 Out-patient expenditure consumed the largest proportion of funds at 39.6% (a reduction from 45.2% in 2002) followed by in-patient 29.8%, health administration 14.5% (a triple increase from 5% in 2002) and out-patient pharmaceuticals 2.6%. The large increase in administrative expense is most likely related to the channelling of donor funds through several NGOs Challenges for Healthcare Financing in Kenya Healthcare financing in Kenya faces several challenges that can be surmised from the above data and the various MOH policy documents and annual reports. These challenges are part of the many challenges facing the overall healthcare system in Kenya which is characterised by weak sub-systems (Stewardship, Policy and regulatory framework, Human resources, Health infrastructure, health commodities and technologies, Health management capacity and Health financing). Some of key challenges include: High poverty levels. About 46% of Kenyans live on less than a dollar per day and nearly half of this group is considered absolutely poor/indigent. Poverty is major driver of poor health status while at the same time poor health status drives the poor deeper into poverty. In terms of healthcare financing this group faces major financial barriers to accessing care. High burden of preventable infectious diseases and an emerging epidemic of non-communicable diseases. Inadequate funding of the health system (6.3% of total government expenditure). According to the Annual Operating Plan Six (AOP 6), the estimated total funds needed to deliver KEPH is about KSh. 143 Billion with an estimated funding gap of KSh. 31 billion. Inefficient allocation and use of scanty resources. Most of the healthcare expenditure is used for curative services in urban health facilities. Health prevention used only about 12% of the total health expenditure while administration took about 14.5% (NHA 2005/6). Various PETS reports done by the Ministries of Health show significant leakages in the system. WHO world health report 2010 estimates that between 20% to 40% of total health expenditure is wasted due to inefficiencies in the system. High out of pocket expenditure in the context of a weak risk pooling system. Significant inequality in access to healthcare services largely due to financial barriers. Poor health infrastructure and unreliable supply of health commodities and medicines. Shortage and mal-distribution of health workers. Poor management of health quality and productivity. Dysfunctional referral systems leading to wastage of resources. High donor dependence. 43

45 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Overview of Health Policy Framework and Healthcare Financing Policy Dialogue in Kenya The overarching health policy in the health sector is the 1994 Kenya Health Policy Framework which is currently under review. Thereafter, two health sector strategic plans have been developed with the second one ending this year. The two ministries of health also have their specific strategic plans. Vision 2030 as an overall government policy also has broad goals for the health sector under the social pillar which includes the development of universal coverage. The overall goal of Visions 2030 is to improve the livelihoods of Kenyans through the provisions of an efficient and high quality healthcare system with the best standards. This will be done using a two pronged approach: Devolution of funds and management of healthcare services to the community and district level leaving MOH to deal with policy and research issues. Shifting the bias of the national health bill from curative to preventive care. Special attention was to be paid to lowering the incidence of HIV AIDS malaria, TB and lowering infant and maternity mortality ratios. Reducing inequality in access to care and improving key health indicators where Kenya is lagging behind particularly infant and maternal mortality. Specific strategies include: - Provision of a robust health infrastructure network - Improving quality of healthcare service delivery to the highest standard - Promotion of partnership with private sector - Government to provide access to those excluded from healthcare due to financial reasons - Become a regional provider of choice for highly specialised healthcare opening Kenya to medical tourism as an income generating activity. The 2012 flagship projects in the Vision include: Revitalising of community health centres to promote preventive healthcare Promoting healthy individual lifestyles Delinking MOH from service delivery to improve management of country health institutions by devolution of health services. Create a national health insurance scheme in order to promote equity in healthcare financing Establishment of a health sector service fund (HSSF) to channel funds directly to public health facilities with focus on lower level faculties such as health centres. Scale up output based approach system to enable disadvantage groups to access healthcare from preferred institutions. Some activities for these flagship projects have already started this year. A sector plan for health under Vision 2030 was also developed in 2008 to support implementation work. The health Sector Strategic Plan II (NHSSPII) lapsed this year but reports indicate it will be extended. The vision for this plan is an efficient and high quality healthcare system that is accessible and affordable to all Kenyans. This vision is in keeping with WHO s goal for universal health access. It must be remembered however that while universal access to health insurance cover is necessary to achieve universal access to healthcare services, it is not sufficient by itself to achieve that goal. Other barriers to access must also be addressed. Based on the NHSSP II the two ministries of health also have their own strategic plans. The broad strategic objectives of the NHSSP II were to: Increase equitable access to health services Improve quality and responsiveness of healthcare services Increase efficiency and effectiveness of service delivery Enhance regulatory capacity 44

46 MARKET ASSESSMENT INTRODUCTION of private AND prepaid BACKGROUND services 12 Foster partnerships in delivery of services Improve the financing of the health sector. In improving and transforming the healthcare financing system in the country the policies have elucidated three main goals, namely: - Ensure equitable allocation of resources to reduce disparities in health status. - Increase cost-effectiveness and effectiveness of resource allocation and use. Shift from out of pocket expenses and user fees to Social Health Protection. In many countries this has been the dream of policymakers and health economists, but the harsh reality is that OOP does not necessarily transform into contributions or premiums after healthcare financing reforms. There has been an ongoing debate from around 2002 to introduce social health insurance as a means of achieving the above goals but the 2004 National Social Health Insurance Bill was rejected by the President due to objections raised by the private sector, some donors and the Ministry of Finance. The debate did not die out but continued in various fora and specifically under the multi-sectoral Healthcare Financing Technical Working Group which was formed in More recently in 2009 the ministries of health and various stakeholders from the private and FBO/NGO sector developed the draft Healthcare Financing Policy and Strategy for Affordable Healthcare. This was developed under the Healthcare Financing Technical Working Group. The key elements of the draft policy include: Access to quality care for all Effective use of the health system Efficient use of healthcare services Improved revenue collection and risk pooling. Improved governance and transparency in the health system More effective use of donor funds Sustainability of healthcare financing In order to achieve the above the policy proposed a Social Health Protection Model which includes Tax financing (for the poor/indigent), Social Health Insurance (to be provided by one or more bodies depending on efficiency and effectiveness), supplementary/complementary health insurance by private sector and communities. The policy also sought to create a new regulatory framework and division of labour for the main healthcare financing functions (revenue collection, risk pooling and purchasing). The above policy was followed by a healthcare financing consensus meeting in 2010 at holiday inn in Nairobi that agreed on the way forward in implementing reforms in healthcare financing. Some of the key relevant agreements included: Healthcare financing reforms should prioritize the underserved poor. Formation of a health benefits regulatory authority to create a minimum benefits package and regulate all prepaid health schemes. Make health insurance cover mandatory Every Kenyan must belong to a health plan providing the minimum benefits package. Reforms in NHIF so that it can better play its role in social health protection. The above consensus was presented to the National Economic and Social Council (NESC) for recommendations to the government. Unfortunately it is currently not clear what is the policy and legal status of the draft healthcare financing policy and the consensus reached. The draft healthcare financing policy was not formally approved and launched. We therefore do not have an authoritative healthcare financing policy in operation and this gap has created some confusion in the sector and is contributing to reviving the polarised environment that was prevailing in 45

47 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes This environment has not been very conducive for on-going healthcare financing dialogue and for this assessment going by the response from the private sector. Finally the recent promulgation of the new constitution has major implications on health sector that are bound to drastically change the landscape of the health system in Kenya. The key provisions include: Under the new constitution 2010 the Bill of rights provides under the economic and social rights article 43 (1) that every person has a right to the highest attainable standard of health, which includes the right to healthcare services; including reproductive healthcare Article 43 (2) states a person shall not be denied emergency medical treatment. The roles of the central government will be health policy and running referral hospitals while county governments will be responsible for healthcare delivery in their county. The constitution is not clear on the roles of the central and regional government on other health system issues such as healthcare financing, procurement and supply chain management and human resources management. It is not clear for example if a county government can set up its own social health insurance scheme. However since the central government is responsible for policy formulation then these issues can be clarified in future policy formulation processes. Exercise of the above health rights will require development of an adequate healthcare financing system that has to cover all Kenyans in addition to overall health systems strengthening strategies. 46

48 MARKET ASSESSMENT of private prepaid services 1 3 Scope of Work and Methodology 47

49 48 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes

50 MARKET ASSESSMENT of private prepaid services Scope of Work and Methodology 3.1 Scope of Work The overall goal of the market assessment of prepaid schemes based on the SOW is to: Assess Kenya s prepaid health schemes including private health insurance and health maintenance organisations (HMOs now referred to a MIPs) and determine their scope and probable role in the ongoing healthcare financing reforms. The assessment of private health insurance and MIPs is also aimed at providing a basis for the strategic growth of the sector and to determine the best way to structure the sector to support the broader financing of healthcare in Kenya. The market assessment of prepaid health schemes was therefore designed with the aim of informing government and other stakeholders on healthcare financing policy options as it relates to risk pooling or health insurance and not necessarily to give business strategy options to organisations involved in the provision of health insurance products and services. The principal audience is therefore policymakers in healthcare financing and delivery and other relevant stakeholders both in the public and private sectors with an interest in the subject matter. The report therefore adopted a broad look at the key and relevant issues in healthcare financing and health insurance/risk pooling. Details are provided to illustrate the overall principles. In health systems research parlance, the key thrust of this report is therefore knowledge translation. The SOW required a comprehensive review of applicable previous work done by the GoK, donors and others in the subject of interest and an analysis of the findings and recommendations. The review of existing work was to be supplemented by collection of current additional data. The SOW also required an effective consultative process to discuss the aims of the assessment, the findings and recommendations. This is to ensure we achieve buy-in for the work, input from the various stakeholders and support for the final recommendations. The detailed scope of work (SOW) is attached in Appendix 1. Based on the SOW the key objectives of the Market Assessment of Prepaid Health Schemes were summarised as follows for the purpose of the assessment: Determine the Scope of Existing Prepaid Health Schemes In determining the scope of existing repaid health schemes we reviewed: Demand and supply analysis including potential market size. Population coverage (breadth of cover) and target market. Range of health benefits/activities covered (depth of cover) andpremium costs for various cover types and options. Proportion of actual direct health expenses borne by the insurance cover and by the client (co-payment) (height of cover). Financial advantage to insured members (payout ratios, management expenses) 49

51 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Evaluate Perceptions and Unmet Needs of Prepaid Schemes Clients including Potential Clients This was based on existing customer surveys and the results of our interviews and questionnaires. We reviewed the experience of clients of prepaid health schemes with current products and services and teased out any gaps in services or coverage. Views on access were also solicited Elaborate Constraints for Strategic Growth and Effective Reach of Prepaid Health Schemes We reviewed the current constraints for the growth of prepaid health schemes in various market segments and considered issues such as: Policy, regulatory and legal framework. Structure of the sector. Technical and management capacity Business incentives Delineate the Possible Roles of Prepaid Health Schemes in the Ongoing Healthcare Reforms to Support the Broader National Healthcare Financing Objectives The government is in the process of reforming the healthcare financing system in the country as described in section on healthcare financing policy. What are the feasible future roles of private prepaid health plans in achieving national healthcare financing objectives? We explored among others: Provision of supplementary, complementary or substitutive healthcare insurance services. Potential areas of partnership with public financing mechanisms (e.g. NHIF or OBA) (including outsourcing of various services/functions). 3.2 Definition of Key Terms Healthcare financing is a multidisciplinary subject cutting across clinical medicine, public health and epidemiology, health economics and social sciences including public policy and political science. Several terminologies have developed in this subject and often have different meaning for different people and contexts. In this regard we prepared a list of terminologies and the meaning adopted in this assessment. We also included other related terminologies that may not be in this report but are necessary for comprehending the subject matter. The full details are in Appendix 2. For the purpose of this assessment, a prepaid health scheme was broadly defined as: Any system or mechanism of financing healthcare services for members of a scheme or health plan as provided by insurance companies, MIPs, Employers, Micro-Insurance and the Community organisations. This broad definition was intended to capture most of the existing healthcare financing mechanisms. A true technical definition of prepaid schemes would be narrow and would exclude employer schemes and CBHF. The narrow definition would not allow a more comprehensive look at all the players involved in healthcare financing in the market. Where relevant, public health insurance (NHIF) was used for comparison. It is important to note however that only the prepaid schemes provided by insurance companies and MIPs have any reliable aggregated data (since annual reporting is part of their regulatory requirement by IRA). The same cannot be said of employer selffunded schemes and CBHF schemes where there are no formal aggregated databases for such. 50

52 MARKET ASSESSMENT SCOPE OF of WORK private AND prepaid METHODOLOGY services Assessment Design In view of the SOW, the broad scope of this market assessment and the overall goal of informing healthcare financing policy process, a qualitative survey design was selected which comprised of the following: Desk review and analysis of secondary literature and data. In-depth interviews with key informants from identified stakeholders. Web based, Semi-quantitative self-administered survey questionnaire Stakeholder consultative forums to seek wider input and consensus. Ideally it would have been good to conduct a national-wide quantitative survey on some or all of the aspects of the SOW but this was judged not feasible with the overall design of the assignment and the resources allocated. Desk review of secondary literature and data was conducted from a wide variety of local and international sources. The documents ranged from GoK policy documents, national surveys, research papers, various specific surveys, textbooks, published reports, product profiles and financial statements of private prepaid schemes, among others. The detailed list of documents reviewed is indicated in Appendix 3. In-depth interviews with selected key informants were carried out to collect qualitative and some quantitative data. They targeted the identified key players in the prepaid schemes in Kenya including payers, health providers and consumers. Care was taken to ensure the mix of players was included in the interviews such as rural/urban, private/public/fbo providers, employer groups in different sectors of the economy and different distribution (countrywide to localized) and employers with self-funded schemes versus prepaid schemes covers. The government agencies involved in prepaid schemes such as MOF, MOMS and MOPHS and regulatory bodies such as IRA were also included. Individual donors and DPHK were also interviewed. The sampling approach used was purposive sampling with the aim of capturing the whole variety and complex mix of players in prepaid schemes in Kenya. 1. All prepaid health schemes from the NHIF, all insurers offering medical covers, MIPs and some community based financing schemes 2. The various categories of relevant stakeholders: a) Relevant government bodies, b) Regulators, c) Trade and industry associations, d) Employers, e) Healthcare providers (various categories public, private commercial, private not-for-profit, FBO, expensive/cheaper, urban/rural) f) Consumers (individual and group). g) Donors with specific interest in Kenya s health system (individually and under their body, DPHK). The full list of stakeholders interviewed is detailed in Appendix 4. A structured interview guide was developed by the team and used to get comparable information from the same category of stakeholder. See Appendix 5 for details. To supplement the key informant interviews, a web based self-administered semi-quantitative questionnaire was developed by the assessment team and sent to various stakeholders. The tool can be found at the following link The questionnaire had various sections for the various 51

53 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes stakeholder categories to complete and collected both quantitative and qualitative data. The survey was sent to various stakeholder groups as indicated above. A comprehensive list of the same can be found in Appendix 6. A total of 80 responses were received from various stakeholders (Corporate bodies and employers - 42, Individuals 30, Private Insurers 3, NHIF 1, MIPs 2 and regulators - 2). Due to the low questionnaire response rate from private insurers (3/14, 21%) and MIPs (2/6, 33%) who are key stakeholders in healthcare financing there is need to follow up the views of the non-responders in future consultative processes within and outside this project. No quantitative conclusions were drawn from the survey. The first stakeholder workshop was held on 1st September This roundtable discussion was an opportunity for the private sector to engage with other stakeholders in the health sector and discuss views on the strategic review and market assessment and their future role within the ongoing healthcare financing reforms. A list of the attendees can be found in Appendix 7. A subsequent meeting was held at Windsor Hotel on 3rd November 2010 to present preliminary findings and discuss future healthcare financing mandates (Deep dive session). See Appendix 8 for the list of attendants. 3.4 Limitations of Assessment Methodology The assessment was designed as qualitative study and it is important to bear in mind the limitations of the methodology in understanding and interpreting the findings of the assessment. Further, there were several data collection and analyses challenges which are summarised below. Methodological limitations include: Purposive sampling though justified to target the groups involved in healthcare financing may introduce some biases. Use of a web-based questionnaire may have left out those without access to internet. Self-administered questionnaires suffer from several constraints including overrating positives and underrating negatives, no way of accurately knowing reasons for non-responding and the views of nonresponders may not be captured. The standard limitations of qualitative methods (for example strength of associations may not be accurately determined). Most prepaid schemes in Kenya are in urban areas and are focussed mainly on the formal sector in middle to upper social economic groups. Hence existing data may not shed much light on the informal, lower income and rural populations. 52 Data collection and analysis challenges included: Structure of the sector: the various prepaid schemes are under very different organisational and regulatory frameworks and where they exist, reporting requirements and formats and different. The size and complexity of the various prepaid schemes varied greatly hence any generalisation should be done with caution. Aggregated data from insurance companies health insurance data was aggregated with other insurance classes, mainly personal accident by law and practice. It was therefore not possible to get very detailed financial analysis of health insurance class of business. However some level of separate health insurance data reporting was voluntarily introduced by AKI from 2006 and this has been invaluable in understanding the performance of health insurance. The Insurance Act was amended in 2010 to require separate reporting of health insurance data to IRA. Reluctance by insurance companies, MIPs and employer groups to provide any sensitive business information other than what is already in the public domain. In the case of insurance companies and MIPs, NHIF is viewed as a competitor and hence the reluctance to share detailed information on their prepaid schemes. The ongoing debate on NHIF s recent rates increase has also contributed to the current

54 MARKET ASSESSMENT SCOPE OF of WORK private AND prepaid METHODOLOGY services 13 environment of mistrust. The result was guarded responses on sensitive questions during interviews and poor and incomplete response rate to the survey questionnaire. Some respondents erroneously viewed the assessment as a means of providing strategic information to NHIF or justifying their recent rate and product changes. The target markets for prepaid health schemes and their networks of health providers varied greatly and so did their experience. Paucity of data in some areas such as detailed financial analysis of prepaid schemes, recent customer surveys, demand and supply analysis and CBHF schemes meant that some of the findings are based on broad estimates. Where this was the case, it is clearly stated as such. Different and unclear classification/categorisation of data in some surveys and reports. Different time periods for various data sets limited country and scheme comparisons. Measures to mitigate some of the methodological and data weaknesses included in-depth key informant interviews, counterchecking with regulators and professional/trade associations and the ongoing consultative processes to validate findings. 53

55 54 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes

56 MARKET ASSESSMENT of private prepaid services 1 4 Findings of the Assessment 55

57 56 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes

58 MARKET ASSESSMENT of private prepaid services Findings of the assessment 4.1 Overview of Prepaid Schemes in Kenya Structure and Types of Prepaid Schemes In Kenya there are several different types of prepaid schemes under different organisational frameworks and regulation. The types identified and reviewed in this assessment include Private Insurance Companies, MIPs, Community based health financing schemes and NHIF. The types of insurance covers and benefits covered also vary. The table below is summary of the main characteristics. Table 9: Various prepaid schemes in Kenya Type of prepaid scheme Number providing health insurance Set up under Estimated number of persons covered NHIF (Public Social health insurance, mandatory in formal sector) Private health insurance by insurance companies (Including health microinsurance) Private health insurance by MIPs Community based healthcare financing schemes Employer in-house Schemes 1 By NHIF act 1998 Oversight by MOMS 16 Insurers (out of 44) Insurance act Cap 487 Regulated by IRA under ministry of Finance 30 licensed (most are insurance intermediaries) 6 Offer medical insurance products 30 (2006, Ten operational). 9 organisations members of KCBHFA Several large and small schemes exist. Not documented Insurance Act Cap. 487 Regulated by IRA Registered as societies, welfare groups, cultural organisations under Ministry of Gender and Youth& Registrar of Societies N/A 2.8 principal members 6.6 million total lives covered Covers 700,000 lives and some also have NHIF, especially those under employer groups as NHIF is mandatory Approximately 470,000 lives Not documented The technical type and model of health insurance cover offered by the various prepaid schemes varies according to the type of prepaid scheme provider. The health insurance schemes range from traditional indemnity to pure managed care plans and their main characteristics are summarized below. Traditional indemnity schemes In traditional indemnity schemes the insurer does not get involved in the healthcare purchase process. Indemnity plans are mainly based on the insured being reimbursed by the insurer for incurring a defined loss. Insured members seek care when and where they need it, pay the costs upfront and seek reimbursements from the insurer. There are various variations to this including fixed reimbursements by the insurer or some level of direct provider payments instead of reimbursements. Consumers have the widest degree of choice of provider in this model. As expected this type of schemes have very little control on healthcare costs or quality and are open to abuse. In addition they are not popular with consumers due to the need for upfront payment for care before seeking reimbursements. As a result these limitations traditional indemnity schemes have nearly disappeared from the market and the few remaining handle mainly out-patient 57

59 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes care. Traditional indemnity covers has been the preserve of private insurance companies and international insurers. Pure managed care schemes On the other extreme are the pure managed care schemes that frequently integrate healthcare financing (risk pooling) and healthcare provision. The insurer is also the provider and restricts insured members to their healthcare facilities or networks or franchisees. Such schemes can be very effective in controlling costs but suffer from a conflict of interest between financing and provision. Due to this inherent conflict the quality of services provided is likely to be low unless a very effective external regulatory system is in place. Technically, such schemes are disallowed by law in Kenya due to this concern but variations of such schemes still exist for out-patient services among MIPs. It is important to note that in many countries managed care schemes (or prepay schemes) have been separated by law and practice from indemnity health insurance. Managed indemnity schemes Most insurance schemes in the market fall in this category that combines aspects of indemnity insurance and managed care tools. The essential feature is that the insurer gets actively involved in the healthcare purchasing process through application of various managed care tools. Health services are provided by independent providers. The process of applying managed care tools (also referred to as benefit utilization management process) and includes: Setting up a panel or network of preferred/appointed healthcare providers who agree to operate within certain purchase contracts in providing services to members. The provider network may include gatekeepers who provide primary care and refer clients when there is need. Pre-negotiation of a tariff structure to guide costing of services. Pre-authorization of certain healthcare services by the insurer. Care management process using medical staff. The insurer uses its own clinical staff to interface with healthcare providers and monitor appropriateness, quality and cost of services and take corrective action in time. Adjudication and vetting of claims Utilization reviews and clinical audits. Use of deductibles or co-payments on claims Innovative provider payment models including fixed reimbursements, diagnostic related groups and capitation. The overall purpose of applying the above managed care tools is to manage the quality and control the cost of healthcare services provided to insured members. Most of the current health insurance schemes offered by insurance companies and in-patient schemes of MIPs are based on this model of managed indemnity. The NHIF comprehensive cover plan is also a form of managed indemnity with the elaborate accreditation, contracting and care management processes. For all schemes there is a need to consider a cost-benefit analysis of benefit utilization management since it contributes to administration expenses. Provider-based managed schemes are similar to managed care schemes except that in this case a healthcare provider also becomes a financier by collecting prepaid subscription or contributions from members in exchange for provision of defined benefits over a defined period. Healthcare services are restricted to the providers facilities with or without availability of referral services. Just like in pure managed care schemes, the main concerns is that since the purchaser is also the providers the quality of services may be affected in attempt to reduce cost and maximise the profit or surplus. The providers are also exposed to catastrophic healthcare costs unless re-insured. However such schemes do provide care at very cost-effective premium rates and very low administrative expenses since there are no middlemen (such as insurers and intermediaries) between the provider and the consumer. There is one true provider based scheme in Kenya. Ghana has had successful provider based schemes based on FBO hospitals. 58

60 MARKET ASSESSMENT FINDINGS of private OF prepaid THE ASSESSMENT services 14 Combinations It is important to note that one health insurance provider can have a combination of the above types of schemes. For examples some MIPs have a managed care out-patient scheme and a managed indemnity in-patient scheme Financial Overview of Existing Prepaid Schemes Gross contributions: The gross premium contributions for private health insurance companies and one of the large MIPs are indicated in the figures below: 7,000,000,000 Gross Premiums for Medical Insurance Business 6,000,000,000 5,000,000,000 4,000,000,000 3,000,000,000 2,000,000,000 1,000,000,000 0 Jubilee APA CFC/heritage UAP Britak Others Industry Figure 9: Private insurer s gross written premium written (source AKI Annual Reports ) The gross health insurance premiums closed at about 5.9 billion in and have been growing at over 20% except in 2007/2008. In the same period (2008 to 2009), NHIF grew by 12%. Gross premium from one of the large MIPs is detailed below showing a rapid growth of premium from 2006 to 2009 (more than double). Gross Premium 1,200,000, ,000,000, ,000, Ksh. 600,000, ,000, ,000, Year Figure 10: Gross premium MIP The contributions for NHIF since 2006 are detailed in Figure 11 below for comparison. 4 AKI Annual Report,

61 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Ksh. 6,000,000,000 5,000,000,000 4,000,000,000 3,000,000,000 2,000,000,000 1,000,000, Year Figure 11: NHIF Member contributions (NHIF Accounts) The total funds in 2009 for the above risk pooling mechanisms (excluding Employer in-house schemes) are summarized in Table 10. Table 10: Gross premiums written in 2009 by risk pool vehicle. Risk Pooling Vehicle Total Contributions 2009 KES Proportion NHIF 5,079,569,000 36% Private Insurance Companies 5,887,151,817 42% MIPs 2,000,000,000* 14% International Private Insurance 1,000,000,000* 7% CBHF 150,000,000* 1 Total 14,166,720, % (*Estimates for MIPs, CBHF and international private insurance) Although private insurance companies and MIPs controlled the largest share of health insurance funds (63%), they only covered about a tenth of the population that NHIF covers. Pay-out/Loss Ratios The payout ratios (loss ratios) on gross contributions for private health insurance companies, one MIP and NHIF are indicated in the figures below: Jubilee CFC/heritage Britak Industry Figure 12: Payout ratios for private insurance (AKI Reports) 60

62 MARKET ASSESSMENT FINDINGS of private OF prepaid THE ASSESSMENT services 14 70% 60% % % 30% 20% 10% Acq. Cost % Admin Cost % Pay-out Ratio % 0% Figure 13: Acquisition, administration and payout ratios for NHIF: (NHIF Accounts) 60% 50% 40% Percent 30% 20% 10% 0% Year Figure 14: Payout ratios for NHIF (NHIF Accounts) For all the schemes, payout ratio has been increasing since In 2009, the payout ratio for the private insurance sector was highest (69%) followed by the MIP (61%). However 2003 to 2005 data shows that CBHF had the highest payout ratios (92 to 102%). Administration costs The summary of total administrative costs for the various schemes as a percentage of gross contributions is detailed in the figures below: Percent 23% 22% 21% 20% 19% 18% 17% Industry total admin expenses (%) 22% 21% 19% 19% Year Percent 43.0% 42.0% 41.0% 40.0% 39.0% 38.0% 37.0% Administration cost Year Figure 15: Total administration expenses % for NHIF (NHIF Accounts) 61

63 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes The administrative expenses for private insurance companies ranged from 19% to 22% over the last four years. Private insurance companies are also required to pay statutory commissions to insurance intermediaries (licensed brokers and agents) which in 2009 were 13.8% of the gross premium for the industry. For MIP the commissions ranged from 14% to 15%. The total administration expenses ratio for private insurers include commissions paid and received (the net commissions). However for MIPs the administration expenses are separate from commissions paid. Private prepaid schemes also pay reinsurance premiums but these are part of the risk pool and are available for claims payments. The administrative expenses for the MIP ranged from 25% to 15% and have been decreasing in proportion from 2006 to International industry benchmark for administrative expenses for private insurers is up to 20% and for social health insurers it is 5% to 10%. Underwriting performance The gross underwriting profit/loss for private health insurers and one MIP are indicated below.. Underwriting profit and losses for medical insurance as per AKI Annual Report, 2009 are presented below. Ksh. 300,000, ,000, ,000, ,000, ,000, ,000, Gross underwriting Profit/Loss Year 100,000,000 Underwriting Profit/Loss for Medical Insurance Business 50,000,000 (50,000,000) Jubilee APA CFC/heritage UAP Britak Others Industry (100,000,000) (150,000,000) (200,000,000) (250,000,000) Figure 16: Private health insurance gross underwriting profit/loss (AKI Reports) Private health insurance has been very volatile in terms of underwriting performance with mixed results over the four years. In 2009 private health insurers made an underwriting loss of about 250 million. It is important to note that insurance companies are able to generate investment income from the contributions and this may cover the underwriting loss in some years. The MIP has been making underwriting profits consistently from 2006 to Community based health financing schemes There is no overall financial regulation of CBHF as an insurance vehicle. The lack of an insurance regulator for CBHF means that there are no regular insurance reports on their healthcare financing activities. However some

64 MARKET ASSESSMENT FINDINGS of private OF prepaid THE ASSESSMENT services 14 summarized reports are made to their umbrella association (KCBHFA). A report done by their association (KCBHFA) is summarized in Table 11 below. According to this report the contributions ranged from KSh. 300 to 1,500 per annum and they had coverage of over 600,000 lives at that time but recent estimates put the figure at 470,000 lives. Most of the members of the KCBHFA are support associations for CBHF and service provider networks. A catalogue done in 2006 by PHRplus Project (Abt Associates) identified 30 CBHFS in Kenya in various stages of development. Only 10 were operational. The rest were struggling to operate or had been unable to continue due to failure by members to contribute. CBHF is recognized by the MOH NHSSP II but no regulatory system was set in place. Table 11: Community based health financing organisations data (KCBHFA report 2008) Name of network Coverage provinces Coverage districts No. of schemes No. of members Service package OP & IP Premium (Ksh) STIPA OP & IP PA IDCCS OP & IP PA No. of beneficiaries No. of facilities for schemes in level L2- L L2, 1L3, 3L4 and 1L5 Comments Implementing organisation L3, 4L4 Implementing organisation WRCCS IP PA 600 6L2 Implementing organisation ELRECO IP 600PA 320 2L2 Implementing organisation CIDR IP 2400,1000 & 600 PA Jamii Bora L4, 1L5 & 1L ,000 IP 1500/PA 400,000 All L4, L5 & L6 GLUK OP &IP 200 per delivery (subsidized by donor) Total L3, 2L4 & 1L5 Research and implement Micro credit and implementing Research, training and implementation Jamii bora trust health program, established in 2001, was the largest CBHF reported. It was started to help members continue with their businesses without worrying about hospital bills. It operated countrywide and recently its micro-credit part was given a banking license. They cover in-patient and out-patient benefits in mission and public hospitals for a maximum family of five without any exclusions or financial pay out limits. The premiums/contribution was 1,200 per member plus four dependants. Children are covered up to 18 years. The premiums payments are flexible - payable weekly, monthly quarterly or annually. They have a waiting period of six weeks. Their brief accounts for Jamii Bora Health insurance program for 2003 to 2005 are indicated below. Table 12: Contributions and claims summary Jamii Bora (Abt Associates, Catalogue of CBHF, 2006) Contributions Claims Pay-out Ratio ,834,244 19,322, % ,180,099 20,214, % ,978,100 24,348, % Their contributions grew by 21% between 2003 to 2005 and they reported very high pay-out ratios for the three years, with a deficit in It is likely the micro-finance part of the organisations subsidized administration expenses through sharing of staff and facilities. There are no available reports on administration expenses. 63

65 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes The biggest challenge facing CBHF is long-term sustainability, management capacity and they offer limited financial protection to members. A USAID sponsored survey (under PHR plus Project) in 2006 identified about 30 (thirty) CBHF schemes in various parts of the country at various stages of development. Out of the 30 CBHF schemes identified only ten were operational. The rest had ceased operations due to various reasons including inability to meet costs and failure by members to contribute. There haven talks between CBHF and NHIF about partnerships but this are in the initial stages. The ministries of health recognize the role of the CBHF schemes in the NHSSP II to improve financial access to health services at the community level. However it lacks the mechanisms or legal framework to register or regulate the same. The schemes are currently registered by the Ministry of Gender and Youth Affairs. In summary the following was noted for all the prepaid health schemes discussed above: All the schemes are growing at more than 10% per annum. Schemes by private insurers have a payout ratio close to international benchmarks and their administration expenses ratios are within the benchmarks. There is room to improve their administration expenses going by the example of the MIP. The MIP scheme analysed has a good payout ratio but with room for improvement and the lowest administration expenses. Statutory Intermediary commissions in the private sector took about 14% of the premium contributions. The total funds in risk pooling were just under KSh. 14 Billion. Assuming the total health expenditure in Kenya grew by 5% per annum (as per the previous NHA, hence KSh. 82 Billion in 2009)) then the risk pooling funds were only 17%. The rest would be other government expenditure, out of pocket, employer in-house schemes and donors. Recently, international investors from Europe, Asia and South Africa have shown keen interest in the rapidly growing private health insurance market in Kenya. Employer Schemes Employer in-house schemes are major contributor to healthcare financing but their size, scope and activities have not been well documented. In the 2005/6 NHA employers contributed about 3.3% of the total health expenditure (about KSh. 2.3 Billion). Most of the large schemes are found in the agricultural sector (such as horticultural firms and tea estates), parastatal sector, banking, mining and energy. Most of these firms have a large workforce, some in restricted geographical areas. In addition to financing healthcare for their staff and dependents through an annual budget, some of the employers also run their own healthcare facilities. These in-house facilities range from simple out-patient clinics to fully fledged hospitals that could be categorized as level 4 and 5. In some cases the company health facilities also provide services to surrounding communities. Employer schemes are not required to report to an external regulator so there no aggregated reports. Table 13 below summarizes some of the findings for the in-house schemes that were interviewed or whose data we collected. 64

66 MARKET ASSESSMENT FINDINGS of private OF prepaid THE ASSESSMENT services 14 Table 13: Selected employer scheme data Employer Location No. of Staff (exl. Dependents) Annual In-house Staff Medical Scheme Budget (KSh.) Use of other health financing mechanism by employer (NHIF/PHI, IPHI) Presence of In-house health facilities Agriculture Company 1 Kericho 15, million NHIF, PHI Yes Company 2 Kericho million NHIF no Company 3 Naivasha 8, million NHIF, PHI, IPHI Yes Company 4 Naivasha 4, million NHIF, PHI, IPHI Yes Company 5 Mumias 1, million NHIF, PHI Yes Mining Company 6 Athi River 1, million NHIF, PHI Yes Energy Company 7 Nairobi 6, million NHIF Yes Multiple healthcare financing mechanisms are in use by employers. The large in-house schemes are an opportunity to increase risk pooling to facilitate more efficient use of resources and better risk protection. However prepaid schemes need to provide more appropriate products and services for this to happen. A summarized data sheet for all the prepaid health schemes is detailed in Appendix Key challenges facing prepaid health schemes The key demand and supply challenges facing prepaid health schemes are reviewed in detail in section A summary of the overall challenges mentioned by stakeholders interviewed includes: Regulatory framework: - There is no specific health insurance law in Kenya. Health insurance is only mentioned briefly under the Act when dealing with the issue of MIPs. It is assumed that the law that applies to general insurance products (specifically personal accident cover) also applies to health insurance. - Fragmented regulatory approach Several prepaid schemes are under very different regulatory frameworks as already mentioned. Fragmentation of private risk pools most of the private health insurance pools are small and fragmented. The largest pools have about 100,000 lives covered. Small insurance pools lead to sub-optimal risk pooling and cross subsidy and deviate widely from actuarial risk estimates. They suffer diseconomies of scale and hence high administration expenses. They have weak bargaining power with providers. Such pools therefore tend to be relatively expensive and offer narrow benefit packages either in terms of range of services covered, financial limits or provider choice. Inadequate technical and management capacity there is shortage of skills in the market to effectively manage health insurance schemes.formal training opportunities in health insurance management are largely unavailable locally. Short courses are available at the College of Insurance and but formal insurance courses only handle health insurance briefly under general or life insurance training. Inadequate use of appropriate and cost-effective health insurance ICT. Use of effective ICT systems is an opportunity to improve efficiency and reach of health insurance schemes and reduce costs. Lack of standardization and coding of healthcare services and no regulation or policy guidelines for cost effectiveness of healthcare services. Healthcare provider regulation has traditionally focused on technical quality only. Predominant mode of provider compensation is mainly fee for service which incentivizes providers to oversupply health services and hence drive up costs (provider induced demand). 65

67 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Fraud (by insured members and healthcare providers), moral hazard and adverse selection. All these lead to increasing costs of healthcare services and health insurance premiums. Limited general population awareness on benefit of risk pooling. Poor image of the insurance industry in general. Structure of the economy Significant poverty levels and a large informal sector. 4.2 Scope of prepaid health schemes in Kenya Demand and Supply Analysis Estimation of market size for risk pooling mechanisms in Kenya The potential market size for prepaid health schemes was estimated in terms of population and shilling value. Population estimate In the 2009 census the population was estimated at 38.6 million. According to 2005/6 Kenya Integrated Household Budget Survey (KIHBS) 46% of the population was living below poverty line ($1 per day). This translates to about 18 million people (assuming same poverty levels). Out of this 18 million about 10 million are estimated to be absolutely poor or indigent. The remaining population of about 20.6 million can arguably afford to contribute to some form of a prepaid health scheme, even if a public health insurance scheme. Informal sector of the economy is estimated to have 8.3 million employees who are largely uncovered by NHIF or private insurance. Another estimate based on MOMS 2010 projections indicate that about 9 million people can be covered through the formal sector by private prepaid schemes and NHIF, 11 million in the informal sector can be covered through social health insurance and private schemes and a further 9 million are poor but can get a cover through Social health Insurance and private schemes (through a government subsidy) and finally 10 million are indigent and can only be covered through government taxes and development partners contribution. The current prepaid schemes and NHIF cover about 7.8 million people Formal 9M (NHIF + Private) Informal & farmer 11M (SHI + private) Poor 9M (SHI + Private) The Indigent 10M (Government & Development partners) Figure 17: Population pyramid with possible risk pooling financing of health to ensure universal coverage in Kenya (adopted from MOMs 2010) 66

68 MARKET ASSESSMENT FINDINGS of private OF prepaid THE ASSESSMENT services 14 Shillings value estimate Total house hold expenditure on health from NHA 2005/06 was Kenya shillings 25.5 billion. This would translate into an estimated 37 billion in 2010 assuming same growth rate between 2002 and 2006 NHA s. In 2009 the total premium for NHIF, private insurers and MIPS was estimated at about 14 billion or 35% of total house hold expenditure. From the above two estimates it is therefore clear that the market for prepaid schemes is large and unexploited. Demand framework To demand something one must want it, be able to afford it and have a definite plan to buy it (M. Parkin, et al 2003). In an open market the demand for health insurance products and services would theoretically be determined by: The price of the products. Level of income of potential consumers Consumer awareness on the benefits of health insurance as a risk management/reduction strategy. Consumer awareness of their own level/ probability of health risks and their attendant costs. Risk appetite of the consumer Availability and price of substitutes Relevance and acceptability of health insurance products and services According to A. Preker et al (2010), a prepaid schemes market emerges if: There is a risk of high Out-Of-Pocket payments relative to income or wealth Insurance firms can offer different households premiums that are close to the individual household s expected value of out-of-pocket medical spending Loading costs on premiums are moderate Based on the above framework, some of the demand constraints identified in Kenya include: High levels of poverty (46% in Kenya) generally imply that fewer people can afford to pay health insurance contributions putting into consideration that the price of health insurance products, particularly those supplied by private insurance schemes and MIPs is relatively high or perceived to be high. One measure of the affordability of health insurance is that the annual contributions per household should not exceed 50% of earnings per month. Unfortunately we did not come across any studies to measure this constraint specific to health insurance. The AKI uninsured market survey 2008 found price to be one of the major barriers to access for all insurance products particularly in the informal and low income segments. According to the survey 32% of potential buyers were hindered by the price. The move towards developing low cost private health insurance (micro-insurance) may address this constraint. The level of awareness of risk pooling products and services is generally very low going by the various consumer surveys done. While knowledge of the existence of health insurance products was high (AKI 2008 survey), knowledge of the product details and benefits was low. In addition to low awareness of insurance there is lack of accurate information on the probability and severity of health risk events at a personal or household level. While this may limit demand (through low risk aversion or misperception) it may on the other hand also lead to unnecessary buying of insurance (it s a form of market failure). Consumer surveys have also indicated that a significant number of current health insurance products are not relevant or acceptable to consumers either due to restricted benefits, complicated claims procedures, lack of trust in health insurance providers and poor image and reputation of insurance providers (in health insurance this is more real due to the collapse of several HMOs in last ten years). There are a number health insurance substitutes which include welfare groups, merry-go rounds, fundraising (harambees in Kenya), family and community support and assets. The impact of these substitutes is to reduce demand for health insurance. There is a possibility of low risk aversion among rural communities due to cultural and other beliefs and the tendency to be fatalistic. The high level of out-of-pocket spending in Kenya points to a good potential 67

69 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes to grow risk pooling mechanisms for financing healthcare. However for this potential to be realized the above constraints need to be addressed. According to the AKI uninsured market survey (2008), households particularly in the informal and low income segments would like to have insurance protection for a number of risks and needs they face the leading being hospital bills (others in order- funeral and social costs, Life insurance, education and fire insurance). When asked the importance of various insurance products, health insurance was top, second only to life insurance. The same survey found that for current users of any insurance product they were most willing to buy life and health insurance in that order as the top two products as illustrated in the figure below. Policies current users would buy Fire 3% Pension 5% Mortgage 5% Response Personal accident Education 10% 23% Motor 29% Medical/health 33% Life insurance 36% 0% 20% 40% 60% 80% 100% Frequency Figure 18: Insurance products current users would buy (AKI market survey 2008) Global experience shows that demand for private health insurance continues to thrive even when there is mandatory social or national health insurance since such public schemes do not eliminate the need for out of pocket spending (either due to shallow depth of cover, small height of cover, rationing of services for example in long waiting lists, quality issues and personal preferences). Supply framework For a firm to produce a good or service the firm must have the required resources and technology to produce it, be able to profit from producing it and have a definite plan to produce and sell it (M. Parkin et al 2003). The supply of health insurance products is therefore theoretically determined by: The price of the product The price of the factors of production. The price of related goods. Expected future prices The number of suppliers Technology Some of the supply constraints identified in the assessment include: For many years insurance companies have regarded health insurance as a costly and loss making product that is difficult to manage and control. This is one of the main reasons why only about 14 insurance companies out of 44 supply health insurance products and of the 14 only 5 have significant schemes. Some of the main reasons behind this perception include, adverse selection, moral hazard, provider induced demand, claims fraud, lack of regulation of the quality and cost of healthcare services, lack of health insurance management capacity within insurers, lack of appropriate ICT and poor healthcare purchasing models (hence high administrative costs). These constraints contribute to costly health insurance premiums and 68

70 MARKET ASSESSMENT FINDINGS of private OF prepaid THE ASSESSMENT services 14 lower market penetration. Overarching all these is a weak and fragmented healthcare financing regulatory framework. Rising healthcare costs inevitably impact on the cost of providing health insurance services. The costs of health commodities, drugs and new treatment technologies which are both largely imported into the country have been known to drive up healthcare costs. The WHO World Health Report 2010 estimates that in some countries the prices of medicines are up to 67 times more than the international average price grossly affecting healthcare expenditures. The same can be said of the weakly regulated professional fees. Ironically private or public insurance that is based on a fee-for-service mode of payments to providers also leads to increasing healthcare costs because it incentives providers to oversupply services. Inefficiencies in the healthcare delivery system also drive up costs. It is therefore not enough to just look at the price of health insurance without looking at the cost of healthcare services. Some are of the opinion that the regulatory framework needs to be changed to reduce entry barriers for those wishing to provide health insurance products using innovative models that are different from the traditional health insurance company approach. These new approaches include health provider based plans and micro-insurance. MIPs are able to provide health insurance products at a lower entry cost but must underwrite the same products with formal insurance or reinsurance companies. The above factors restrain growth even when demand exists. It is important to add that market failure occurs frequently in health insurance markets as evidenced by adverse selection by members, risk selection by insurers and MIPs (cream skimming), moral hazard by members in the claim process and provider induced demand. The main cause of the market failure is asymmetry of information between the consumer and the insurer about risk status and health costs. The overall consequence is that the market is not able to efficiently match supply and demand. Regulation is frequently needed to correct market failures Breadth of Cover Population Coverage The current level of population coverage (breadth of cover) by any health insurance scheme was estimated at is about 7.8 million people or about 20% of the total population (Estimates based on data from NHIF, private insurers, MIPs and community based schemes). NHIF had the greatest population coverage at 16.9%, private insurers and MIPs covered 1.8% and CBHF at 1.2%. Details are presented in the table below. Table 14: Estimates of 2010 population coverage of health insurance in Kenya Prepaid scheme provider 2010 estimates from schemes (19.9% covered) % of 2010 population (39 million) covered NHIF 6,600,000 (85%) 16.9% Private Insurance Companies& MIPs 700,000 (9%) 1.8% CBHF 470,000 (6%) 1.2% Total 7,770, % The above estimates exclude individuals covered under employer in-house schemes that are self-insured. It is important to understand these estimates in the context of a significant level of inactive members (up to 30% for some schemes) and with the available depth of cover in mind. A comparison with various other countries looking at level of population coverage and GDP is detailed below. 69

71 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Table 15: Level of population insurance coverage and GDP in selected Sub Sahara African countries from 2006 NHAs Country Insured Population % GDP per capita $ (nominal) Kenya 20% 459 Ghana 40% 306 Rwanda 74% 271 Cameroon 19% 696 Tanzania 16% 354 Zambia 22% 386 Senegal 20% 509 Table 16: Level of population insurance coverage and GDP in selected countries 2008/09 estimates Country Insured Population % GDP per capita $ (nominal) Kenya 20% 763 Ghana 50-70% 655 Philippines 76% 1,745 Rwanda 91% 506 Some of the enablers of high coverage in Rwanda and Ghana include the presence of strong pre-existing community based financing schemes (hence strong solidarity concept), healthcare financing reforms directed at universal coverage (including policy and legal/regulatory reforms, political will mobilization of additional funds from both the public and private sector). The above comparisons imply that Kenya has the capacity to significantly increase its health insurance population coverage subject to contextual factors. Stakeholder interviews estimate that a further 25% of the Kenyan population can afford a prepaid health scheme. This may represent a low hanging fruit for rapid increase in population coverage towards the 50% mark. The KHHEU survey 2003 and 2007 estimated the total health insurance population coverage in Kenya at 9.7% and 10% respectively. The big jump in the 2010 estimates may be due to the KHHEU survey only picking principle members and leaving out dependent children and other factors such as the significant growth in NHIF and private prepaid schemes membership (insurers, MIPs and CBHF), underestimation of CBHF members in previous surveys and possible over-reporting in current estimates. The 2008/09 KDHS gave health insurance coverage figures of 7% for females and 11% for males aged between 15 and49 years. Coverage of children was not mentioned. It is also important to note that there is significant overlap in membership between NHIF, private prepaid schemes and employer self-insured schemes. NHIF cover is mandatory for those in the formal sector who also may purchase voluntary cover from private insurers and MIPs. The same applies to employer in-house schemes whose members are also covered by NHIF and private prepaid schemes. Unfortunately there is no reliable data to quantify the degree of membership overlap between the various prepaid schemes. The fact that there are overlapping members points to unmet customer needs either arising from depth of cover, quality of service and other customer preferences. The table below summarizes the key possibilities of overlapping membership between NHIF and the other prepaid schemes. 70

72 MARKET ASSESSMENT FINDINGS of private OF prepaid THE ASSESSMENT services 14 Table 17: Possibilities of overlapping membership between NHIF and other prepaid schemes Potential membership overlap with NHIF High Approximate number of overlapping members 600,000 (formal sector members) Possible Reason for additional cover NHIF is mandatory. Thin depth of cover in NHIF Contract A & B Private health insurance enables access to large private hospitals with perceived or real higher quality Low N/A NHIF may provide additional and better depth of cover (Contract C) to the limited benefits of CBHF High N/A NHIF is mandatory. Thin depth of cover in NHIF Contract A & B Access to large private hospitals with perceived or real higher quality There is also significant overlap between employer in-house schemes and private health insurance. The likely reasons given by respondents for this include concerns on depth of cover (exclusions), customer service issues and cost of premiums. Membership to any health insurance scheme was related to level of education (43% coverage for those with post-secondary education versus 7% for those with primary education), level of income (31% coverage for those in highest income quintile and 1% for those in lowest quintile) and whether one in the rural (7% coverage) or urban areas (20% coverage). Other factors include age (highest coverage between 15 and 49 years) and marital status (higher coverage among the married) (KHHEUS 2007) and employment status (highest among those employed). Private insurers and MIPs covered about 700,000 lives most of them in formal employment and mainly in urban areas. The growth rate for private insurers in shilling terms was 25% between 2008 and NHIF had about 2.3 million principal members translating into about 6.6 million total lives covered. It had a growth rate of 12% in in shilling terms. Most of these members are also in the formal sector where NHIF cover is mandatory. Over the years, both private insurers and NHIF have focused on the formal sector market segment (which has about 1.9 million employees). However we have seen initiatives from NHIF to reach the informal sector and low income earners with a voluntary health insurance cover which has now reached over 500,000 members. The private sector has also developed low cost private health insurance schemes for the informal sector and low income earners working through micro-finance institutions, cooperative societies and other community based organisations. These micro-insurance schemes also provide other covers such as agriculture, personal accident and life insurance to reduce financial vulnerability of poor households. Examples of such schemes include: CIC Insurance Jamii Afya and other products 30,000 lives British American Insurance with KTDA (KingaYaMkulima) 28,000 lives UAP Insurance with Equity Bank (Equihealth) 2,000 lives. Pioneer Insurance with Faulu Kenya Changamka Medical Savings Card with General Accident Insurance 9,000 lives The estimated total number of lives covered by these initiatives is about 100,000. For both NHIF and private prepaid schemes the informal and low income market segment presents future growth opportunities. Challenges to growing this market are covered in subsequent sections. As mentioned above a further 25% of the Kenyan population can afford prepaid health schemes if appropriate products and services, marketing and distribution 71

73 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes are done. Recently IRA is on record as promoting new and innovative distribution channels for insurance products such as retail shops, supermarkets and service stations. It is important to note at this point that although healthcare financing debate has focused a lot on breadth of cover (population coverage) the depth of cover (scope of benefit package) is equally important if the household burden of financing healthcare is to be reduced and financial protection provided. For a fixed amount of resources, the breadth of cover is inversely proportional to the depth of cover. Expanding population coverage with fixed or limited resources will most likely result into a shallow or thin depth of cover unless additional resources are mobilized and efficiency is emphasized Depth of Cover Range of Benefits While in healthcare financing debate and literature the issue of population coverage has received much attention, the question of what is actually covered has not received as much attention yet it determines the cost of coverage and the acceptability of the cover to the general population. Some countries have adopted the method of first predominantly increasing population coverage and then attempting to increasing depth of cover (examples- Ghana, Rwanda, Chile, Turkey and the State of Andhra Pradesh in India)while a few others have tried to first predominantly increase depth of cover for specific population groups and then extend population coverage (examples South Korea, Taiwan and Thailand). The route to universal coverage is not linear and several strategies predominate over specific periods of time (Catalyzing Change, Rockefeller Foundation 2010). As mentioned earlier, availability of additional resources and achievement of efficiency in the health system have a strong bearing on the balance between breadth and depth of cover. The table below summarises the general range of products currently available from various types of prepaid schemes, looking at the leading providers in each sector. Table 18: Health Insurance: Range of products from various prepaid schemes in Kenya Prepaid Scheme In-patient cover Out-patient cover only In-patient & Outpatient Individual cover Britak Yes No No No Yes APA Yes No Yes Yes Yes Jubilee Yes No Yes Yes Yes UAP Yes No Limited Yes Yes CFC/Heritage Yes No Yes No Yes AAR Yes No Yes Yes Yes RHEA Yes No Yes Yes Yes NHIF Yes No No Yes Yes Jamii Bora Yes No Yes Yes Yes Group Cover There appears to be a preference for providing in-patient cover over combined in-patient and out-patient and group schemes over individual plans. This is based on the risks and costs associated with out-patient schemes and individual plans. There is lack of adequate actuarial information specific to individual and out-patients as well as fear of adverse selection and moral hazards. The industry is unable to fully assess and characterise these risks hence more cautious. Other factors involved include lack of capacity in terms of human resources to turn around the huge load of paperwork, credible provider network and a real-time IT platform to monitor utilisation as it happens. The market has moved in and out of out-patient and individual plans over the years. The individual plans of a number of the private insurers are only recent. MIPs have been in the individual market more consistently. NHIF is planning to start an out-patient scheme. 72

74 MARKET ASSESSMENT FINDINGS of private OF prepaid THE ASSESSMENT services 14 The benefits covered vary widely according to the product type (basic, essential or comprehensive/enhanced cover), target client and insurance provider. Not only does the number and scope of benefits vary but also the attaching financial pay-out limits. Some providers sell customised cover in which the client basically designs the benefits desired and those that suit their budgets. From the product profiles of the various prepaid health schemes providers (private insurance, micro-insurance, MIPs) the following can be summarized about the basket of benefits covered: Some providers offer both in-patient and out-patient cover while a number provide in-patient cover only due to the perceived higher risks and losses from out-patient cover which is more difficult to manage and control. The wider the benefit scope (more healthcare benefits covered and/or higher financial limits) the more expensive the premium contributions. The benefit scope tends to be broader for large corporate schemes (they have a bigger risk pool to absorb more risks and better bargaining power). Individual plans tend to have very restrictive covers with a narrow benefit range. However a few MIPs and insurers are beginning to offer comprehensive cover for individual families. Enhanced or comprehensive cover options basically provide cover for the conditions traditionally excluded under health insurance covers such as chronic conditions, pre-existing conditions, HIV/AIDS, organ transplants, congenital conditions and maternity related conditions. Such enhanced covers tend to be sold more to groups. Where the comprehensive benefits are provided the premium tends to be higher and in some cases the financial pay-out limit of the benefit lowered (what is referred to as a sub-limit). Some prepaid schemes providers provide a wide range of benefits but restrict the service provision to government and mission hospitals where costs are lower. This is common for some CBHF, budget products and micro-insurance. The challenge with this is the restriction of customer choice of health provider. Other schemes allow a wide provider choice but restrict the range of benefits and or financial pay-outs. Employer in-house schemes tend to have a very broad range of benefits that are only restricted by the annual budget for staff medical benefits, the staff category (for segregated schemes) and the economic fortunes of the employer. The advancement of medical technology is leading to more advanced and usually more expensive testing and treatment options which sometime have not been fully assessed for cost effectiveness. Certain advancement have also lead to conditions which used to require hospitalization to be managed as day care which have led to narrowing or some form of convergence of the line between what is in or out patient. Similarly certain conditions that were fatal in the past are now manageable as chronic conditions. This includes many forms of cancers and HIV/AIDS mentioned above and hence the insurers are having to look how such conditions can be better treated in as far as coverage is concern. In comparing various prepaid schemes all the above factors must be put into consideration to have a true and accurate comparison and this makes the comparisons quite complex. A crude comparison of four schemes in the market is indicated in the table below. The comparison looks at the cost of an in-patient cover of about KSh. 500,000 per family per annum for a family of four (one principle member and three dependants). All other variables are kept constant. NHIF has been added although its cover design does not fit neatly into this comparison. 73

75 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Table 19: Comparison of premium rates for a family of four (M + 3) in-patient cover of KSh. 500,000 per family per annum Scheme Group Cover Individual Cover Scheme 1 37,000 57,000 Scheme 2 33,000 N/A Scheme 3 N/A 31,000 Scheme 4 44,000 44,000 NHIF current rates (IP) 360 7, ,680 NHIF proposed new rates (IP &OP) 1,800 48,000 (Mode 7,200) 1,800 48,000 (Mode 7,200) The other key variables to put in mind in the above comparison is the benefit range, financial pay-out limits, height of cover, choice of healthcare providers and other terms and conditions of cover. If the market had a prescribed minimum benefits package (for example in South Africa) then it would be easier and more accurate to compare various providers for price, quality and outcomes. In terms of segmenting health insurance products into low, middle and high income groups (excluding health micro-insurance), the feedback from private insurers and MIPs indicated the following averages for in-patient cover limits and premiums: Low income health insurance cover Average Cover limit KSh. 100,000 to 200,000. Average premium per person per annum KSh. 9,000. Micro-insurance products cost much less for the same cover limits due to either a shallower depth of cover or restriction of the level of service providers that can be accessed. Middle income health insurance cover Average Cover limit KSh. 300,000 to 1,000,000. Average premium per person per annum KSh. 12,000 to 15,000. High income health insurance cover - Average Cover limit above KSh. 1,000,000. Average premium per person per annum KSh. 16,000 and above. Since there are no agreed benchmarks for measuring the depth of cover and its relevance we chose to compare the benefit range of existing schemes against the top ten commonest causes of out-patient and in-patient morbidity in Kenya (unfortunately morbidity data did not include costing of the services). The commonest causes of morbidity were described in detail in section above. Table 20: Benefit range of various prepaid schemes mapped against commonest causes of morbidity Commonest Conditions (Mainly Primary Care) NHIF Comprehensive Cover Private Health Schemes Cover Malaria Yes Yes Respiratory infections Yes Yes Maternal conditions Yes with limitations Yes with limitations Diarrhoeal diseases/worms Yes Yes Anaemia Yes Yes Injuries/Accidents Yes with limitations on surgical treatment Yes HIV/AIDS Yes Yes with limitations Psychiatry Yes Yes with limitations Skin diseases Yes Yes Urinary tract infections Yes Yes Eye infections Yes Yes Rheumatism/Joint pains Yes Yes Most of the above conditions fall under primary care, with most being communicable diseases. Noncommunicable conditions and maternal conditions are also important causes of morbidity. Table 20 below mapped the benefit range of prepaid schemes against emerging chronic non-communicable diseases. 74

76 MARKET ASSESSMENT FINDINGS of private OF prepaid THE ASSESSMENT services 14 Table 21: Benefit range of various prepaid schemes mapped against commonest emerging chronic diseases Common Chronic Conditions NHIF Comprehensive cover Private Health Schemes Cover Diabetes Yes with limitations on surgical treatment Yes with limitations Hypertension and cardiovascular diseases Yes Yes with limitations Cancer Yes with limitations on surgical treatment Yes with limitations Asthma Yes Yes with limitations For simplicity, the above comparison only looked at whether the conditions are covered under the schemes or not but did not compare the other terms and conditions applicable to such cover. The main messages here were as follows: Both NHIF (comprehensive option available in contract A providers) and private prepaid schemes provide cover for the commonest causes of morbidity particularly primary care and communicable diseases. HIV/ AIDS is unique in that though it is a communicable disease, its management is like that of a chronic condition. Cover for HIV/AIDS is now commonly available in the market particularly for group schemes with some limitations in certain cases either on financial pay-out limits or less commonly, the range of complications or opportunistic conditions covered. However cover for chronic conditions, while available, has a number of limitations which include one or more of the following: waiting periods, financial pay-out limits, co-payments, provider restriction, limited treatment options and premium loadings. For some of the more serious and costly chronic conditions such as Cancer, the cover limitations are more pronounced, with a few schemes excluding such conditions. Although, for example, the Mental Health Act (just like the HIV/AIDS Act) mandate health insurance cover, the compliance with these legal requirements is patchy and the Acts leave enough manoeuvring room to limit cover or charge more. NHIF contract A (bed charge only for larger private hospitals) has the thinnest benefit range (a proportion of bed charge only) although this affects more of the higher income groups. With the proposed increase in NHIF premium rates there may be a clamour for more benefits under this contract. The comprehensive benefits under NHIF (contract B and C) are available in all public hospitals and some small private and mission hospitals. Most private hospitals are under the thin benefits of contract A. In order to better the depth of cover for both public and private health insurance there is need to address the following key issues among others: Regulation there is need to agree on a minimum benefit package that each registered scheme must provide over and above other services. Such a benefit should be available in all accredited health providers at the specified rates with room for co-payment where necessary. The challenge of efficient and effective healthcare services purchasing needs to be relooked at. Issues such as standardization and coding of services, provider contracting, and tariff structure negotiation, provider behaviour (supplier induced demand), incentives (which can be addressed through payment modalities) and regulation of quality and costs will need to be relooked at. On the side of insurers the issue of administrative expenses and commissions need review. Future epidemiological projections show that non-communicable diseases such as cancer, cardiovascular diseases and cerebro-vascular disorders will become more important causes of ill health, disability and death (KIPPRA) analysis 2010) in the next 15 years or so. There is need to start planning how the more costly and lifelong treatments of non-communicable diseases will be financed. 75

77 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Height of Cover Co-Payments, Indirect Effect of Financial Limits In-patient coverage Most health insurance schemes provided by private health insurers and MIPs do not have a significant level of co-payment for in-patient services. For the specific in-patient health benefit package and within the overall in-patient financial cover limit, the insurers pay 100% of the direct costs. There is only one provider that has a 10% level of copayment for illness claims for individual members. The height of coverage is therefore generally high (assuming the depth of cover is reasonable and the financial limit is reasonable for the service). However where the overall benefit financial limit or sub-limit (where applicable) is low, members can easily exhaust the limit and have to pay out-of-pocket for any exceeded costs and continuing care. In some in-patient cases members who breach certain scheme rules (such as consulting a non-appointed or accredited provider) are penalized with a co-payment. Most prepaid schemes prescribe financial benefit limits for overall cover or a certain category of services Other aspects used to indirectly limit the height of cover but to a lesser extent in this market include use of treatment guidelines and drug formularies. Financial limits are provided for illness and accident cover but in such cases the accident cover is much higher. The range of exclusions also indirectly affects height of cover since members have to pay for excluded services out of pocket. Out-patient coverage However for out-patient schemes, a number of private insurers, MIPs and employer schemes apply varying forms of co-payment which are often in fixed amounts and ranged from about KSh. 50 to KSh. 200 per visit. Some micro-insurance schemes also have co-payments of up to KSh. 200 per visit. In one case the level of copayment for out-patient services in high cost facilities is KSh. 500 per visit. Most out-patient covers have financial limits per member with or without a co-payment. The financial limits tend to be lower than in-patient and generally the premiums are higher. MIPs that run their own out-patient facilities do not have financial limits for out-patient cover. The rationale of co-payments is to incentivize the insured members to be conscious of costs and use their health benefits entitlements judiciously. In other words it is a tool for reducing moral hazard. There is debate among health economists whether co-payments really work to reduce moral hazard. In some cases they are viewed as additional financial barriers to access for the poor. The main concern with out-patient cover is overutilization by the members especially where no co-payment and the mode of provider remuneration is fee for services hence the incentives for the providers is to over supply services. Indirect costs Except in the case of medical emergencies there are no benefits for the indirect costs of illness or injury such as transport to the healthcare facility and man-hours lost or income forfeited attending health facilities to seek care. In the case of transport only emergency ambulance services are covered under prepaid health schemes and in on some cases during referral. Some employers do provide transport to health facilities. Compensation for man-hours lost or income forfeited seeking care or disability suffered is not provided for under prepaid health schemes (personal accident covers provided by private insurance companies do provide disability cover and are sometimes added as riders on health insurance covers). These indirect costs are often ignored when discussing healthcare financing but for the poor and low income groups they present a significant barrier to accessing healthcare services. They are largely responsible for social health insurance not benefiting the poor as intended as demonstrated by various studies in Latin America and recent studies in Ghana. 76

78 MARKET ASSESSMENT FINDINGS of private OF prepaid THE ASSESSMENT services Financial Advantage to Prepaid Scheme Members Pay-out Ratios and Management Expenses There are several ways to analyse financial benefits to insured members. The commonest is to look at the benefit pay-out ratios (loss ratios) and management expenses. Other ways include the money value of insurance protection purchased by the contributor (whether or not they incur a loss) and reduction in poverty caused by protection from catastrophic health expenses. In this assessment we have used the payout ratios and management expense ratios. This method does not apply to employer schemes which run on annual budgets. Unfortunately the only reliable information on payout ratios is from insurance companies and NHIF who are required to report in particular formats. We do not have aggregated and vetted figures from MIPs (except one that volunteered the information). Globally the acceptable bench mark on what payout ratio that indicates acceptable benefits to members are paid out has been a hot debate. For instance beginning 2011 in the US regulation will require health insurer to report annually the percentage of their premium revenue excluding expenditure for taxes and regulatory fees that is spent on reimbursement for clinical services and activities that improve healthcare quality i.e. medical loss ratio. If the medical loss ratio falls below 80% for small insurer and 85% for large insurer the insurer must rebate to its enrolees the difference between reported medical loss ratio and the target percentage. The global best practices allow for benefit pay out of 70-80%, administration expenses of up to 10% for social health insurance and up to 20% for private insurance. In other countries, the maximum commission payable to insurance intermediaries restricted to is set 3% to reduce costs and increase payout. In Kenya no regulation exists as to the minimum payout ratio for the prepaid market. For private general insurers, IRA requires a management expenses ratio of 20% overall. Payout ratios from NHIF and private prepaid schemes NHF payout ratio has increased from a low of 32% in 2003 to the 2009 level of 55%. This is a significant improvement but it falls way below the global bench mark of 70-80%. There have been notable initiatives in the last few years to improve benefits to members. From AKI reports on medical insurance for 2006 to 2009 the medical benefit payout ranged from 65% to 69% of the gross premium. The payout ratios for one of the MIPs ranged from 46% to 61% between 2006 and CBHF schemes appeared to have to greatest financial benefit to members due to a very high payout ratio (92% to 102% for Jamii Bora from ). The current payout ratios for MIPs and insurance companies are quite close to international benchmarks. Administration expense ratios for private prepaid schemes The administration expense ratio for a prepaid scheme is a measure of efficiency in mobilising and utilisation of resources to ensure more resources are available for paying members health benefits. The administration costs of private insurance ranged from 19% to 22% between 2006 and 2009 (see Figure 18 and 17). The expenses were on an increasing trend from 2006 to 2008 and then went down in 2009 (21%). These expenses are within benchmarks but there is room for improvement. However it is important to add that private insurers also incur a statutory business acquisition cost related to payable commissions to intermediaries. In 2009 the average rate was 14% for MIPs and between 10 to 15% for private insurance companies. The administration expense ratio for one of the large MIPs ranged from 25% to 15% from 2006 to 2009 with a decreasing trend. The MIP had the best administration expense ratio but could do more to increase member benefits payout. 77

79 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes From above trends in payout ratio it is evident that most were below global benchmarks for all major players (except private insurance companies in 2009). A major factor for this is the relatively high administration and business acquisition costs. To improve benefit payout these two areas will need to be addressed. Better payout ratio will contribute to improving public perceptions of NHIF, private insurers and MIPs. Regular publishing of reports on payout ratios and administration expenses in a standardised format will also be needed to make all schemes more transparent and accountable to members. 4.3 Consumer Perception of Prepaid Health Schemes Views were gathered from three categories of clients of prepaid schemes: Members of prepaid schemes, general public and healthcare service providers. The key findings are summarized below General Public/Uninsured Members The recurring views of the members of the public interviewed and those who completed the questionnaire included the following: Lack of awareness of the benefits of risk pooling and knowledge of health insurance products available. They had a poor image of insurance companies and MIPs and expressed little trust due to the collapse of some players in the market a few years ago. They also mentioned cost and relevance of products as an issue. Insurance services were considered complicated and not easy to comprehend. Private health insurance was considered expensive and for the upper income groups. The above views are consistent with the findings of the AKI uninsured market survey (2008) on the uninsured market which listed the top three complaints about all insurance products as costly premiums (44%), complicated/long claims procedures and delays (23%), lack of trust (6%) and declined claims (6%). In terms of barriers to accessing prepaid schemes the findings for private prepaid schemes and NHIF are indicated in the figures below: 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Costs Scope and level of benefits Customer service level Quality of health care provided Availability of information on health insurance plan Figure 19: Perceived barriers to accessing private prepaid schemes No conclusions can be made on the quantitative aspects of these findings due to the low response rate to the questionnaire but the ranking of factors is consistent with other previous national wide surveys. In the case of 78

80 MARKET ASSESSMENT FINDINGS of private OF prepaid THE ASSESSMENT services 14 private prepaid schemes cost was seen as the greatest barrier. In the AKI market survey (2008) cost was the top reason restricting purchase of an insurance product (32%). Most respondents in the AKI survey (which focussed on low income earners and the informal sector) said they preferred a monthly premium of KSh. 500 and below for any insurance product. In the case of NHIF the perceived or real low quality of health services within their network of service providers was seen as the biggest barrier. However most of those surveyed in the AKI market survey (2008) in the informal and low income segments valued the role played by NHIF in meeting in-patient costs. Affordable and simple products are needed to unlock the market for health insurance and extend coverage. There is also a great need for general population education on the benefits risk pooling in providing access to health services and financial protection against catastrophic healthcare expenses. This should be a critical plank in any strategies to extend coverage Prepaid Scheme Members Prepaid schemes members had very similar views to ones above but in addition they complained about: Many exclusions, Complicated and tedious claim processes and delayed payments Complex insurance products and language (small print). However they were pleased with cashless (at the point of use) access to healthcare providers of their choice when in need. Poor complaint handling mechanisms and lack of an appeal system for declined claims. Many employer groups and also individual members find the exclusions under prepaid scheme unattractive and the premium to be rather high. Employers with a national distribution of employees find that some schemes are limited by the availability the scheme and of health services mainly in urban settings. The main causes for discounting insurance cover were the inability to continue paying premiums (64%) and misunderstandings between the member and the insurer on the product details (AKI market survey 2008). The fact that one can access care without having to pay out of pocket is valued by prepaid scheme members. Scheme members also value the relative freedom to select quality health providers. However some members also complained of a restricted network of providers. Restriction of customer choice was frowned on and it leads to limited access especially in rural areas and small towns which are not attractive to quality health providers. The level of customer satisfaction is not always monitored in a comprehensive manner to ensure that the schemes are responsive to their critical needs. Product knowledge is not adequately addressed leading to misunderstandings on expectations. Similarly clear complaints handling processes and procedures that ensure the prepaid scheme fully addresses complaints and redress mechanisms if this is not done are not in place uniformly, as expected in a service industry. The regulatory authority (IRA) does not require prepaid schemes to regularly undertake independent customer satisfaction surveys and share the results with the insured clients Service providers The main issues raised by providers include: Complicated, laborious and inefficient claims settlement systems leading to delayed payments. 79

81 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Rejection of claims due to exclusions and other scheme rules Risk of revenue loss in case a scheme collapses. Most providers were of the opinion that prepaid scheme providers had complicated and inefficient claims processing systems that require laborious paperwork. Low use of ICT was also mentioned as a cause for this. This was more so for private prepaid schemes. NHIF was mentioned as having done a better job in application of ICT for identification of members at provider level but some providers complained about the centralisation of claims payment as a cause for delays. Some providers felt that delay in payment was deliberate to offset cash-flow issues in few schemes. The turnaround time for claims payment was highly variable between various schemes and also within the same scheme for different providers. Some providers mentioned turnaround times of 14 to 30 days for the best performers and 90 days for the poor performers in the case of private prepaid schemes. For NHIF, most providers mentioned 14 to 30 days but a few had delayed payments of up to 90 days. It appears that bigger hospitals are able to push for faster payments compared to smaller ones upcountry leading to variability of service standards within the same scheme. The providers also feel the product knowledge by the scheme members is a challenge and this may expose them to provision of services that are not covered by the schemes. Similarly the wide range of products (and their complexity) that providers have to deal with (for various prepaid schemes) causes confusion, increased administration cost and may lead to loss of revenue. Some healthcare providers are worried by the credit risk exposure due to past experience of the winding up of a number of HMOs (now MIPs) in which many private providers lost revenue for services they had already delivered. We noted that large private for profit providers are more dependent on private prepaid schemes with some reporting excess of 70% of the regular income as originating from the same and employer groups. Such providers have set up infrastructure necessary to serve prepaid scheme clients better especially with out-patient claims which tend to be large in volume but small in value. Smaller for-profit and not-for-profit hospitals and some public hospitals are more dependent on NHIF for revenue and less on private prepaid schemes. Table 21 below has further details. Table 22: Summary of self reported hospital financing sources Hospital/Facility Location % of revenue from NHIF % of revenue from private prepaid schemes Litein Hospital Litein 75% 2% St. Leonards Kericho 90% 10% Tenwek Tenwek 22% 25% Mt. Longonot Medical Services Naivasha 70% 30% Polyclinic Hospital Naivasha 10% 50% Gertrudes Nairobi n/p 60% Nairobi Hospital Nairobi n/p 75% Avenue Hospital Nairobi 20% 55% Nairobi Women Hospital Nairobi 15% 40% Muranga District Hospital Muranga 31% n/p Outspan hospital Nyeri 50% 20% PCEA Tumutumu Hospital Nyeri 50% 30% Embu Provincial General Hospital Embu 48% n/p Joykim Provincial hospital Embu n/p n/p Mbagathi Hospital Nairobi 20% n/p 80

82 MARKET ASSESSMENT FINDINGS of private OF prepaid THE ASSESSMENT services 14 Out of pocket spending was still significant in medium sized hospitals such as Tenwek (over 70%) in a rural setting and Nairobi Women s Hospital (over 60%) and Gertrude s (40%) in Nairobi. 4.4 Constraints for Strategic Growth and Effective Reach of Private Prepaid Schemes In the course of the assessment several constraints for the growth of the prepaid health schemes were highlighted by stakeholders with specific emphasis to increasing coverage to underserved groups. A summary of the constraints is highlighted below: The policy, regulatory and legal frame work needs to be specifically addressed to promote the structured growth and development of this sector. The unique and cross cutting nature of health financing and health services provision need to be addressed to ensure access and equity among other considerations. This will require a thorough review of the policy, regulatory and legal framework to ensure more resources are mobilised through prepaid schemes and used efficiently to improve public health. The envisaged regulatory framework should recognise and guide the growth of the various forms and types of risk pooling mechanisms including community based schemes, employer self-funded schemes, provider based schemes, conventional private health insurance schemes, micro-insurance and social health insurance. As a very specialised area which also cuts across several sectors (financial, social and health), there is need for a separate and specific regulator for the sector to coordinate and unify the various aspects of healthcare financing and ensure the necessary technical and management competencies are developed to support long term and sustainable growth of this sector. The proposed Health Benefits Regulatory Authority can be a good start. The regulator will need to look at not just risk pooling issues but also purchasing of health services and possibly accreditation of providers for the minimum benefit package. Currently the structure of the sector is such that in most insurance companies, health insurance is not fully developed as a specialised business line that needs adequate capital and specialised skills for effective management and growth. It is seen as one of the many general or life insurance products on offer and, until this year, was not recognised under the insurance Act as separate class of insurance. Further development of health insurance regulation will need to promote the development of specific and robust vehicles to provide health insurance products and services within the overall national healthcare financing policy framework and clearly define the various types of health insurance models. Technical and management capacity for running prepaid health schemes is still minimal and need to be developed to put the sector on the right growth path. This includes the use of appropriate ICT platform for product distribution, premium collections, customer and provider interface and back office administration. Incentives for consumers in the formal and informal sector and individuals, such as tax benefits (deductible for the amount spent on procuring prepaid schemes) are not adequate and are also not well understood in the market. There are no clear incentives for prepaid schemes to developing micro insurance products to reach the underserved groups and complement government efforts to increase coverage. The other relevant supply side and demand side constraints are detailed in section

83 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Key highlights from the Market Assessment The health financing and health insurance policy legal and regulatory framework is fragmented and has significant gaps. Only a small proportion of funds spent on healthcare services are under risk pooling mechanisms. Cost of premiums is the largest barrier to access followed by lack of information and poor image of insurance companies. Private Prepaid schemes contribute the largest portion of risk pooling funds but only cover a small proportion of the population mainly in the formal sector. In the formal sector, private prepaid schemes play a supplementary and complementary role but in the informal sector they also play a substitutive role Private insurance contribution is growing fast at over 20% except 2007/08 but the pools are small and highly fragmented hence providing suboptimal risk pooling. Private insurance schemes have a achieved a reasonably high payout ratio and a good administrative expense ratio comparable to developed markets. However there are several opportunities for increasing efficiency. Health micro-insurance is an example of current innovations to reach the lower income earners/ informal sector. Employer in-house schemes are contributing significantly to healthcare financing but are not well documented. The potential market for private prepaid scheme is large. Appropriate products and services and a supportive regulatory framework are needed to reach the market. Increasing insurance coverage to the rest of the uninsured population quickly will require leveraging all the existing prepaid schemes public and private- based on their competitive advantage. 82

84 MARKET ASSESSMENT of private prepaid services 1 5 Recommendations 83

85 84 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes

86 MARKET ASSESSMENT of private prepaid services Recommendations In order for the private health insurance sector to cover more people, particularly in the informal sector, low income earners and the poor and in order for the schemes to provide better services, the constraints discussed in this report need to be addressed innovatively. This has to be done within the context of improving the whole health system in the country and specifically within the planned healthcare financing reforms. Details of some of the specific changes required have been discussed in the previous sections. In this section, the report summarises the key emerging recommendations beginning with two general and broad systems recommendations (5.1 to 5.2) and then moving on to selected specific recommendations for private prepaid health schemes (5.3). Section 5.4 deals with the possible future roles of private prepaid schemes in achieving national health goals - mainly universal health coverage. A tabulated summary of the main findings and recommendations is detailed in Appendix Strengthening the Policy, Legal and Regulatory Framework Healthcare Financing Policy The ministries of health working with all stakeholders and other relevant ministries need to conclude the process of developing a guiding policy on healthcare financing in the country. Most of the work has been done and what is required is final adoption of any remaining agreed changes, political ownership, approval and launch of the policy. Most of the other proposed reforms in the healthcare financing hinge on the policy direction that will be given. Ad-hoc and uncoordinated changes are unlikely to achieve the overall goals of universal access to healthcare services. Among other things, the policy should lay the ground for the development of a new regulatory and legal framework and define clearly the roles of public and private risk pooling mechanisms in the context of the new constitution. Currently, not all key stakeholders are clear what the government means by healthcare financing reforms in the absence of an approved healthcare financing policy. The draft policy has some gaps and grey areas and this assessment is a contribution to filling in those gaps and providing additional information to clarify grey areas Healthcare Financing Regulatory Framework The need for a new regulatory and legal framework has been discussed in the report. There is need to urgently develop a comprehensive health insurance law to guide the development of various forms of risk pooling mechanisms such as Social Health Insurance, Private Health Insurance (including microinsurance) and community based healthcare financing schemes. The law can be one single Act with various chapters on the different forms of prepaid schemes. The legal framework also needs to cater for in-house employer schemes which are currently not regulated from a healthcare financing point of view. The overall goal of the new legal framework should be to extend population coverage towards the achievement of universal coverage. The law should support the policy decisions made on the roles of the various players in healthcare financing. The legal framework should also foster the development of an equitable, efficient and sustainable healthcare financing system. The legal framework will have to extend to issues of defining a minimum benefit package (without being to prescriptive and restrictive) and also look into the issues around the purchasing of 85

87 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes healthcare services within the prescribed minimum benefits. Overall, it should promote the development of strong institutions and protect consumer interest. In order to implement the new legal framework for healthcare financing and coordinate the sector players, a new regulator (or a division within existing regulators) will most likely be required. As mentioned earlier, Kenya currently has a fragmented and uncoordinated regulatory framework of prepaid schemes and there is no overall policy or strategic direction that the schemes are working towards. The proposed formation of the Health Benefits Regulatory Authority should be seriously considered as a key step towards achieving the new regulatory framework. A decision needs to be taken on where such a regulator will sit within the government structure. Alternatively and in the interim, a new division can be created within IRA to serve the same purpose with plans to upgrade it in future into a fully-fledged regulator of all types of health insurance schemes (or into a broader health regulatory authority). 5.2 Extending Health Insurance Coverage in Kenya The other key general recommendation is that there is an urgent need to harness existing and new resources towards increasing the level of health insurance population coverage. All stakeholders are agreed that there is a great need to extend insurance coverage in Kenya as one of the key strategies towards achieving universal access to healthcare services. The challenge has been selecting an agreed and workable model for achieving this in Kenya in light of the current social-economic and political context. Several models have been debated in the past each with its own advantages and disadvantages. The draft healthcare financing policy, which is currently contentious and not yet approved, proposed a mixed financing model under the overall concept of social health protection. The model proposed in the draft healthcare financing policy and the proposed implementation framework (Appendix 9) are a good starting point for the debate on which model the country should adopt to extend population coverage. Whatever final model is chosen it will need to pass the tests of feasibility, equity, efficiency and sustainability (see section 2.2.1). In addition the government and other stakeholders will be required to increase the financial resources available to health to at least achieve one of the global benchmarks such as the WHO target of $54 per capita spending on health for the achievement of MDG s. Bold decisions will be required to address the wastages, leakages and other inefficiencies in the healthcare system. Once the universal coverage strategy is agreed and implemented Kenya has the opportunity and capacity to cover another 25% of the population rapidly (mainly in the informal sector which presents a low hanging fruit for coverage) while at the same time tackling the more difficult issue of how to cover the poor and indigent. It will be important to remember that social health insurance is not always an effective mechanism for facilitating universal healthcare coverage for the very poor and indigent. Other options such as direct tax financing of primary healthcare services also need to be considered. The possible roles of private prepaid schemes in extending coverage (both breadth and depth) are expounded in this report section 5.4 below. 5.3 Facilitating strategic growth and reach of private prepaid health schemes The constraints facing private prepaid schemes (mainly health insurers, MIPs and CBHF) have already been dealt with in detail in sections and 4.4 above. The following section provides a summary of recommendations on how some of these constraints can be dealt with to allow these schemes to better serve their existing clients, extend coverage to the underserved and play their role more effectively in the country s health system. 86

88 MARKET ASSESSMENT of private RECOMMENDATIONS prepaid services Improving Efficiency Of Private Prepaid Schemes Private prepaid schemes can significantly improve their efficiency by adopting the following strategies: Formation of larger risk pools The private prepaid schemes market is made up of many small fragmented pools (the largest single pool among insurers and MIPs has less than 150,000 members). Such pools have limited risk pooling capacity and sub-optimal cross subsidies. In addition they have less bargaining power with providers and suffer diseconomies of scale. There is therefore need to find ways of consolidation the pools into larger ones to achieve risk pooling efficiency. This is particularly important if the private prepaid schemes would like to participate in providing public or social health insurance services. Private insurers have done this before when they created the now defunct motor risk poll in trying to deal with the challenges of motor insurance. The lessons learnt in this precedent can be used in for example designing a successful industry-wide private health insurance risk pool. Alternatively regulation of private health insurance can require a certain minimum risk pool size for licensing and this would lead to consolidation of pools. Prepaid schemes may also create a special purpose vehicle to manage a bigger risk pool (such as happens in facultative insurance or motor insurance pool). Structure of health insurance business - Now that the Insurance Act was amended in 2010 to recognise health insurance as an insurance class of its own, this is an opportunity to consider whether health insurance, just like life insurance, should be managed by separate units or companies from general insurance. This change in the way the health insurance business is structured can also be used to achieve some of the efficiency strategies mentioned above. Health insurance requires adequate resources and focus to manage effectively just like life insurance (except for the need of long-term investments). Efficient premium collection - Private prepaid schemes have made strides in innovating flexible and more efficient premium collections such as use of mobile money transfer. However, they suffer a statutory business acquisition cost in the form of commissions paid to insurance intermediaries. The question that should be tackled is whether health insurance and the healthcare financing system in general can afford the current commission rates (15% to 20%) or should go the way of countries such as South Africa that have legislated lower commission rates. Healthcare purchasing review All agree that the purchasing process of healthcare services for both public and private prepaid schemes needs review to achieve better efficiencies and outcomes. Private prepaid schemes need to negotiate robust contracts with providers that include quality measures and customer satisfaction measures in addition to tariff structures. AKI launched a standardised service contract with the Kenya association of hospitals in 2007 but its enforcement has been patchy and it now needs review. There is a need to gradually move away from fee-for-service model of provider reimbursement particularly for out-patient services into more appropriate models such as fixed reimbursements, capitation and DRG s where applicable. For example, Thailand uses capitation for out-patient services and DRG s for in-patient. A national coding system for diagnosis (such as ICD 10), procedures and drugs is also urgently needed to improve efficiency and transparency. Coding will also facilitate better deployment of automated ICT administration systems. Technical and management capacity development and deployment of ICT The level of skills and expertise in the design and management of health insurance schemes in the market is limited and there is need for the private sector to invest in developing the same locally and overseas. Deployment of appropriate front office and back office ICT is also critical to improve efficiency and reduce administration costs. A number of prepaid schemes admit that limited administration capacity is one of the major constraints to expanding coverage. Achievement of efficiency is critical for enabling private prepaid schemes to develop low cost products for the informal sector and the low income earners (micro-insurance). This is critical since most clients in these segments mentioned cost of health insurance premiums as the biggest barrier to accessing cover. The low cost 87

89 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes products can focus their benefits on the main causes of morbidity and tap into development partner funds to facilitate initial uptake. In other words efficiency is critical to expanding coverage Improving Depth, Height and Financial Benefits of Prepaid Health Schemes In order to improve the overall benefits accrued to insured members the following will be necessary. Regulatory reform as mentioned above. Regulation in this case should: - Define the prescribed minimum benefits package - Mandate certain ratios for administration expenses and payout ratios. In some countries healthcare financing law requires a high payout ratio (up to 80%) for certain forms of health insurance. Adopt efficiency measures described in section above Consumer empowerment There is an urgent need to promote the development of health insurance consumer charters and mechanisms for their enforcement. Industry associations and regulators can play a key role here. Regular consumer surveys need to be mainstreamed into regulatory activities. However consumers need to be better organized (strong consumer organisations) and educated on their rights and responsibilities, how to bargain for better terms and how to seek redress. Tax incentives for consumers - Currently consumers purchasing private prepaid schemes (from private insurers and MIPs) have some tax deductible benefit but only few are aware about it. There is need to create awareness on this benefit, expand it further and extend it to all other prepaid schemes including employer in-house schemes and NHIF contributions Improving Awareness and Consumer Perception of Prepaid Health Schemes Private prepaid schemes, in addition to improving their services have to invest in consumer education and awareness creation to achieve the following: Foster knowledge and understanding of risk pooling/insurance concepts in health as a key risk management tool at household and community level. Improve image of prepaid scheme providers and build trust. Ensure there is common understanding of expectations (there is no health insurance mechanism, public or private that takes care of all possible health needs). Collect information on consumer needs. Foster prudent and proper utilization of health insurance benefits. In keeping with good and ethical business practice and in line with the new constitution, consumer protection needs urgent attention. The interests of prepaid schemes consumers need adequate protection under the revised legal and regulatory framework and also in the business operations of prepaid schemes. Some of the key aspects of consumer protection that need to be developed include: Ensuring consumers have adequate information to purchase prepaid schemes products and services. Marketing and information disclosure standards will need to be developed to ensure informed consumer choice. Ensuring consumers obtain value for money for the products purchased. It is important to come up with some form of prescribed minimum benefits (PMB) that each product must have before being allowed into the market. However the setting of the PMB must take into account prevailing morbidity picture, costs of healthcare and affordability of products. Grievance handling structure and procedure. There should be a well-known and easy to use complaints system for consumers who are dissatisfied with products or levels of service. 88

90 MARKET ASSESSMENT of private RECOMMENDATIONS prepaid services Future role of private prepaid health schemes in contributing to the achievement of national healthcare financing goals The existing private sector health financing capacity can play a bigger role in assisting the government achieve its healthcare financing goals. However any expanded future role of private prepaid schemes is predicated on the improvements recommended in section 5.3 above. The main possible roles that these prepaid schemes could play in the current and future healthcare financing reforms, are detailed below. The actual roles that the private prepaid schemes will play depend on the model chosen for extending health insurance coverage in the country. It is important to note that the private sector involved in healthcare financing will need clear direction and signals from the government so that it can play its role effectively as an important stakeholder. Participation in policy formulation & sector development At the level of policy formulation in health sector reforms, providers of private prepaid health schemes (insurers, MIPs, employer groups and community organisations), as an important stakeholder, can play a bigger role in assisting the government to develop innovative policies and efficient solutions to strengthen the health system in Kenya and specifically to improve financial access to healthcare and efficient use of resources. Private prepaid schemes can share best practices and experiences with the government and NHIF to assist in achieving universal coverage. For example CBHF schemes have lessons and networks that can be used by NHIF and the other private prepaid schemes in reaching the informal sector and low income earners. Prepaid schemes are also play a critical role in facilitating investments in high quality healthcare services by promoting demand side financing. Investments in healthcare facilities are not only critical as part of social services but in also contribute to economic growth and poverty alleviation. The spirit of the public private partnerships in health espoused in several Government policies including Vision 2030 needs to be more evident in this area. Provision of mandated health insurance (substitutive role) Depending on the national model of healthcare financing chosen, the existing private prepaid schemes can form larger risk pool/s that can be used as one of a few vehicles for providing mandated health insurance (such as national or social health insurance). They can play this role in the whole market or segments of the same (for example the informal sector or indigents under government funding). In playing such a role the private pools will provide choice and a degree of managed competition to other pools and this is likely to enhance quality, responsiveness and efficiency. However these benefits will need to be weighed against potential risk pooling inefficiencies that may arise by having more than one large mandated pool. The other way of allowing private schemes to play a role in mandated health insurance cover is to allow an optout option for private schemes that meet certain preset criteria and imposing a specific and significant premium tax on such schemes to support the public social health insurance pool. As mentioned above, the draft healthcare financing policy envisaged that by year three of the healthcare financing reforms, private prepaid schemes that meet set regulatory requirements will be allowed to offer the prescribed minimum benefits package. It is very likely that in Kenya s mixed financing system choice and solidarity are both very important notions for stake holders and both need to be taken care of in developing models. Internationally, Rwanda has three pools (civil servants pool, military pool and community pool) and has achieved near universal coverage. Ghana has one large pool but purchasing is done through several district mutual schemes. Chile has two pools, one public (FONASA) and the other private insurers (ISAPREs) that both provide mandatory health insurance in competition and are required to provide a minimum prescribed 89

91 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes benefit package. India is using private insurers to provide cover for indigents using public funding (RSBY scheme). For private pools to play this substitutive role then the changes discussed in section 5.3 above will be essential. Provision of supplementary and complementary health insurance Private prepaid schemes are already providing supplementary and complementary health insurance cover in Kenya to those already covered by NHIF, employer and other financing mechanisms. Supplementary cover means that the private schemes cover the same benefits as public and employer in-house schemes but provide deeper depth of cover or higher height of cover or better quality, or access to better health facilities or have less waiting lists for services (Mossialos et al 2004). Complementary cover means that private prepaid schemes provide cover for benefits not covered or partially covered by other state or employer schemes including issues of deductibles, co-insurance or copayments. For example in France private prepaid schemes have developed to cater for co-payments under their national health insurance scheme. Private prepaid schemes will continue to provide supplementary and complementary cover regardless of the model chosen for extending national health insurance coverage. However the degree to which they will continue to do this and in which markets will depend on the nature of public insurance to be developed and how well it meets consumer needs. As mentioned earlier increasing breadth of cover with limited resources inevitably leads to some trade-offs in depth of cover. The private prepaid schemes will play a key role in filling this cover gap. Outsourcing of health insurance services to the private prepaid schemes The existing infrastructure, skills and competencies developed by private prepaid schemes for back office scheme administration and marketing and distribution of products can be leveraged by the public sector to deliver services to targeted markets. For example private insurers in the past have partnered with NHIF to market NHI s health insurance cover in addition to other insurance classes needed by low income earners. This model can be expanded where appropriate and needed. Private prepaid schemes can also be used to purchase benefits for certain market segments. Micro-insurance and community CBHF play an important role of introducing risk pooling concepts to the underserved populations and prime them for future progression to formal health insurance cover whether public of private. Summary Private prepaid schemes can play one or more of the above roles in promoting national healthcare financing gals but this will largely depend on the model of healthcare financing that is chosen. The key question is whether private prepaid schemes should have a role to play in provision of mandated health insurance as one of the pools aimed at achieving universal coverage. This decision will first require a consultative political process. Possible Future Roles of the Private Prepaid Schemes Stakeholder in policy formulation process Promoting investments in the health system Provision of mandated insurance for informal sector and indigents. Provision of complementary and supplementary health insurance Provision of support and administration services to public insurance Marketing and distribution of public insurance products. 90

92 MARKET ASSESSMENT of private prepaid services 1 6 Conclusions 91

93 92 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes

94 MARKET ASSESSMENT of private prepaid services Conclusions 6.1 Recognition of the Mixed Model of Healthcare Financing in Kenya The country needs to move urgently towards universal access to healthcare services and provision of universal health insurance cover is one of the key enablers of this goal. Kenya already has a mixed healthcare financing system with fragmented and inadequate regulation and several inefficiencies. This is in the backdrop of a weak health system. In order to move towards universal health coverage the government needs to continue working with all stakeholders. Existing systems provide a good basis for healthcare financing reforms. Careful stakeholder mapping and continual engagement and communication is critical to achieve buy-in and support for the reforms. 6.2 Leveraging the competitive Advantages of Prepaid Health Schemes NHIF has a much wider breadth of cover, very good national reach, a wide network of accredited providers, a relatively effective and efficient premium collection mechanism and good experience in provider accreditation and contracting. It has some innovative front office ICT systems. Private prepaid schemes on the other hand have a much higher depth of cover, wider consumer choice of providers, innovation, marketing/distribution systems and skills and some robust back office ICT systems. It also controls the bigger share of health insurance funds. These strengths need to be leveraged to increase insurance coverage and efficiency in the country as detailed in the future options in the sister report. 6.3 Role of Socio-economic Development There is a strong link between the level of household income and health status. Both potentiate each other. Hence emphasis must also be put to improving household incomes and reducing poverty since such social economic development has a dramatic impact on health status and also creates better national capacity for raising funds for risk pooling. 6.4 Priorities for Change Healthcare financing reforms to achieve universal health coverage will require many changes and additional human, institutional and financial resources. It follows therefore that the process of change must be staged according to agreed priorities. The following are key broad priorities to consider in order of importance. The first four initiatives can happen concurrently. Conclusion of the political process of consensus building on future options. Policy, legal and regulatory review in healthcare financing and insurance Institutional reforms (regulatory bodies, structure and capacity of prepaid schemes) and critical health systems strengthening activities (supply side strengthening). Extending health insurance coverage Improving efficiency of healthcare financing and provision Deepening health insurance benefits. The stewardship role of the government over the health sector in this reform process is a critical success factor. 93

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96 MARKET ASSESSMENT of private prepaid services 1 Appendices 7 Appendices 95

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98 MARKET ASSESSMENT of private prepaid services 17 Appendix 1: List of References 1. AKI (2008), Understanding the uninsured market survey report. 2. A.S. Preker et al (2010), Global market place for private health insurance, strength in numbers, World Bank. 3. C. Mbengue (2011), Revitalising community based health insurance in Africa towards universal coverage, Global Health Council presentation. Abt Associates health Systems 20/ D. McIntyre (2007), Learning from experience: Healthcare financing in low and middle income countries, Global forum for health research. 5. Drouin et al (2008), Healthcare costs : A market based view, The McKinsey quarterly. 6. E. Mossialos et al (2004), Voluntary health insurance in the European Union. WHO 7. J. Barnes et al (2009), Kenya Private Health Sector Assessment report, PSP one Project, Abt Associates. 8. KIPPRA (2010), Comprehensive and critical analysis of the health situation , Kenya health policy framework review. 9. Kenya national bureau of statistics (2010), 2009 Census Report 10. KNBS (2010), Economic Survey KNBS and ICF Macro (2010), Kenya demographic and health survey KNBS (2007), Kenya Household Integrated Budget Survey 2005/ L. Hatt (2010), Health financing in Africa: Can we fill the gaps? Presentation to the first global symposium on health systems research, Montreux Abt Associates, Health systems 20/ MOH (2009), HMIS report MOH (2008), Facts and figures MOH (2009), National Health Accounts 2005/ MOH (2005), National health sector strategic plan II, MOMS/MOPHS (2009), Kenya household health expenditure & utilisation survey report M. Parkin et al (2003), Economics, 5th Edition, Pearson Education Ltd. 20. WHO (2006), The world health report: Confronting the health worker crisis. 21. T. Marek et al (2005), Trends and opportunities in public-private partnerships to improve health service delivery in Africa. Africa region human development working paper series, HSO World bank. 22. WHO (2006), Private health insurance in sub-saharan African countries WHO (2010), World economic outlook database 24. WHO (2010), The world health report: health systems financing: the path to universal coverage 25. World Bank (2008), Good practices in health financing: Lessons from reforms in low and medium income countries 26. Rockefeller Foundation (2010), Catalysing Change, System reform costs for universal health coverage 2010 report 27. S. Gupta et al (2001), Public spending on healthcare and the poor, IMF working paper no. WP/01/127, IMF. 28. Skehri&Savedoff (2005), Private health insurance: Implications for developing countries. Bulletin of WHO 83 (2). 29. UNDP (United Nations Development Program) (2008), World development report. 97

99 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Appendix 2: Scope of Work Background/Purpose of Assignment The Kenya Ministry of Medical Services (MoMS) and the National Hospital Insurance Fund (NHIF) have requested support from The International Finance Corporation (IFC) of the World Bank Group to: i) conduct a Strategic Review of the operations of the NHIF with a view to improving the efficiency and reach of the NHIF; and ii) assess Kenya s prepaid health schemes including private health insurance/health Maintenance Organisations (HMOs) in Kenya and determine their scope and probable roll in the ongoing health financing reforms. The NHIF Strategic Review will be conducted in the context of the following key issues facing health financing in Kenya: i) inequitable access to healthcare by the Kenyan populace; ii) deteriorating public health; iii) inefficient use of public and private health services; iv) shortage of human resources, and v) underfunded public health facilities. The private health insurance/hmo assessment is to provide a basis for strategic growth of the sector and to determine the best way to structure the sector to support the broader financing of healthcare in Kenya. This project is jointly funded by MoMS/NHIF and IFC and is being managed by IFC. As such, IFC is seeking qualified consulting firms to submit a proposal to carry out the Strategic Review of the NHIF and the market assessment of prepaid health schemes. The NHIF is a State corporation with the mandate to finance medical expenses for all the population in Kenya that can raise or afford the NHIF premiums. Currently NHIF has a formal sector membership of 1.8 million and informal sector members of about 430,000 making it the single largest financier of health services in Kenya. NHIF facilitates members access to quality health services by working closely with public and private healthcare facilities nationwide. Currently about 500 hospitals and health providers offering general, specialist and emergency healthcare services are accredited by NHIF. The activities of NHIF are governed by the NHIF Act No 9 of 1998 and directly by MoMS. The vision is for the NHIF to provide Kenyans with effective access to affordable healthcare services of adequate quality and financial protection in case of sickness. Specific objectives of this Project In line with the proposed health financing reforms (see annex attached) and national health strategies, MoMS/ NHIF and IFC seek to contract a consulting firm to do the following: 1. Conduct a Strategic Review of the NHIF in Kenya to develop recommendations on the following: Any institutional changes and improvements required of the NHIF to fulfil its mandate under the proposed health financing reforms and to increase access and depth of healthcare to all Kenyans; Improving the efficiency of operational management of NHIF; Mobilizing additional funds to enable NHIF expand its reach and covered services as well as a suitable investment plan for cash flow. 2. Assess the scope of other prepaid health schemes in Kenya in order to inform the ongoing discussions on the health financing reforms to support Kenya s health goals. 98

100 MARKET ASSESSMENT of private prepaid APPENDICES services 17 Identify the overall market coverage by these schemes and estimate the size, and perception of the population regarding access to prepaid health coverage. Outputs The consultant is expected to produce three separate reports; i) the NHIF Strategic Review; ii) an external version of the Strategic Review for Stakeholder consumption; and iii) A report on the market assessment of prepaid health schemes. The consultants should further ensure that strict confidentiality is maintained as regards the internal findings of NHIF. Project Governance The overall project is being undertaken for MOMS/NHIF and is being managed by IFC. To maximize the chances of a smooth implementation of the consultant s recommendations, a high level of key stakeholder buy-in is expected. As such, the consultants should develop the recommendations and reports in conjunction with all key stakeholders. The main work stream of this assignment, the NHIF Strategic Review, will be governed by a committee comprising representatives of MOMS/NHIF and IFC/World Bank. The consultant is expected to work closely with the management and leadership of NHIF throughout the project to ensure that internal options and ideas for the assignment are fully explored and taken on board as necessary. In this regard, an initial level of buy-in of the various NHIF recommendations by the consultants, are expected at draft discussion stage. Scope of Work The work to be undertaken by the consultant is outlined below: 1. Strategic Review of NHIF: i) Based on applicable best practice models globally, as well as the proposed national health financing reforms in Kenya; review the adequacy of the mandate for the NHIF, and work with NHIF to develop a revised mandate for the institution. If applicable, recommend revised provisions of the NHIF Act to enable the NHIF pursue its revised mandate; ii) Conduct a Gap Analysis of NHIF s capacity and potential with regard to: i) Its current mandate and capacities; and ii) the revised mandate as developed. This analysis should consider all aspects of the NHIF including but not limited to: roles and responsibilities of staff, appropriate skill matching, policies and procedures, governance, management, IT and MIS, as well as all financial considerations relating to receiving, disbursing, investing, risk management and controls; iii) Benchmark NHIF s efficiencies against other similar organisations; iv) Review the NHIF accreditation process and criteria for effectiveness and consistency with the national accreditation process for health entities in the country; v) Review the systems of cash collection and payments for benefits as well as current and previous applications of surplus and accumulated funds; vi) Review and recommend sustainable investment procedures and guidelines for cash flow, investigate the structure of current revenue streams and explore other sustainable revenue streams that will enable the NHIF expand and sustain its reach; firstly to the formal and informal sectors; and secondly to indigents; vii) Determine the role, if any, that the NHIF can play in serving the additional needs of indigents with its current income base and indicate any gaps; viii) Assess the cost of strategic and organisational reorientation and change; ix) Develop costs for capacity development and change management strategy and plan for NHIF (policy, organisation, staff) to be prepared for its future mandate and roles including a core strategy for internal and external change communication; 99

101 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes x) Develop recommendations on: i) how to bridge the gaps identified in the Gap Analysis and to achieve the revised mandate; ii) improve operational efficiency; iii) improve the accreditation process; iv) improve cash and investment management; v) increase resources; vi) improve coverage; and vii) the costs of effecting recommended changes. As a short term priority within this project, the consultants should identify key budget implications, if any, for the NHIF due to this Strategic Review to enable these implications to be included in the budget planning cycle prior to the next fiscal year starting July 1, Market Assessment report of Prepaid health schemes i) Conduct a review of all relevant previous work commissioned by the Government of Kenya, Donor groups or others, and distil the recommendations of these reports and assess their relevance to this project; ii) Conduct a supply and demand analysis on the current private health insurance providers and their client needs including the needs of other demographics in the population who could afford such services; iii) Determine the level of coverage by population count and value of healthcare served by private health insurance compared to national numbers on same, identify overlapping subscribers; iv) Determine the depth of coverage: i.e. the range, cost and list of healthcare activities covered by private health insurers, segmented into high income, middle income and low income users needs; v) Determine the height of coverage: i.e. the proportion of actual expenses borne by the private insurance firms compared to the subscribers portion for the list of healthcare activities covered by private health insurers; vi) Determine the general financial advantage obtained by firms/individuals in enrolling on any of these prepaid health schemes; vii) Identify and review any policy, regulatory or other government institutional activity that is relevant to the operations of private health insurers; and viii) Recommendations on all of the above. Stakeholder Engagement The objective of the validation workshop is to bring the key stakeholders: Ministry of Medical Services, Ministry of Public Health and Sanitation, NGOs and Donors in the health sector, the private health sector; and other relevant players of the health sector together to verify the top line recommendations of: i) the draft NHIF Strategic Review; and ii) the assessment of the prepaid health schemes all in line with the National Health financing reforms. The validation workshop will be based on an external version of the final draft as approved by MOMS/NHIF and IFC as detailed below: The consulting firm will work with NHIF, MOMS, the IFC/World Bank and the leadership of the prepaid schemes to: Determine the type and extent of participation in the workshop and propose a list of participants for review; Arrange and pay for all of the logistics including; invitations, identifying suitable conference facilities, workshop facilitation, recording and reportage, as well as the provision of all related catering services; Design the content and workshop presentation based on the Strategic review recommendations and outputs, with; Design the separate content and workshop presentation on the assessment of the private, prepaid health schemes, including recommendations and other outputs. Act as the workshop facilitator, delivering with techniques that encourage the maximum involvement of all participants to enrich the findings and prepare a summary report of the workshop proceedings/major issues for the NHIF Strategic review and on the prepaid health schemes. 100

102 MARKET ASSESSMENT of private prepaid APPENDICES services 17 Deliverables / Specific Outputs Expected from Consultant Strategic Review and Private Health Insurance, HMO Assessment Kick off meeting with NHIF/MOMS/IFCWB. Kick off meeting with MOMS/IFCWB/KEPSA. Timing (by end of week) 1 week after contract signing 1 week after contract signing Discuss and sign off work plans of the two workstreams and the overall work schedule End of week 2 Mid project report, operational consultations, validation of preliminary findings, NHIF budget End of Week 7 implications for discussion; NHIF/MOMS/IFCWB feedback Draft Report presentation for both the Strategic Review and Market assessment End of Week 10 Feedback from NHIF/MOMS/IFCWB & KEPSA End of Week 11 Workshop presentations and invitations to stakeholders for NHIF Strategic Review and prepaid health schemes assessment, submitted for approval. Week 12 Complete distribution of workshop presentations End of week 12. Facilitation and presentation to stakeholders and summary reportage for both streams Week 14 Incorporation of stakeholder comments and presentation of final report End of week 15 Final Report presentation End of Week 18. Acceptance of Deliverables Acceptance of deliverables will be communicated in writing only by the Task Team Leader (TTL) Specific Inputs to be provided by: NHIF/MOMS: Working space and other support facilities will be provided by NHIF at its office premises; Copies of recent outputs/summaries of the various national health reforms sessions in Kenya; A copy of all recent NHIF reports, financial or otherwise as required by the consultants; The staff, management and board will be available as needed to provide additional operational clarifications to the consultants. In addition, the Task Team Leader and other members of IFC/WB, MOMS will be available as necessary to provide further insight if needed, with the selected consultants throughout the assignment. Other Prepaid Scheme Administrators (Private Health Insurers/HMOs and Employee Schemes: KEPSA will share reports, studies and relevant documents with the team carrying out the studies; KEPSA will inform its membership within the Health Sector Board and assist where required. Full cooperation with the selected consultants, including access to industry information; Other information as necessary for the smooth implementation of the assignment. Special Terms & Conditions / Specific Requirements There are no additional terms and conditions other than those specified in the Request for Proposal (RFP). This TOR is an integrated part of the RFP. Confidentiality Statement All data and information received from NHIF/MOMS/IFC for the purpose of this assignment are to be treated confidentially and are only to be used in connection with the execution of these Terms of Reference. All intellectual property rights arising from the execution of these Terms of Reference are assigned to NHIF/ MOMS/IFC. The contents of written materials obtained and used in this assignment may not be disclosed to any third parties without the expressed advance written authorization of the NHIF/MOMS/IFC. 101

103 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Appendix 3: Definition of Key Terms Glossary of Terms* TERM Actuarial information system Adverse selection Allocative efficiency Appropriate referral route Basket fund Breadth and depth and height of coverage Capitation Capitation fee Catastrophic event Catastrophic expenditure Cherry-picking/Cream skimming/risk selection COMMON MEANING In the health insurance context, a system that contains information about the demographic and morbidity profiles of health insurance scheme members and that can be used to estimate members probable future healthcare use and he related expenditure required from the insurance scheme The likelihood that a person with a high risk of illness and a greater need for frequent healthcare will be more likely to enrol in a health insurance scheme than a person with a low risk of illness and less need for frequent healthcare use. This affects particularly voluntary schemes. Adverse selection eventually leads to high premiums, concentration of high risk individuals and a shrinking market. The allocation of resources preferentially to health services providing care for those aspects of ill-health for which effective interventions exist and which are most common in the community being served, with priority given, among those preferential services, to the most cost-effective interventions, i.e. interventions offering the lowest costs per unit of health outcome (see also technical efficiency, below) The order in which a patient seeks care, or is advised to seek care, from the different levels of healthcare provider ; with the exception of emergency care, the most logical and efficient route begins with a provider at the primary care level (e.g. a dispensary or health centre or a general practitioner), followed, as required and as recommended by the primary healthcare provider, to a high level of care; the aim is to avoid use of specialists or hospital care if a problem can be addressed, at lower cost, at the primary healthcare level (See NHSSP II six levels of care) The pooling of funds provided by government and donors into a single basket, which is then used to implement public sector health services in accordance with a strategic plan agreed by all contributors to the basket Breadth of coverage: the proportion of the total population covered by health insurance. Depth of coverage: the composition of the health insurance benefit package, the actual range and type of healthcare services covered- the more comprehensive the package, the greater the depth of coverage Height of Coverage: The proportion of actual direct healthcare expenses covered by the insurance scheme and the proportion borne by the member of the scheme, In other words the level of Co-payment in the scheme. The co-payment can be out of pocket or from another supplementary insurance scheme. A method of healthcare provider payment which involves an amount of money per capita or per person, which may be adjusted for the relative risk of that person needing healthcare ( see risk-adjusted capitation, below). Usually, a negotiated payment paid for an agreed period of time by an insurance scheme to a healthcare provider per person covered by the scheme and receiving healthcare from the provider. The capitation fee is normally paid in advance to the provider. An episode of acute illness or a long-term illness requiring unexpected healthcare services which are so costly as to risk impoverishing a household. Expenditure at such a high level as to force households to reduce spending on other basic goods (food or water), to sell assets or to incur high level of debt, and ultimately to risk impoverishment. The practice whereby an insurance scheme enrols a disproportionate percentage of individuals (e.g. young people) who present a lower than average risk of ill health. This leads to exclusion of the sickest from coverage. 102

104 MARKET ASSESSMENT of private prepaid APPENDICES services 17 TERM Community-based prepayment scheme (also called community- based health insurance or community health fund or community based health financing scheme ) Community rated contribution Co-payment Deficit financing Diagnosis related group Donor-pooled health fund Externality Fiscal space Formal sector Fund pooling General budget support General taxes Income and risk cross-subsidies Indigent Informal sector COMMON MEANING an insurance scheme to which members of local, often rural but also peri-urban, community pay a small contribution and which then pays the fees charged by local health services. The scheme is owned and managed by the community. A contribution to health insurance calculated on the basis of insurance claims profile of the entire community or of the insurance scheme, or on the basis of the average expected cost of health service use of the entire insured group rather than an individual. The converse is individual based rating. Out of pocket (see below) partial payment by a health insurance member for health services used in addition to the amount paid by the insurance; the aim is to place some cost burden on members and thereby discourage them from excessive use of health services Government spending at levels exceeding the revenue from general tax and other government sources but covered by domestic or international loans The grouping of patients according to such criteria as diagnosis, likely medical procedures required, age, sex and the presence of complications or co-existent illness: since each group is comprised of patients portraying similar clinical problems and likely to require the same level of hospital resources, a government or insurance scheme can estimate easily how much it has to reimburse a hospital for services rendered to patients in each group. This method of provider payment can be complex in poor settings since it requires large volumes of accurate statistics. A fund into which a number of donors combine most or all of their funding so that it can be used to support a range of public sector health services, rather than having individual separate funds, each earmarked for the health project preferred by the donor A cost or benefit arising from an economic activity that affects people other than those who decide the scale of the activity. For example when an individual sleeps under a mosquito net or takes a vaccine, other people benefit from reduced transmission of disease. room or leeway within the government budget to direct resources to a specific activity that the government regards as important, without jeopardizing the sustainability of the government s overall financial situation The official sector of the economy, regarded by societies institutions, recognized by the government and recorded in official statistics (see also informal sector below). In Kenya, this sector has generally been stagnant in size and employs about 1.9 million people. Accumulation of prepaid healthcare revenues, such as health insurance contributions, that can be used to benefit a population: the aim is to share risk across the population, so that unexpected healthcare expenditure does not fall solely on an individual or house hold, with sometimes catastrophic consequences (see catastrophic expenditure above) Financial support through donor funds that are all given to a country s ministry of finance rather than directly to the ministry of health: the ultimate decision about how the funds should be distributed between the health sector and other sectors rests with the ministry of finance Direct taxes, such as company and personal income tax, indirect taxes such as value added tax (VAT) or general sales tax(gst) and customs and excise duties Income cross-subsidy: whereby the wealthy make greater contributions to healthcare funding than the poor, but all have access to the same range of services Risk cross-subsidy: whereby, people with a greater need for healthcare(i.e. high-risk individuals) are able to use more health services than those who are healthy(i.e. low-risk individuals), irrespective of the contribution made by each group Refers to a very poor person or a person who has no observable or adequate means of income and who obtains no support from any source whatsoever. In Kenya, this category includes the very elderly, orphans and absolute poor. The unofficial sector of the economy, in which income, and the means used to obtain it are relatively unregulated, and which co-exists within a legal and social environment where similar income producing activities are regulated: in the informal sector, labour relations, where they exist, are based mostly on casual employment, kinship or personal and social relations rather than on contractual arrangements with formal guarantees. In Kenya this sector has been growing and employs about 10 million people. 103

105 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes TERM Low and middle- income countries Mandatory health insurance Market Market Failure (in insurance) Means testing Medium- term expenditure framework Merit good COMMON MEANING In 2005, low- income countries were classified by the world bank as countries with a per capita gross national income (GNI) of US$ 875 or less and middle- income countries as those with a per capita (GNI) of US$ 876 to US$ 10, 725 A health insurance scheme to which certain population groups or the entire population must belong by law: such schemes, which imply income and risk cross subsidies, are founded on the principle of social solidarity, whereby, individuals contribute to the insurance according to their ability to pay (or their income) and benefit from coverage according to their need for healthcare (See National Health Insurance below) Any arrangement that enables buyers and sellers to get information and to do business with each other (exchange of goods and services) The failure of an unregulated market to achieve and efficient allocation of resources. Examples of market failure in insurance include Adverse Selection, Moral Hazard and Risk Selection/Cream skimming A means of determining the income of an individual and, usually in the health sector context, the individual s right to exemption from paying health services or from contributing to a health insurance scheme A system of three-year (or longer term) rolling budgets (see below) which creates a predictable medium-term planning environment, gives the health sector an advanced indication of allocations likely to be made over the next few years and thus allows policy development and implementation to be linked with resources over time Goods that are deemed to have a greater value to society than is reflected in their market price. Such goods are often provided free (through taxation) or subsidised by a government for the benefit of the entire society (Quasi public goods). Micro-insurance See community based pre-payment scheme, above but sometimes the term is restricted to cases where a formal insurer carries the risk of the community based scheme. The term is also used to describe low cost formal insurance products designed and targeted at low income earners. Moral hazard A situation in which one of the parties to an agreement has an incentive, after the agreement is made, to act in a manner that brings additional benefits to himself or herself at the expense of the other party. A tendency of entitlement to the benefits of health insurance to act as a strong incentive for people to consume more and better healthcare and a weak incentive for them to maintain a healthy lifestyle Mutual health insurance National health insurance Needs-based formula Out-of-pocket payment Private Good Perverse incentive Prepayment funding Progressive (equitable) contribution mechanism Proportional contributions See community-based prepayment scheme, above. In francophone countries the word mutuelles is used. The word mutual is sometimes used to refer to a non-profit making insurance plan. A mandatory health insurance scheme (see above) that covers all or most of the population, whether or not individuals have contributed to the scheme. It is frequently financed through general taxation. A formula used to inform the allocation of healthcare resources among different geographical areas- it includes indicators of each area s need for healthcare, such as population size, the age and sex composition of the population and it s relative burden of ill health Payment made by an individual patient directly to a healthcare provider, as distinct from payments made by a health insurance scheme or taken from government revenue Goods whose consumption is rival and excludable (the specific consumed good is not available for another person s consumption). An incentive leading to behaviour contrary to the goals of public health policyfor example, services offered to beneficiaries free of charge, may encourage beneficiaries to consume medical care without regard to cost, thus leading to moral hazard (see above) Payments made by individuals via taxes or health insurance contributions before they need to use a health service- prepayment contributions are pooled (see fund pooling, above) A financing mechanism whereby high income groups contribute a higher percentage of their income than do low-income groups A financing mechanism, whereby everyone contributes the same percentage of income to a health insurance scheme irrespective of income level 104

106 MARKET ASSESSMENT of private prepaid APPENDICES services 17 TERM Public Good Regressive contribution Reinsurance Risk- adjusted capitation Risk-adjusted, or needs: based, resource allocation Risk equalization Risk pooling Risk-rated contribution Social health insurance Technical efficiency Top-up voluntary health insurance Universal coverage (with healthcare services) User fee Voluntary health insurance COMMON MEANING A good or service that can be consumed simultaneously by everyone and from which no one can be excluded (e.g. public health services such as preventative health services). Some goods have both aspects of a public and private good (e.g. Roads, Healthcare in general). A financing mechanism whereby low-income groups contribute a higher percentage of their income than high income group An insurance for insurers-in the case of health insurance, a process whereby several small health insurance schemes can transfer the risk of unexpectedly high healthcare expenditure (or of adverse selection see above) to a single insurer (a reinsure ) A per capita( per person) amount of money paid to a healthcare provider based on a person s likelihood, or risk, of requiring healthcare (judging from indicators of risk, such as age, gender, and the presence of chronic disease). The allocation of resources among several geographic areas (in the case of general tax: funded services) or individual insurance schemes (in the case of a mandatory health insurance system) based on the relative need for healthcare or the risk of incurring healthcare expenditure (based on indicators such as age, gender and morbidity profiles) (see needs based formula, above) A mechanism whereby revenue accruing form contributions to several health insurance schemes or health funds acting as financing intermediaries (i.e. organisations that receive contribution and pay healthcare providers) for a social health insurance system is pooled and the individual schemes allocated an amount which reflects the expected cost of each scheme according to the overall ill: health risk profile of its membership(calculated on a risk: adjusted capitation basis, see above) Risk sharing across a group of people or across the entire population, so that unexpected healthcare expenditure does not fall solely on an individual or a household and that individuals and households are protected from catastrophic expenditure (see above) The contribution an individual or group pays to an insurance scheme adjusted to the level of individual s or group s risk of illness, expected future cost of healthcare use or past claims experience A mandatory heath insurance (see above), to which only certain groups are legally required to subscribe or which provides benefits only to those who make insurance contributions A measure of the maximum number of health services that can be provided within a specific budget or a measure of the lowest cost needed for each health service to function without compromising quality of care(see a locative efficiency, see above) A voluntary health insurance scheme that covers the cost of services not funded from tax revenue or not covered by a mandatory insurance scheme providing a specified package of health services that is not comprehensive A health system that provides all citizens with adequate healthcare, regardless of their employment, income, social status or any other factors. Universal coverage with health insurance does not necessarily lead to universal access to healthcare services since financing is just one of the barriers to access. A fee charged at the place and time of service use within a public health facility and paid on an out- of- pocket basis (see above) A health insurance, to which an individual or group can subscribe without a legal requirement to do so. *Adopted and modified from D. McIntyre: Learning from Experience; Healthcare Financing in Low and Medium Income Countries,

107 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Appendix 4: Key Documents Reviewed Title 1 Strengthening Human Rights in the German-Kenyan Development Cooperation in the Health Sector Authors Monica Luke, Ann Njogu and Lise Worm for GTZ 2 Health Financing Revisited A Practitioner s Guide Pablo Gottret and George Schieber for World Bank 3 Health and Financing Policy and Strategy Final 2010 (Accessible and affordable quality healthcare services in Kenya - Financing Options for Universal Coverage) 4 Healthcare Financing Through Health Insurance in Kenya: The Shift to A National Social Health Insurance Fund Ministry of Public Health and Sanitation and Ministry of Medical Services Diana N. Kimani, David I. Muthaka and Damiano K. Manda for KIPPRA 5 Kenya Private Health Sector Assessment J. Barnes, B. O Hanlon, F. Feeley III, K. McKeon, N. Gitonga, and C. Decker, for USAID 6 Kenya National Health Accounts 2005/2006 Ministry of Health - Government of Kenya 7 Learning from Experience: Healthcare financing in low and middleincome countries Diane McIntyre for Global Forum for Health Research Helping correct the 10/90 gap 8 Insurance Industry Annual Reports of 2006, 2007,2008 & 2009 Association of Kenya Insurers 9 Sustainable Health Insurance; Global Perspective for India Mckinsey& Company 10 NHIF Customer Satisfaction Survey 2009 SPA Infosuv East Africa Ltd 11 Write-ups of the various medical insurance firms Various insurance firms 12 Individual In-patient Health Insurance write-up UAP Insurance 13 Schedule of benefits Liberty Health 14 AAR Product and Benefit AAR Health 15 Jubilee individual medical plans and benefits Jubilee Insurance 16 Resolution Health Product Line Resolution Health East Africa Limited 17 Kenya Household Health Utilisation Survey 2007 MOMS/MOPHS 18 Kenya Community Based Healthcare Financing Association Report KCBHFA World Health Report 2010 WHO 20 Catalysing Change, System reform costs for universal health Rockefeller Foundation coverage 2010 report 21 Global Market Place for Private Health Insurance A. Preker, P. Zweifel, O. Schellekens. World Bank 22 Understanding The Un-insured Market 2008 SBO research for AKI 106

108 MARKET ASSESSMENT of private prepaid APPENDICES services 17 Appendix 5: Stakeholders Interviewed Interviews held in Nairobi Date and Day Monday, August 9, 2010 Thursday, August 26, 2010 Monday, September 13, 2010 Monday, September 13, 2010 Tuesday, September 14, 2010 Tuesday, September 14, 2010 Tuesday, September 14, 2010 Wednesday, September 15, 2010 Wednesday, September 15, 2010 Wednesday, September 15, 2010 Thursday, September 16, 2010 Friday, September 17, 2010 Friday, September 17, 2010 Tuesday, September 21, 2010 Thursday, September 23, 2010 Friday, September 24, 2010 Monday, September 27, 2010 Monday, October 11, 2010 Wednesday, October 13, 2010 Thursday, October 14, 2010 Interviews held in Naivasha Date and Day Wednesday, September 22, 2010 Wednesday, September 22, 2010 Wednesday, September 22, 2010 Wednesday, September 22, 2010 Interviews held in Kericho Date and Day Thursday, September 23, 2010 Thursday, September 23, 2010 Thursday, September 23, 2010 Thursday, September 23, 2010 Friday, September 24, 2010 Friday, September 24, 2010 Organisation NHIF AKI Kenindia Insurance Pacis Insurance UAP Insurance Nairobi WomenHospital Jubilee Insurance Gertrude s Children s Hospital KPLC Nairobi Hospital British American APA Insurance CIC AON Minet AAR Sasini Tea Avenue Hospital Jamii Bora Mbagathi Hospital Insurance Regulatory Authority Organisation Homegrown Oserian Mt. Longonot Hospital Polyclinic Hospital Organisation Finlays Ketepa St. Leonards Hospital Greenview Nursing Home Litein Hospital Tenwek Hospital 107

109 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Interviews held in Central Province Date and Day Thursday, October 07, 2010 Thursday, October 07, 2010 Thursday, October 07, 2010 Interviews held in Eastern Province Date and Day Friday, October 08, 2010 Friday, October 08, 2010 Friday, October 08, 2010 Other Interviews& group discussions 1. Development partners: Klaus Hornetz (GTZ) Piet Kliefmann (KFW) Chris Lovelace (World Bank) Anna-Carin Kandimaa (GTZ) Marina Madeo (Italian Cooperation) Agnetta Makokha (Italian Cooperation) Dr. Bedan Gichanga (USAID) Organisation Murang a District Hospital Outspan Hospital P.C.E.A Hospital Tumutumu Organisation Embu Provincial General Hospital Joykim Nursing Home Mwea Irrigation Scheme 2. Faith based organisations: Jacinta Mutegi (Kenya Episcopal Conference) Lattif Shaban (Supkem) Dr. Sam Mwenda (Christian Health Association) 3. Kenya Health Federation (KHF): Dr. Walter Okok (KHF) Dr. Gakombe (Metropolitan Hospital) Dr. Karanja Ngugi (Pharmaceutical Society of Kenya) Njeri Gathecha (Nairobi Women s Hospital) Amit Thakker (Avenue Hospital) Esther Muigai (KHF) Steve Maina (AAR) 4. Government Ministries Ms. M.W Ngari CBS, Permanent Secretary, MOMS Ministry of Medical Services leadership meeting. Ministry of Finance 108

110 MARKET ASSESSMENT of private prepaid APPENDICES services 17 Appendix 6: Stakeholder Interview Guide Market Assessment of Prepaid Health Schemes Interview Guide for Key Informant Interviews The interview guide is an internal document that ensures all interviews captures the scope of our assessment for the assessed schemes. Some of the questions get answered easily as the interviews progresses but for some you need to specifically seek or probe for specific response. Some useful tips to remember during market assessment interviews Always do some background survey on the interviewee where possible as this may help in focusing the interview better. Learn some key words or phrases used in the stakeholder s sector. Categorise the key informant into the various stakeholder groups to focus the interview. Begin with a good introduction of the team members and the project. Assure the informant that the information obtained will be handled in a confidential and anonymous manner as much as possible and only for the purposes of the assessment. Show them the value of participating in the assessment. Use general questions to start with and then move on to more specific ones and use probing questions for clarification. Avoid closed questions as much as possible. If more than one interviewer is involved discuss and agree in advance who will focus on which area. If more than one interviewee is involved avoid the domination by one person but putting question to one or the other interviewee Any available reports on the interviewee that you can get are valuable e.g. annual reports, accounts, product profiles etc. Use your findings template if necessary to help you record notes. Recording can be used as it is used to transcribe the interview verbatim but this is mainly used for focus group discussion. Please document all notes from meetings held for the benefit of the rest of the team. Always get contact for the interviewee just in case you need some more information Introduction Deloitte Consulting Ltd has been awarded a contract to carry out a strategic review of the National Hospital Insurance Fund (NHIF) and conduct a market assessment of prepaid health schemes in Kenya. We would therefore like to have background discussions with various key stakeholders to understand the different dynamics in the health sector in Kenya. In particular, the objective of the market assessment is to assess the scope of prepaid health schemes in Kenya in order to inform the ongoing discussions on the health financing reforms to support Kenya s health goals. 109

111 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Objectives of Market Assessment of Prepaid Schemes Key Objectives of the Assessment 1. Determine the scope of existing prepaid health schemes. This will include: Supply and demand analysis of prepaid schemes (including describing markets and market segments) Key technical aspects of current coverage and capacity (cover level, height, depth & financial advantage to clients). Potential capacity, market size and coverage for prepaid schemes. 2. Evaluate prepaid health schemes consumer perceptions and unmet needs (gaps in coverage, service quality, access/ affordability) (including potential clients). 3. Elaborate constraints for strategic growth and effective reach of prepaid health schemes. This will include: Policy, regulatory and legal Structure of the sector Technical and management capacity Relevance to target market and consumer awareness/attitudes Business incentives for govt/regulators. 4. Delineate the possible roles of prepaid health schemes in the ongoing healthcare reforms to support the broader national healthcare financing objectives. This will include: Potential areas of partnership with public financing mechanisms (e.g. NHIF) (including outsourcing of various services/functions). Provision of supplementary, complementary or substitutive healthcare financing services. Any other role Any areas of competition/conflict and how to deal with such Broad Questions to Guide Interview (Use Relevant Section Depending on Category of Stakeholder) 110 A. Healthcare Financiers and their Associations (Insurance, MIPs, Employer Schemes, Community Based Schemes) Describe your vision and strategy for providing prepaid health scheme products. What are the main challenges you have encountered in growing the coverage? In your view what are the various factors that affect supply and demand of prepaid health schemes products? What is the size of the existing and potential market for prepaid health schemes? Which category or type of prepaid health schemes do you offer? (Insurance (indemnity or managed indemnity), MIP/HMO plans, Micro-insurance, Provider based plans, Self-funded self-managed, Selffunded with TPA (third party administration), community based financing, mixed, others). Are you for-profit or not-for profit? What is the target market for your prepaid health schemes? (Individual or group/corporate, high income, middle income or low income groups/individuals, formal or informal sectors, rural or urban). How many people are currently covered under your prepaid health scheme? How has this changed for the last three years? (per person and per family). What proportion of your members is from the formal and informal sectors? What proportions are from low income, middle income and high income groups? What challenges do you have in reaching informal sector and low income groups? Please describe the range and types of health benefits available to your members under your prepaid health scheme. What cover options do you provide? Are they targeted at different income groups?

112 MARKET ASSESSMENT of private prepaid APPENDICES services 17 Which income groups are targeted for each of the product options? (Ask for product profiles for all the prepaid health scheme products) How do you go about determining the premium to charge for your products? (Ask for premium rates table of reference rating guide) Does your health insurance product or scheme pay 100% of the covered services or are there applicable deductibles, excess or copayments? What are the main exclusions for your prepaid scheme? How do members pay for the excluded conditions? (Ask for list of exclusions) What has been the gross loss ratio for the last three years? What are the major cost/loss drivers in your product? How has the current regulatory and legal framework/context facilitated or constrained growth and sustainability of your prepaid schemes? Any proposed changes to regulations and laws going forward? Have you conducted any customer satisfaction/perceptions surveys in the last three years? What were the main findings (strengths, weaknesses, opportunities, gaps in cover, views on affordability etc). What proportion of your members have NHIF cover? Do you see any opportunity for linkages between prepaid schemes in the private sector and NHIF? Any potential areas of conflict/completion? B. Healthcare Providers and their Associations What is your experience in dealing with prepaid health schemes in terms of awareness of the products, scheme rules, efficiency of service and gaps in cover for insured members visiting your facility? In view of your experience above, which areas would need to be improved? What in your view needs to be done to extend coverage to more people particularly those in the informal sector and low income groups? What do you see as the role of private prepaid schemes and NHIF in extending coverage? C. Consumers (Employer groups and individuals) What has been your experience as a member of a prepaid health scheme? In view of your experience above what areas need to be improved/changed in your health scheme? Does your health scheme cover all your major healthcare needs? Which major gaps in cover have you experienced? What is your view about the affordability of the contributions/premiums of your health scheme? What in your opinion can be done to improve affordability and access? In your view what benefit and financial advantage do you gain by being a member of your prepaid scheme? D. Regulators As a regulator do you have strategic plans specific to medical insurance to ensure that medical insurance plans play a bigger and more significant role in healthcare financing in Kenya? What strategies do you have to increase health insurance coverage in general and particularly for the informal sector and low income groups? As the regulator of the medical insurance sector do you consider the current regulatory framework and structure to be adequate for growth and development of a robust medical insurance business that meets the needs of the insurer and the insured? What areas need change or improvement? What is your assessment of your capacity to effectively regulate the health insurance sector as a whole (private, public and community)? Are there areas of your capacity as a regulator that need to be improved? 111

113 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Appendix 7: Key Interviewees Survey Monkey List of some of the Key Stakeholders sent the Online Survey Link Insurance Companies & MIPs # Name 1 African Merchant Assurance Company (AMACO) 2 The Heritage Insurance Company Limited 3 APA Insurance Company 4 Apollo Life Assurance Company 5 Blue Shield Insurance Company 6 British American Insurance Company 7 Cannon Assurance Company 8 CFC Life Assurance Company 9 Chartis Kenya Insurance Company 10 Concord Insurance Company 11 Co-operative Insurance Company 12 Corporate Insurance Company 13 Directline Assurance Company Ltd 14 Fidelity Shield Insurance Company 15 First Assurance Company 16 Gateway 17 Geminia Insurance Company 18 GA Insurance Company 19 Heritage Insurance Company 20 Insurance Company of East Africa (ICEA) 21 Intra Africa Assurance Company 22 Jubilee Insurance Company 23 Kenindia Assurance Company 24 Kenyan Alliance Insurance Company 25 Kenya Orient Insurance Company 26 Lion of Kenya Insurance Company 27 Madison Insurance Company 28 Mayfair Insurance Company 29 Mercantile Insurance Company 30 Metropolitan Life Insurance Kenya Ltd. 31 Monarch Insurance Company 32 Occidental Insurance Company 33 Old Mutual Life Assurance Company 34 Pan Africa Life Assurance Company 35 Pacis Insurance Company Ltd 36 Phoenix of East Africa Assurance Company 37 Pioneer Life Assurance Company 38 Real Insurance Company 39 Tausi Assurance Company 40 Trident Insurance Company 41 Trinity Life Assurance Company 42 UAP Provincial Insurance Company 43 AAR 44 Resolution Health East Africa 45 AON MINET Insurance Brokers 46 Alexander Forbes Insurance Brokers 47 Avenue Healthcare AKI Medical Committee # Name 1 British America Insurance Co. 2 GA Insurance Co. 3 Madison Insurance Co. 4 Shield Assurance Co. 5 APA Insurance Co. 6 Co-operative Insurance Co. 7 UAP Insurance Co. 8 Pioneer Life Assurance Co 9 Jubilee Insurance Co. 10 Heritage Insurance Co. Ltd 11 CFC Life Assurance Co. Hospitals # Name 1 The Mater Hospital 2 The Aga Khan University Hospital 112

114 MARKET ASSESSMENT of private prepaid APPENDICES services 17 # Name 3 St Thomas Medical Health Services Ltd 4 Mediheal Hospital & Fertility Centre 5 Mediheal Diagnostics & Fertility Centre 6 Kenyatta National Hospital 7 Lions Sightfirst Eye Hospital 8 P.C.E.A Kikuyu Hospital 9 Friends Church Sabatia Eye Hospital 10 KwaleDisctrict Eye Centre 11 Lighthouse for Christ Eye Centre 12 Sight Savers International 13 Coptic Hospital 14 Guru Nanak Ramgarhia Sikh Hospital 15 Dorkcare Hospital 16 Emmaus Nursing Home 17 Family Health Option Kenya 18 Gertrude s Children s Hospital 19 Huruma Maternity & Nursing Home 20 Jamaa Mision Hospital 21 Juja Road Hospital 22 The Karen Hospital 23 Lang ata Hospital 24 M. P. Shah Hospital 25 Marie Stopes Kenya 26 Metropolitan Hospital 27 Melchizedek Hospital 28 Mother & Child Hospital 29 Nairobi Equator Hospital 30 The Nairobi Women s Hospital 31 The Nairobi Hospital 32 St. John s Hospital 33 Nazareth Hospital 34 St. Mary Health Services 35 St. Thomas Medical Health Services 36 South B Hospital 37 Wentworth Hospital 38 ACK Mt. Kenya Hospital 39 Central Memorial Hospital 40 Naidu Hospital 41 Nanyuki Cottage Hospital 42 The Outspan Hospital 43 P. C. E. A. Chogoria Hospital 44 Thika Nursing Home 45 The Aga Khan Hospital, Mbsa 46 Diani Beach Hospital 47 Makupa Hospital 48 The Mombasa Hospital 49 Kagio Nursing Home # Name 50 Palm Beach Hospital, Diani 51 P.C. E. A. Tumutumu Hospital 52 Al-Shifaa Hospital 53 Bishop Kioko Catholic Hospital 54 Maua Methodist Hospital 55 St. Orsala Hospital 56 St. Theresas Mission Hospital Kiirua 57 Shalom Community Hospital 58 ACK Maseno Hospital 59 The Aga Khan Hospital, Ksm 60 Hema Hospital 61 Kendu Mission Hospital 62 Matata Nursing Hospital 63 Milimani Maternity Hospital 64 Ram Hospital Ltd 65 St. Joseph s Hospital, Nyabondo 66 St. Luke Medical Centre 67 Star Children Hospital 68 A.I.C Litein Hospital 69 Cherangany Nursing Home 70 Eldoret Hospital 71 Eldoret Hospice 72 Evans-Sunrise Medical Centre 73 Garlands Medical Centre 74 Kitengela Medical Service 75 Mediheal Hospital & Fertility Centre 76 Mr. Longonot Medical Services 77 Newlife Mission Hospital 78 Tenwek Mission Hospital 79 Friends Hospital, Kaimosi 80 St. Mary s Mission Hospital, Mumias 81 Kenyatta National Hospital 82 Nairobi Hospice 83 Karatina District Hospital 84 Mukurwe-ini Disctrict Hospital 85 Embu Provincial General Hospital 86 Kanyakine District Hospital 87 Kapenguria Disctrict Hospital Health and Professional Associations # Name 1 Kenya Medical Supplies Agency (KEMSA) 2 Kenya Medical Training College 3 Medical Practitioners and Dentists Board 4 National AIDS/STD Control Programme (NASCOP) 5 Nursing Council of Kenya 6 Pharmacy and Poisons Board 113

115 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes 7 Association of Medical Engineering of Kenya 8 Association for the Physically Disabled of Kenya 9 Cardiac Society of Kenya 10 Eastern Africa Association for Radiation Protection 11 Federation of Kenya Pharmaceutical Manufacturers (FKPM) 12 Heart to Heart Foundation 13 Kenya Association of Clinical Pathologists 14 Kenya Association of Physicians 15 Kenya Association of Radiologists 16 Kenya Biomedical Scientists Association 17 Kenya Clinical Officers Association 18 Kenya Dental Association 19 Kenya Medical Association 20 Kenya Obstetrical and Gynaecological Society 21 Kenya Paediatric Association 22 Kenya Pharmaceutical Association 23 Kenya Society of the Mentally Handicapped 24 Medical Protection Society 25 National Nurses Association of Kenya (NNAK) 26 Pharmaceutical Society of Kenya 27 Society of Radiographers of Kenya (SORK) Clinics & Medical Centres # Name 1 Acacia Medical Centre 2 Aga Khan University Hospital 3 Buruburu Medical Clinic 4 Church Army Dental Clinic 5 Dentplan Dental Surgeons 6 Diabetes Care & Training 7 Eastfields Medical Consultancy 8 Eastleigh Collection Center 9 Future Age medical services 10 Gertrudes Donholm clinic 11 Githurai Medical services 12 Healthwise medical & dental clinic 13 House of hearing international 14 Jesus is the answer dental clinic 15 KAM health services 16 Kidney treatment & dialysis centre 17 Liverpool VCT 18 Marie Stopes Kenya 19 Medical & dental unit 20 Mediplan clinic 21 Meridian Medical centre 22 Nairobi out-patient centre 23 Nairobi south medical centre # Name 24 Nature s way health clinic 25 Nelex medical centre 26 Parklands kidney centre 27 Santa Rosa healthcare 28 Seventh Day Adventist health services 29 Sims women health services 30 Southern healthcare 31 Supreme Healthcare clinic 32 Swedish dental clinic 33 Tabasamu dental clinic 34 Upperhill medical centre 35 Worksafe afya clinic 36 Xenihealth centre 37 Aga Khan University Hospital 38 CCS clinic wanguru 39 Prime medical centre 40 Al Bir medical centre 41 Beach road clinic 42 Family care medical centre 43 Kwale district eye centre 44 Light house for Christ eye centre 45 Youth counselling centre 46 Machakos medical clinic 47 Wananchi health services 48 Family health 49 Komotobo health centre 50 Mangima SDA health centre 51 PCEA kasasule 52 Aga Khan University Hospital 53 AMF Ewasongiro health centre 54 Association of clinical home based care 55 Hardship medical clinic 56 Leo surgery 57 Lokichogio health centre 58 Mawepi Medical and VCT centre 59 Nakuru ENT 60 Nakuru west health clinic 61 Ongata Rongai Medical centre 62 Khasoko health centre 63 Kipsigon health centre 64 Mt. Everest clinic 65 Centinel healthcare ltd 66 Kobian K Ltd 67 Laborama Ltd 68 M&M science ltd 69 Nairobi MRI centre 70 Nyumbani diagnostic laboratory 114

116 MARKET ASSESSMENT of private prepaid APPENDICES services 17 # Name 71 Pathcare Kenya ltd 72 Phils Medical Laboratory 73 Aga Khan University Hospital 74 Cellpath Laboratory 75 West way laboratories 76 City X-ray services 77 Nairobi imaging centre 78 Retina EA Medical suppliers 79 Jamu imaging centre Others # Name 1 Nairobi Stock Exchange 2 Capital Market Authority 3 Kenya Commercial Bank 4 ZAIN Kenya 5 Vsoit-jitolee 6 Nestle 7 Kenya Revenue Authority 8 EABL 9 Deloitte internal 10 NHIF internal 11 Biodeal 12 Savani s Book Centre 13 Jamii Bora 115

117 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Appendix 8: List of Attendees 1 st Stakeholder Briefing Workshop NHIF Stakeholder Breakfast 1 September 2010 Name Designation Organisation address 1. Gordon Odundo CEO Getrudes children [email protected] Hospital 2 Scott Featherson SIO IFC [email protected] 3 Chacha Marwa Manager Strategy NHIF [email protected] 4 Sam Thenya CEO Nairobi Womens [email protected] Hospital 5 Julius Orayo Operations Jubilee Insurance [email protected] Manager 6 Allan Oginga Officer Hennet [email protected] 7 Margaret Kathanga Manager British American [email protected] 8 A. Haji DFID [email protected] 9 Stephen Cheruiyot Economist MOMS [email protected] 10 Ms. Laurien Field IFC [email protected] 11 Mr. Richard Kerich NHIF [email protected] 12 Mr. Philip Kiplagat Kenidia [email protected] 13 Dr. Nelson Gitonga Deloitte [email protected] 14 Mrs. Catherine Waiyaki Pacis [email protected] 15 Sam Akiyanu NHIF 16 Mr. Kees Van Baar Pharm Access [email protected] 17 Mr. Girimay Haile UNAIDS 18 Dr. Bedan Gichanga USAID [email protected] 19 Mercy Kebaau KPLC [email protected] 20 Dr. Louise Lwa-lume The Nairobi [email protected] Hospital 21 Anna Kandimaa Policy advisor GDC/GTZ [email protected] 22 KaamaRogo World Bank and [email protected] IFC 23 Sheila Mwai GA Ins [email protected] 24 Liza Kimbo CEO Livewell [email protected] 25 Amitthakar CEO KHF/KEPSA [email protected] 26 ElkanaOnguti Health Policy MOMS [email protected] 27 Sheila Gichuhi Head of Health APA Insurance [email protected] 28 Dr. C Maringo Pacis [email protected] 29 Steve Maina Director KHF/AAR [email protected] 30 Anita Kaushal Senior Program DFID [email protected] Officer 31 Michael Mills Lead Economist World Bank [email protected] 32 Samuel Agutu MD Changamka [email protected] investment 33 Dr DSK Ngugi Chairman PSK/ KHF [email protected]; [email protected] 34 Kiumbura Githinji BDA KEMSA [email protected] 116

118 MARKET ASSESSMENT of private prepaid APPENDICES services 17 Name Designation Organisation address 35 Mary Angaine Chair KWFT 36 Peter Nduati CEO Resolution Health 37 Margaret Iraki Medical Officer Pacis Insurance 38 Daniel Yumbya CEO Medical Board 39 Nancy Muriuki AMREF 40. P.S Lotay CEO Pharm Access Africa Ltd 41 William Munene ED HERAF 42 Esther Muigai Executive Officer KHF 43 Dr. Wamae Maranga Consultant Knight 44 Agnetta Makokha Health Advisor Italian Cooperation 45 Dr. Ndiba Wairioko C.O.O Meridian Medical centre 117

119 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Appendix 9: List of Attendees, Deep Dive Workshop Deep Dive Attendees Name Designation Organisation 1 Allan Oginga Advocacy and Communication HENNET 2 Donmark Musembi Accountant Mutomo Hospital 3 John Macharia Video journalist Under the baobab 4 Piet Cleffmann Country Director KFW 5 Chris Hondace Senior Advisor World Bank 6 Samuel Mwenda General Secretary CHAK 8 Lucy Rono Corporate Secretary NHIF 9 Marina Madeo Health Adviser Italian Cooperation 10 Flavia Calisti Health Economist Italian Cooperation 11 Frederick Onyango Managing Director Shalom hospital 12 George Kosimbei Analyst Kippra 13 Titus Osero Researcher IRA 14 Jacinta Mutegi HSSO KEC 15 Anna-cann Matterson Policy Advisor GTZ 16 Kiumbura Githinji Advisor KEMSA 17 Richard Kerich CEO NHIF 18 Khama Rogo WBG 19 Elkana Onguti C. Economist MOMS 20 Millicent Mwangi GM NHIF NHIF 21 Jackson N. Gitimu GM NHIF NHIF 22 Karingowa Njoka GM NHIF NHIF 23 Chacha Marwa Manager Strategy NHIF 24 Gordon Odindo CEO Gertrudes Children Hospital 25 Wesley Tomno Chair KCOA KCOA 26 Andrew Sule Chair KMA Kenya Medical Association 27 Moses Omboki Ex officer FKE 28 Gakombe K K Metropolitan hospital 29 Lawrence N. Ondari GM NHIF NHIF 30 Dr. NyakibaErneo Thika Road Health Services 31 Dr. Midiwo GM NHIF NHIF 32 Amb. F.V Khayumbi MOMS/DA MOMS 33 Harrison Okeche FKE SEC FKE 35 James Gikemi Hospital/Adm Maua Medical Hospital 36 Dr. Francis Kimani Director Medical Services MOMS 118

120 MARKET ASSESSMENT of private prepaid APPENDICES services 17 Name Designation Organisation 37 Benson Ambuni Deputy Secretary General Union of Kenya Civil Servants 38 Alice Mwongera CEO Morris Moses Foundation 39 Dr. MikalAyiro Pharmacist MOMS - PPB 40 Dr. Moses Njue Government Chief Pathologist MMF 41 Sam Akyianu Program Manager IFC 119

121 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Appendix 10: Draft Healthcare Financing Policy Implementation Framework Draft Healthcare Financing Strategy Implementation Matrix Goal Achieve universal coverage and social health protection (SHP) (a) Expand NHIF coverage and shift to SHP (b) Improve private health and other social health insurance systems (c) Protect the poor Improve public / private partnership Immediate (0-6m) Revise NHIF Business Plan to increase coverage and shift to SHP Develop systems for OPD benefits Amend NHIF Act (essential provisions) Refine tool for identifying the poor Commission capacity assessment study on public and private health service providers Short-Term (1-2 yr) 1. Phase-in OPD benefits and increase benefits package 2. Increase informal sector coverage to at least 20% 3. Improve NHIF governance and maximise on efficiency 4. Change to progressive contributions 5. Develop systems for covering the poor 6. Review NHIF Act (entrench social health protection) 7. Set up Health Insurance Regulatory Board 1. Abolish and replace user-fees in public health centres and dispensaries, and for MDG 4, 5& 6 (use HSSF to channel funds) 2. Expand demandside financing (OBA and CBHIS) 3. Create systems for targeting the poor 1. Develop public/private partnerships strategy for health 2. Strengthen institutional capacity of state and non-state health service providers 3. Replace user fees in FBO service providers (include MDG 4, 5 & 6) Medium-Term (3-5yr) 1. Increase coverage to informal sector to at least 50% 2. Expand OPD coverage to all contributors 3. Provide benefits package to the poor 4096.Introduce equity /and solidarity funds for the poor 4097.Contribute premiums for the poor 1. Expand benefits package to all providers (who satisfy set standards) Long-Term (>5 yr) 1. Increase coverage to informal sector to at least 80% 2. Introduce structural changes to improve SHP (collection / pooling / purchasing) 3. Channel tax funds for health through SHP Expand SHP coverage to the poor At least 80% services purchased through SHP Deploy full or part time doctors at health centres / dispensaries Responsible MoMS / NHF Board / MoPHS MoMS / MoPHS KEPSA /CPHP /HENNET 120

122 MARKET ASSESSMENT of private prepaid APPENDICES services 17 Goal Improve health regulation and standards Immediate (0-6m) Develop health financing policy and strategy Define the benefits package Short-Term (1-2 yr) 1. Cost the benefits package 2. Review and harmonise all health legislations 3. Set up quality assessment and accreditation system Medium-Term (3-5yr) 1. Set up Tariffs and Benefits Board 2. Set up Health Services Commission Long-Term (>5 yr) 1. Regular reviews of benefits package and tariffs 2. Establish Strategic Purchasing Trusts Responsible MoMS / MoPHS Improve the capacity and quality in the public health system Map out all providers in the country Gazette rules on construction of new facilities Grant autonomy to Provincial hospitals Facilitate introduction of new courses on health service management Retrain health services managers Increase tax funding to health Increase human resource capacity Grant autonomy to selected district hospitals Introduce career structure for health service administrators Devolve health service provision Appoint trained managers in all hospitals Continue training of health service managers Purchase public services on the basis of output MoMS /MoPS /MoE 121

123 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Appendix 11: Data Sheet for Prepaid Health Schemes Private Pre-paid Schemes Key Information Summary Sheet Private Prepaid Schemes Key Information Summary Sheet PARAMETER SUB-CATEGORY FINDINGS REMARKS Healthcare Financing Indicators in Kenya (2005/06 NHA and recent estimates) Policy & Regulatory Framework Total Health Expenditure KSh B Estimates KSh. 95 to 130 Billion in 2010 Total per capita spending in health Source of funds Total Government spending on health as % of Total government spending KSh. 1,987 (USD 27) Public-29.3%, Private-39.3%, Donor- 31% 5.2% in 2005/06, 6% in 2008/09 and estimated 6.9% in 2010/11 WHO recommends USD 41 for a basic package of care and $ 54 for MDG s. Donor contribution doubled from 2001/02 Abuja declaration target was 15% Out of pocket expenditure 29.1% (down from 44.8% in 2001/02) Mainly due to donor funds (Pepfar, GF-ATM etc). Out of pocket spending per capita Total Health expenditure as % of nominal GDP Agents managing funds Healthcare provider distribution Healthcare functions Healthcare financing policy Healthcare Insurance law KSh. 578 (down from KSh. 819 in 2001/02) 4.8% Universal coverage may require up to 12% of GDP Public-42.7%, Private-36.5, Donor- 20.8% Public-44.3%, Private-29.2%, Donor 26.5% In-patient care-29.8%, Out-patient care-39.6%, Pharmacy (OP)-2.6%, Prevention/PH-11.8%, Administration- 14.5% Outstanding and disputed by a number of stakeholders. Needs to be concluded as soon as possible None done yet. Some amendments in current insurance Act Cap 487 for MIPs and in 2010 to recognise health insurance as separate class of insurance Administration expenses tripled from 5% (2001/02) to 14.5% Different providers of prepaid schemes are regulated by different bodies. 122

124 MARKET ASSESSMENT of private prepaid APPENDICES services 17 Private Prepaid Schemes Key Information Summary Sheet PARAMETER SUB-CATEGORY FINDINGS REMARKS Range of prepaid Public health insurance 1 Public NHIF under its own Act and schemes under Ministry of Medical Services Private health insurance Private health insurance Health Micro-Insurance Schemes Employer Self-Funded In House Schemes Community Based Healthcare Financing Schemes 14 Private insurance companies under Insurance Act Cap 487 under Insurance Regulatory Authority (IRA) 6 Important Medical Insurance Providers -MIPs (formerly HMO s) under IRA Private insurance Companies and MIPs. Several employers in public and private sector 9 Schemes/Groups under the Kenya Community Based Financing Association. Registered under Ministry of Gender & Social Services Types of Schemes Traditional indemnity plans Minimal due to poor control of costs Managed Indemnity plans Pure Managed Care Plans (combining financing and provision) Most common with insurance companies and MIPs Minimal due to previous history with HMO s and regulatory changes outlawing HMO s from assuming insurance risks. Out of 44 registered insurance companies Out of over 30 registered MIPs most in broking business No specific law on microinsurance No registration or regulation of such schemes Market size estimates Provider based plans Social health insurance By population (excluding employer in-house schemes). In KSh.Terms Minimal due to regulatory issues NHIF. Managed care principles applied 5.2 million Out of about 9 million people in the formal sector is insured (NHIF 4.6M, Private insurance 0.6M). 2.6 million People in the informal sector is insured out of 11 million. There is minimal insurance coverage for the 19 million poor and indigent. Out of pocket (OOP) spending of about KSh Billion (2005/06) OOP estimates was 37 Billion. A large proportion of this is potentially available for risk pooling. Only about KSh. 14 billion was in risk pooling in Large employer in-house schemes a potential market for risk pooling There is possibility of under-declaration of dependants in NHIF cover in the formal sector. There is significant overlap of membership between various schemes. The un-insured population is approximately over 31 million most of it poor and indigent. 123

125 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Private Prepaid Schemes Key Information Summary Sheet PARAMETER SUB-CATEGORY FINDINGS REMARKS Financial overview private health insurance by Insurance companies (AKI Statistics) Gross premium insurance companies only KSh. 5.9 Billion in 2009 Average premium per person $ 134 pa (2009) Premium growth rate 25% between 2008 to 2009 MIPs premium estimate 2009 KSh. 2 billion. International health insurance KSh. 1 billion. Incurred claims Average Incurred claims per person KSh. 4.1 Billion $ 94 (2009) Pay out ration (loss ratio) 69% of gross premium in 2009 Administration expenses including commissions Reinsurance Gross Underwriting profit/ loss In-patient admission rates Out-patient visit per person 22% of gross premium in 2009 ($ 22 per person) KSh. 812 million (13.8% of gross premium) Loss of KSh. 236 million in %-12% per annum 4-6 per annum Employer self-funded schemes summary Scope of cover of prepaid schemes Key Constraints for growth and effective reach Annual health budgets range Up to KSh. 500 million per annum In addition some also have NHIF cover for staff and private health insurance (including international private health insurance) Population coverage 2010 estimates (private and public schemes) Depth of cover (private schemes) Height of cover Total population covered 7.8 million (NHIF 6.6 million, Private insurance companies and MIPs-700,000, Community based financing schemes- 470,000) 65% of morbidity is due to preventable communicable diseases. All these are covered by existing schemes. Comprehensive/Enhanced plans also cover non-communicable conditions with certain limitations and are more costly. Out-patient services have some copayment ranging from KSh. 50 to 500 depending on the level of health provider used. Minimal co-payment for in-patient services Gaps in Regulatory framework and uncertain policy direction. Structure of the economy large informal sector. Small fragmented schemes with suboptimal risk pooling and volatile underwriting results. Inadequate Technical and management capacity. Gaps in Information communication Technology deployment with significant manual processes. Gaps in health providers regulation and standardisation. Fraud, adverse selection, moral hazard. An estimated 20% of the population is covered (assuming national population of 39 million) mostly in the formal sector. Private insurers provide good depth of cover to a small population. No cover for indirect costs of seeking healthcare. 124

126 MARKET ASSESSMENT of private prepaid APPENDICES services 17 Appendix 12: Summary of Recommendations Summary of key findings and recommendations of the Market Assessment of private prepaid health schemes (Recommendations are based on current supplementary/complementary role of private insurance schemes). Key finding/s for each area of review Implications Recommendations Details/Examples Proposed Timeline Level of population coverage Private insurance (private insurers, MIPs and CBHF) covered approximately 3% of the population but generated the largest proportion of insured funds (64% in 2009). Most of the members are in the formal sector/middle to upper income groups. The many relatively small fragmented schemes provide an inefficient risk pooling mechanism and may not be sustainable in the long run. The schemes are not contributing to reduction of inequity in healthcare access. Promote low cost private and community health insurance products. Promote consolidation of schemes to form larger risk pools. Manage cost and quality of healthcare services (purchasing function of healthcare financing) The nascent health micro-insurance initiatives in the market should be supported and encouraged. Better use of ICT to reduce administration costs. Regulation of quality and costs of healthcare is critical to reduce costs of insurance. In the next 1 to three years. Depth of cover Private health insurance provides adequate depth of cover for common causes of illness and injury but has some limitations on cover for non-communicable/ chronic conditions In view of the demographic transition occurring in the country from communicable to non-communicable diseases (diabetes, hypertension and cardiovascular disease, cerebro-vascular conditions and cancer) many with these conditions maybe underinsured going forward. There is need to start planning for improved coverage of non-communicable conditions through for example larger risk pools and product regulatory mandates where appropriate. Important parallel initiatives should include emphasis on prevention and control through wellness services. Costs of longterm care will need to be addressed at the provider level also. Private insurers should begin a strong emphasis on wellness programs, services and products for their members. The regulator should consider the merit of including affordable care for non-communicable conditions as part of a minimum prescribed benefits for private (and public) insurance products. However this must be counterbalanced with the need to keep insurance affordable. In the next one to two years. 125

127 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Key finding/s for each area of review Implications Recommendations Details/Examples Proposed Timeline Height of cover There is minimal direct copayment for in-patient services (except indirect copayment for exclusions or in cases of low financial limits). There is significant direct copayment for out-patient services ranging from KSh. 50 to KSh. 500 per visit. There is no significant coverage (public or private) for indirect costs of seeking healthcare (transport, manhours lost, income forfeited etc). Indirect copayments for in-patient care may be a barrier to accessing services particularly for individual products (with broader exclusions) and for low cost products with low financial limits of benefits. Out-patient direct copayments, though useful in controlling over-utilisation of outpatient care may be a financial barrier to accessing care for lower income groups. The same applies to indirect costs of seeking care for low income groups. Regulatory mechanisms should be applied where feasible and desirable to address causes of indirect copayment mainly product design and healthcare provider costs. Products should be matched with the appropriate level of healthcare provider. The benefits and disadvantages of direct out-patient copayments should be carefully evaluated. Where direct copayments are deemed undesirable then alternative means of controlling utilisation should be considered (including provider fixed reimbursements or capitation). Some private insurers are already piloting fixed reimbursements and capitation but this is still a new area for healthcare providers and there is not enough accurate statistics to support the assumptions. The development of comprehensive benefits for group schemes with fewer exclusions is a good move to address indirect copayments and should be expanded. In the next three years Financial advantage to members (pay-out ratios ad admin expenses) The payout ratio of private health insurance schemes is high (69% in 2009 for private insurance companies) and close to international benchmarks. However it is not anchored in regulation. The administrative expense is also within international benchmarks though there is room for improvement. There is nothing that can stop a private insurer from having very low pay-out ratios - to the disadvantage of consumers. The new proposed health insurance law should have clear benchmarks for acceptable payout ratios and administrative expenses to protect consumers. There room to improve the administrative expense ratio of private insurers through better use of technology, better product design, creation of larger risk pools, more innovative provider contracting and management and possible review of intermediary commission rates which are relatively high by international standards. The move among many players to deploy customised back office and front office health insurance systems should be supported and emphasised. However it is important to develop systems that can be easily integrated with providers and regulators. The development and implementation of an industry wide provider contract for purchasing benefits a few years ago should be revamped and moved to the next level of more innovative purchasing modalities. In the next one to three years. 126

128 MARKET ASSESSMENT of private prepaid APPENDICES services 17 Key finding/s for each area of review Implications Recommendations Details/Examples Proposed Timeline Consumer perceptions Most consumers view private health insurance premiums as costly. Insurance companies and MIPs have a poor image among consumers and suffer a low level of trust due to past collapse of HMO s and due to current factors such as complex/ inappropriate products, complex and long claims procedures and inconsistent customer service/ responsiveness. Consumer protections mechanisms are not clear. However consumers are happy with cashless access to healthcare services particularly in private hospitals. It is difficult to promote risk pooling (whether private or public) as a means of healthcare financing with the current consumer perception. Hence growth of health insurance in general is dependent on overcoming this challenge. The proposed new healthcare financing law and regulatory frame work should have a clear, well understood and easy to use consumer protection system, including a grievance handling and appeals mechanism. Insurers should address consumer expectations through regular and independent market research and invest in sustained consumer education. The whole value chain of health insurance (including health provider behaviour and costs) should be evaluated and areas of inefficiency addressed to bring down costs without affecting quality. This will be key to developing affordable private health insurance products. Use of technology (internet and mobile telephony) is key for a quick and easy to use consumer protection system. There are initiatives in the private insurance market outside health insurance to develop simpler products that can be accessed through the internet and mobile telephony. This should be expanded to health insurance. In the next one to two years. Policy and regulatory framework of private prepaid schemes Healthcare financing policy is still not yet concluded despite significant steps to reach consensus. Lack of clear policy direction and uncertainty on future role of private prepaid schemes in healthcare financing. Will private insurance schemes continue playing a supplementary/ complementary role only or will they also participate in providing social health insurance benefits? Will members of private insurance schemes be exempted from double payment for social health insurance also? Conclude the healthcare financing policy and ensure all relevant stakeholders are involved. The policy should be clear on the future role of private prepaid schemes either as providers of complementary/ supplementary insurance only or, in addition, as suppliers of mandated health insurance for certain markets. The policy should be clear on possible areas of public-private partnership in healthcare financing. The policy should also clarify the criteria for exemption of private health insurance members from full SHI membership but also retain some level of social health protection tax. In the next 3 to 6 months 127

129 MARKET ASSESSMENT of private prepaid HEALTH SCHEMes Key finding/s for each area of review Implications Recommendations Details/Examples Proposed Timeline Policy and regulatory framework of private prepaid schemes Various prepaid schemes are regulated by different bodies and some are not regulated at all from a healthcare financing point of view. It is not clear whether ministry of health or finance should steward the sector. There is no specific health insurance law. The current insurance act (that regulates private health insurance by insurance companies and MIPs) only mentions health insurance briefly and until 2010 classified health insurance under personal accident class. Lack of a unified regulatory system for NHIF, private insurance, CBHF schemes and employer in-house schemes makes it difficult to steward/drive the sector in a particular direction to achieve specific policy, sectoral or business objectives. The playing field is not even and consumer protection is weak. There are many gaps in regulating health insurance with its unique challenges. Some of the gaps include lack of a clear definition of who can provide health insurance, no mention of range of benefits or a minimum package, no directions on acceptable pay-out ratios and no guidelines on purchasing of health services by health insurers. The playing field is uneven and consumers are exposed. Unify or harmonise the regulation of the various prepaid schemes Develop specific health insurance law covering all types of health insurance schemes, both private and public. Either regulate ALL prepaid schemes (private, public community and employer) under one regulator such as the proposed health benefits regulatory authority OR separate (but harmonise) the regulation of public and private health insurance. In this case creation of a division in IRA to regulate all private health insurance schemes (including community and employer schemes) can be an important first step. If necessary public and community insurance can have separate sections under the overall health insurance law. The law should have performance benchmarks for health insurance schemes including depth and height of cover, administration expenses and payout ratios. Consumer protection should be embedded in the law and should cover minimum benefits, choice, critical service standards, information disclosure, marketing standards and grievance handling procedures. In the next 6 to 9 months Concurrent with above. 128