Queries over Kenya civil servants’ medical cover

About 215,000 junior civil servants in Job Group A to M will have their out-patient medical bills paid by the National Hospital Insurance Fund (NHIF) in a new deal struck with 10 insurers.

But 6,500 top officers in Job Group N to T will enjoy superior and unlimited services offered by private hospitals.

This is bound to be controversial because the NHIF did not participate in the tender for the business and was only roped in belatedly by the insurance companies in a lopsided partnership that shifts most of the risk of providing medical insurance to the public institution. (READ: Medical insurance proposal bogged down)

Under the deal, the NHIF will receive a premium of Sh2.5 billion, while the insurance companies will share Sh1.3 billion in premiums.

But in an interview with the Nation, NHIF’s chief executive Richard Kerich defended the deal, describing it as a public private partnership that will allow the fund to serve more people.

He said the service will be provided through ‘capitation’— where hospitals selected will be paid in advance for the services.

Mr Kerich said NHIF was capable of providing out-patient services to civil servants sustainably.

However, actuarists and analysts in the industry warned the premium was insufficient to cover the civil servants and three dependants each. (READ: The nightmare of rolling out health insurance scheme)

When the government floated the first tender for the business in early June, the insurance companies quoted Sh12 billion for the same business.

Correspondence seen by the Nation shows that the consortium of insurance companies is seeking to introduce tougher conditions for the government.

First, they are now demanding that the government should sign the contract for civil servants in the lower grades directly with the NHIF to insulate them from any liability.

“We want a watertight agreement whereby we are not linked with NHIF as far as this tender is concerned and clearly specifying that NHIF is singly liable for medical risk for categories A-N,” reads the memo by one of the underwriters.

Secondly, the consortium is demanding a premium review clause at a loss ratio of 75 per cent.

This is an attempt to tie the government’s hands to an arrangement where it will have to automatically agree to increase premiums whenever the insurers are overwhelmed by claims.

Thirdly, the insurance companies have instructed their lawyers to include a ‘stop loss’ clause when the claims reach 100 per cent.

An attempt to roll out out-patient services in October 2010 stalled because of legal action by the Central Organization of Trade Unions.

NHIF provides services through contracts specifying coverage rates or rebates depending on contractual agreements with providers.

The fund mainly focuses on public hospitals, mission hospitals and smaller private health centre as these are more cost efficient, more widespread and accessible to members.

The current deal is bound to re-ignite debate about the state of the fund’s financial health. A recent audit report by Deloitte Consulting painted a grim picture of the firm’s balance sheet.

The audit, which covered a period of five years up to July 2010, described NHIF’s financial position as characterised by rising payment costs, negative current assets and declining cash flows.

It found that administrative costs were at 45 per cent of revenues compared to 22 per cent for the private sector.

The audit also found that 80 per cent of the balance sheet of the fund was in fixed assets, which cannot be liquidated easily, while the rate of return on its investment portfolio was a mere 3.7 per cent — way below the return on 91 day Treasury Bill rate.

“Without an increase in contribution rates, and a drastic reduction in administrative expenses, NHIF will soon face financial difficulties as it starts to use its reserves to meet recurrent expenditures”.

On June 12, 2011, the Ministry of Public Service put out a tender inviting underwriters to bid for the civil service medical scheme.