Health insurance in Kenya has shown the fastest growth in recent years (CAGR 2010-13: 45%) when compared to all other general insurance businesses. It contributed a quarter of the overall general insurance gross premium in 2013. However, the Kenyan health insurance industry is currently facing severe difficulties such as rising costs, increasing fraud, and high claim ratios.
By: Fatima Badat, EY Africa Actuarial Services (Pictured)
The Insurance Regulatory Authority's 2012 Industry Report shows that health insurers collectively experienced a claims ratio of around 77% with half of health insurers not generating an underwriting profit. This has led to health insurers raising premium rates leading to a highly price sensitive market. Innovation is the solution to address the challenges – whether that means developing new and innovative products matching the risk profile of policyholders or improving processes and efficiencies to reduce total healthcare costs. Total healthcare costs can be contained or decreased by a combination of strategies including incentivising the appropriate use of healthcare services, alignment of service provider reimbursement and quality of care, and limiting fraudulent activity and containing non-healthcare expenditure.
Strategies such as limiting the reimbursable type and number of visits, increasing deductibles and co-payments as well as decreasing allowable amounts for covered procedures can incentivise the appropriate use of healthcare services. Further strategies may involve insurers only subsidising the use of generic drugs or, when appropriate, more cost-effective brand-name drugs in order to reduce drug costs without infringing on quality of care. To be implemented successfully, the application of such strategies should be considered holistically so as not to cause patients to avoid necessary care. For example, women may avoid pap smears or mammography screening only to subsequently present with late-stage cancer.
Holistic implementation should include incentivising preventative primary care as well as encouraging self-management of chronic conditions. As a minimum benefit, insurers could pay towards the full cost of early detection procedures for the high-cost diseases specifically prevalent with the population group. Similarly, to encourage proper management of chronic conditions, insurers could employ chronic condition related benefit waivers. Further implementation strategies could include educating and incentivising policyholders to make healthier lifestyle choices. This could be achieved through loyalty programs specifically aimed at achieving a healthier insured population group whilst acting as a market differentiator.
Provider behaviour is often a natural consequence of the reimbursement method used and therefore the mechanism used when designing the overall mix of the reimbursement methods is a key consideration. The commonly used fee-for- service method is often criticised for encouraging an over-servicing of health services because providers are paid for each service given. There is a tendency to reduce the time spent by activity or delegate to less qualified health professionals, so the provider can maximise their income. Strategic interventions that can remedy the problem of over-servicing include combining fee-for-service models with budgets. Adjusting fees after a specified level of services is exceeded or using co-payments for patients accompanied with greater consumer education regarding benefit designs and payment procedures can also be applied. This empowers healthcare consumers to monitor their own health services and assists in limiting unnecessary procedures.
Different reimbursement methods are also seen to be more applicable for various types of services based on the diverse models. For example, line budgets, where expenditures are based on historical needs, though applicable to the hospital system, would not be appropriate or efficient for the primary care setting. Appropriate remedial strategies should be used to ensure that each type of reimbursement method gives the optimal impact on cost containment and quality of care. A mix of reimbursement methods may be desirable to achieve this.
According to a study by CIC insurance on outpatient claims, fraud cases committed by policy holders, service providers and administrators were estimated to be between 30-40% of all claims in 2012. Insurers should establish focused divisions within their anti-fraud departments to develop methodologies to address fraud prevalent under health insurance. Concrete proof as evidence including documentation and statements made by the customer and his family members and even neighbours should be taken into consideration. Handling fraud manually has always been costly for insurance companies, even if one or two incidences of high-value fraud went undetected. Growth in unstructured data that is inadequately analysed also frequently leaves room for a lot of fraud going undetected. Advanced analytical solutions, utilising models and algorithms, can be employed to exploit the existing data in order to effectively detect, predict, manage, and report fraudulent activity.
Claims administration poses an additional obstacle to insurers. Internationally recognised standards suggest that only 15-20% of total healthcare expenditure should be afforded to non-healthcare expenditure such as administrative costs and profits. Improvement can be achieved through firstly enabling payers and providers to electronically exchange eligibility, claims, and other administrative information faster. Secondly, public and private providers should use a single, standardised physician credentialing system. Currently physicians must submit their credentials to multiple payers and hospitals. Thirdly, payers should provide monthly explanation-of-benefits statements electronically but allow patients to opt for paper statements. Fourthly, electronic health records should integrate clinical and administrative functions such as billing, prior authorisation and payments over the next five years. For instance, ordering a clinical service for a patient could automatically bill the payer in one step.
The health insurance industry is at a crucial point and despite the signs of stress the picture is not all gloomy. The industry stands at the threshold of moving towards a stronger and better founded health insurance industry. Most players should now look to reassess the entire business model from product, pricing, risk management, distribution, claims and fraud management. Stakeholders should work together toward maintaining a favourable environment for stable growth, expanding health insurance coverage in Kenya and increasing the industry's contribution to the economy.