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The National Hospital Insurance Fund (NHIF) is a State corporation whose primary mandate is to secure all Kenyans from financial risk occasioned by the high cost of healthcare services.

This makes it a primary enabler of the government’s Universal Health Coverage (UHC) programme. According to its 2018–2022 Strategic Plan, it should do this by pooling funds for affordable, accessible, sustainable and quality health insurance.

UHC envisages that all people and communities will access preventive, curative, rehabilitative and palliative quality health services without suffering financial hardship due to catastrophic medical expenditure.

The government has chosen the NHIF as the channel to finance UHC and cushion Kenyans against the high cost of healthcare.

The current economic environment characterised by high inflation rates and medical fees has brought to the fore the need for a social insurance scheme to cushion Kenya’s majority poor.

The government recognises that UHC faces key challenges in financing that include:

1. Low total funding of healthcare in the country (7 percent of total Government Budget against the Abuja Declaration target of 15 percent);
2. Inefficiencies in the use of available funds;
3. Weak benefit utilisation management of insurance schemes;
4. Leakages in the flow of healthcare funds – at over 30 percent (as per various public expenditure tracking surveys);
5. Multiple fragmented health insurance pools, both at National, County, donor and private sector levels;
6. Low levels of health insurance coverage (about 17 percent), meaning that a significant proportion of Kenya’s population is not contributing towards the insurance fund.

At the top is strengthening the health financing system to underpin UHC efforts, as articulated in the draft Kenya Health Financing Strategy (KHFS) 2016-2030.

Expanding health insurance through NHIF is central to the UHC strategy and is in line with government research, including a Kenya Institute for Public Policy Analysis and Research (KIPPRA) discussion paper in 2004, which noted that NHIF was focusing too much effort on formal sector employees while excluding hundreds in the informal sector, including farmers and pastoralists.

At its core, NHIF is a social health insurance (SHI) institution, financing health insurance coverage for formal sector employees through payroll deductions.

Kenya envisions expanding from this foundation and achieving universal insurance coverage across formal and informal sectors, with formal sector employers and employees sharing in the contribution amounts.

In this vision, different levels of government will participate in subsidising membership for the poor and vulnerable.

“A health insurance scheme is social when it subsidises the poor, the elderly and the sick, and when it promotes equity and access to everyone and not for profit,” wrote the authors of the KIPPRA paper.

A social insurance scheme usually has the following:

1. Compulsory coverage;
2. All contributors are eligible for benefits;
3. The benefits are not directly related to contributions but seek to redistribute income between different groups – from the rich to the lower income groups;
4. All revenues are directed solely to health.

Achieving high insurance coverage alone, however, will not be sufficient for UHC in Kenya.

Covered benefits need to be more clearly defined, meet emerging population needs given Kenya’s epidemiological transition, and be purchased more efficiently and equitably.

Kenya has made major investments in its public health workforce, supplies, and infrastructure, as well as removing user fees for primary care. These continue to be primarily resourced through tax-based funds.

The success of the programme depends on improvement of health facilities in the counties and employment of more health workers, though this has been hampered by a poor performing economy and ravaged by a new global challenge, the Covid-19 pandemic.

Governance challenges

The NHIF continues to face its fair share of governance challenges, with a perception that it is too politicised for an institution not funded by the Exchequer (it relies wholly on contributions from members).

As per its legal structure, accountability of the management and of the board is to the Government and not directly to members.

Operational information is provided to the Ministry and not directly to members, while financial and operational information is shared with the Board during its meetings.

Of the 14 members of the Board, five are Government officials. The reputation of NHIF has in the past been tainted by corruption allegations.

The Fund deals with mandatory contributions from the public, which have been increasing. In 2018, a probe by the National Assembly revealed that the NHIF could have lost more than Ksh10 billion in false medical claims.

Auditors had flagged the figure as fraudulent and said it was part of about Ksh50 billion paid to NHIF by the Treasury as capitation premiums for medical cover for civil servants, Kenya Police Service, National Youth Service, and Kenya Prisons Service since 2013.

In late 2019, NHIF was linked to corruption in county governments where healthcare providers falsely billed the Fund for non-existent surgical procedures.

An internal assessment by the Fund revealed the insurer was paying up to five times the medical premiums it received from subscribers, wiping out its revenues.

Currently, informal sector workers pay Ksh500 per month per household. The Fund’s projections for revenues and expenses for the national scheme show that it is likely to start running into deficit by 2020.

In January 2019, 18 suspects were charged over alleged loss of Ksh1.5 billion at the Fund.

Appearing before Anti-Corruption Court Chief Magistrate Douglas Ogoti, the accused were charged with 17 counts, among them abuse of office and wilful failure to comply with the law relating to management of public funds, among other counts.

In early 2020, the Fund drew up rules requiring individuals who voluntarily join the scheme to wait for three months before accessing benefits, a decision that could hamper their access to healthcare under UHC.

An independent mechanism for contributors to address grievances has not been set up and, indeed, is not envisaged in the NHIF Act.

The NHIF will require an overhaul of its legal and governance structure to tame corruption  and become an effective enabler of UHC.

Making NHIF an effective social insurance fund

International experience suggests that effective health financing reforms can advance UHC by mobilising sufficient resources to provide the services necessary for good health and by ensuring that these resources are pooled and spent equitably, protecting citizens from financial burden when seeking healthcare.

These joint goals include increasing insurance coverage, strengthening the financing of primary care, increasing domestic spending for essential programmes, and improving the efficiency of budget allocation while engaging the private sector to enhance supply and choice.

Kenya is one of the few countries whose public health insurance scheme relies solely on funding from members’ contributions.

Other schemes, such as in Germany, Chile, and Philippines, have contributions from employers and Government.

Others rely on additional income from tax contributions, including Ghana’s National Health Insurance Scheme, Britain’s National Health Service (NHS) and Sri Lanka’s National Insurance Scheme.

Social health insurance functions on a pay-as-you-go premise and NHIF’s financial sustainability is dependent on prudent matching of receipts (collections) to expenditures.

Longer term financial sustainability will depend on several factors, including sufficient revenues, expenditures, assets and liability management.

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.

However, through various reforms and discussions, contributory health insurance has gained popularity as a health financing mechanism worldwide.

Abundant evidence shows that raising funds through required prepayment is the most efficient and equitable base for increasing population coverage.

In effect, such mechanisms mean that the rich subsidise the poor, and the healthy subsidise the sick. However, to achieve UHC, Kenya must expand the range of services it provides.

Experience shows this approach works best when prepayment comes from a large number of people, with subsequent pooling of funds to cover everyone’s healthcare costs.

No one in need of healthcare, whether curative or preventive, should risk financial ruin as a result.

It is imperative to note that no single mix of policy options will work well in every setting.

As a WHO report cautions, any effective strategy for health financing needs to be homegrown.

Kenya’s healthcare financing is a mixed model, with both public and private sector elements.

In summary, the main components of this system include:

1. General tax financing: This consists mainly of ‘free’ services in public health facilities.
2. National Hospital Insurance Fund (NHIF): The Fund collects revenue, pools funds and purchases care on behalf of its members. It is also responsible for determining the contribution (premium) rates and benefit packages.
3. Private health insurance (voluntary): Currently, private health insurance is provided through insurance 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.
4. Employer self-funded schemes: These are financed by annual budgets and are either managed in-house or through third party administrators (TPA). A number of employers run their own healthcare facilities for both outpatient and inpatient care. Such self-funded schemes, though contributing to healthcare financing, are seen as part of employee benefits and there is no specific documentation and regulation.
5. Community based health-financing (CBHF) schemes:  A number of these schemes have emerged over time to meet the healthcare financing needs of low-income earners, who have traditionally been  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. There is no specific regulation for CBHF but the schemes are currently registered under the Ministry of Gender and Youth and have formed an umbrella association (KCBHFA).
6. Out of pocket (OOP) health spending: Like in most developing countries, OOP has been very high in Kenya. This spending is a major barrier to accessing healthcare services and drives households into poverty through sale of assets and diversion of meagre income into healthcare. 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. Donors and Non-Governmental Organisations (NGOs): Various donors and NGOs have traditionally contributed significantly to healthcare financing and provision. In the past 10 years, the proportion of healthcare expenditure contribution by donors 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 HIV/Aids, TB and malaria ($378 million) and the World Bank (over $100 million).
8. Health Sector Services Fund (HSSF): It was launched in 2010. This is a form of supply side financing to Level Two and Three health facilities (mainly health centres in the public sector, but will 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 2009, and is mainly funded by the World Bank, Danida and the Government of Kenya.
9. Output Based Approach Reproductive Health Voucher (OBA): This is a form of demand side financing that targets the poor, who in most cases – except for family planning services – have to meet a specific criteria. The poor buy the health vouchers at a token price and redeem them  within a specific provider network for certain health services. The current vouchers cover maternal health, family planning and gender-based violence. The OBA programme is managed by NCAPD under the Ministry of Planning, administered by a private firm and funded largely by donors, key among them KfW (German Development Bank) and to a small extent by the Government of Kenya. The first phase in four districts ran from 2005 to 2008 (6.58 million Euro) and the second phase started in 2008 and ran up to 2011 (10 million Euro).

Despite this array of options, the coverage of healthcare financing remains very low – covering only 20 percent of the population.

Challenges facing healthcare financing in Kenya

The overall healthcare system in Kenya 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 the key challenges include:

1. High levels of poverty among the population. About 46 percent of Kenyans are poor and nearly half of this group is considered absolutely poor/indigent. Poverty is a major driver of poor health status while at the same time low health status drives the poor deeper into poverty. In terms of healthcare financing, this group faces major financial barriers to accessing healthcare.
2. High burden of preventable infectious diseases and an emerging scenario of non-communicable diseases.
3. Inadequate funding of the health system (6.3 percent of total government expenditure). According to the Annual Operating Plan Six (AOP 6), the estimated total funds needed to deliver the Kenya Essential Package for Health (KEPH) is about Ksh143 billion, with an estimated funding gap of Ksh31 billion.
4. Inefficient allocation and use of scarce resources. Most of the healthcare expenditure is used for curative services in urban health facilities.
5. High out-of-pocket expenditure in the context of a weak, risk pooling system.
6. Significant inequalities in access to healthcare services largely due to financial barriers.
7. Poor health infrastructure and unreliable supply of health commodities and medicines.
8. Shortage and poor distribution of health workers.
9. Poor management of health quality and productivity.
10. Dysfunctional referral systems leading to wastage of resources.
11. High dependence on donors.

Social insurance scheme as a financing option for UHC

To achieve UHC, Kenya needs a financing system that enables people to use all types of health services – promotion, prevention, treatment and rehabilitation – without incurring financial hardship.

The obligation to pay directly for services at the moment of need is a challenge for those who seek treatment, and can result in severe financial distress, even impoverishment.

A WHO report has outlined how countries like Kenya can raise funds for social health insurance to support UHC.

These include:

1. Increasing the efficiency of revenue collection: – This will increase the funds that can be used to provide services or buy them on behalf of the population.
2. Re-prioritising government budgets: – Governments sometimes give health a relatively low priority when allocating their budgets. For example, few African countries reach the target agreed on by their Heads of State in the 2001 Abuja Declaration, to spend 15 percent of their government budget on health (19 of the countries in the region who signed the declaration now allocate less than they did in 2001).
3. Innovative financing: – Attention has until now focused largely on helping rich countries raise more funds for health in poor settings. The high-level Taskforce on Innovative International Financing for Health Systems included increasing taxes on air tickets, foreign exchange transactions and tobacco in its list of ways to raise an additional US$ 10 billion annually for global health. A levy on foreign exchange transactions could raise substantial sums in some countries. India, for example, has a significant foreign exchange market, with a daily turnover of US$ 34 billion.
4. Diaspora bonds (sold to expatriates) and solidarity levies on a range of products and services, such as mobile phone calls.
5. Development assistance for health: While all countries, rich or poor, could do more to increase health funding or diversify their funding sources, only eight of the 49 low-income countries had any chance of generating from domestic sources alone, the funds required to achieve the MDGs by 2015.

The National Hospital Insurance Fund (NHIF) is playing a major role in the pooling of resources for social health insurance for the population.

Currently, the NHIF covers close to 20 percent of Kenyans.

Since 2003, some of the reforms undertaken within NHIF to make it more effective for financing UHC include:

1. Restructuring its governance structures, with the Board of Management playing a keener role in protecting the interests of contributors.
2. Expansion of coverage through rollout of additional branches, innovative technology, targeting the informal sector, and launch of new products.
3. An increased focus on transparency, accountability and efficiency, on the back of corruption allegations, leading to adoption of a zero-tolerance-for-graft policy.
4. Ongoing restructuring to reduce the previously bloated workforce and improve productivity and efficiency.
5. Aggressive recovery of lost assets through litigation.
6. Enforcement of compliance by employers on statutory deductions to ensure timely contributions and remittance of workers’ dues.

Key strategic successes of the Fund include:

1. Higher membership over the past five years.
2. Increased payout of benefits to members and their beneficiaries. The payout ratio grew from 62 percent in 2014 to 85 percent in 2018.
3. Investment in information technology to reach members and support the delivery of its mandate. This includes the introduction of tools such as electronic funds transfer (e.g. M-Pesa), swipe cards, point-of-sales systems and other innovations that have increased the efficiency of the Fund.
4. Improved payment periods for undisputed claims, comparing favourably with private insurers. On average, NHIF pays claims within 14 to 21 days compared to the best paying private insurers who average 30 days.
5. Increase in rebates on its inpatient package and the number of hospitals in its network. By the end of 2018, the Fund had contracts with 645 hospitals, accounting for 44,299 beds in Kenya against a total of 49,000 beds.
6. The Fund has injected over Ksh33 billion into the health sector, with projections to reach over Ksh100 billion by the end of the current Third Medium Term Plan (MTP 3) period.
7. In the FY 2016/17, NHIF, with the support of the National Government, provided insurance cover to 160,422 households under the Health Insurance Subsidy Programme (HISP) and 41,666 Older Persons and Persons with Severe Disabilities (OP&PWSD).
8. Revenue grew from Ksh15 billion in 2014 to Ksh47 billion in 2018.
9. Enhanced customer relationships through the rollout of HISP and OP&PWD insurance subsidy programmes, as well as the development of micro-sector strategies.
10. Enhanced corporate governance framework through development of key policies, including performance contracts.

NHIF is the only social health insurance scheme which all people earning more than Ksh1,000 per month have a statutory requirement to contribute funds to.

As at the end of the FY 2017/18, the total NHIF membership stood at 7.6 million, an overall coverage of 27.2 million Kenyans (principal contributors and their dependents).

The target during the Third Medium Term Plan (2018-2022) period is to achieve over 70 percent health insurance coverage.

The Fund has contracts with 645 hospitals in all parts of the country for provision of inpatient services to members and their beneficiaries.

Currently, NHIF has the most expansive network of hospitals of any health insurer in the country. It covers all public hospitals, mission or faith-based hospitals and private hospitals, with a coverage of 98 percent of the hospital beds in the country.

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

The best and most comprehensive coverage is achieved at public health hospitals and faith-based hospitals. These hospitals account for over 60 percent of facilities in the country.

Contractual terms are agreed with the various hospitals depending on the contract category. NHIF’s rebates have been improving and have increased by an average of 71 percent in the past five years.

The Fund has made a strategic decision to focus on public hospitals, mission or faith-based hospitals, and smaller private hospitals, as these are more cost efficient, widespread and accessible to members.

Currently, NHIF covers in-patient services at its accredited hospitals. The depth of coverage depends on the contract that a hospital has with NHIF. The deepest, comprehensive cover is achieved at public hospitals, with 100 percent coverage for NHIF members in these facilities.

In Contract B, which covers faith-based hospitals and smaller private hospitals, the Fund provides comprehensive cover, with co-pay required for surgical procedures. Rollout of outpatient services in October 2010 stalled because of legal action.

With UHC key to the Big 4 Agenda, the Cabinet Secretary formed the UHC Health Benefits Package Advisory Panel on 8th June 2018 through a notice in the Kenya Gazette (No.5627).

To achieve UHC, Kenya needs to work within its current resource basket and progressively move towards the UHC target as more resources become available, and the use of such resources becomes more efficient.

Global evidence shows that countries that made progress towards UHC began by defining a Health Benefits Package (HBP).

This is a group of health services including medicines, procedures and health technologies that are guaranteed to those who are eligible to receive them. The package would be accessed by all Kenyans at service delivery points and paid for in a variety of ways, including through an insurance scheme or public finances.

Its success also depends on the resources available, i.e. money, health workers, health facilities and medical equipment.

This is where the Health Benefits Package Advisory Panel (HBAP) comes in.

The Panel is working on the following deliverables:

1. Standard criteria for assessing inclusion and exclusion of services, procedures, drugs, medical supplies and technologies in UHC-EBP.
2. A portfolio of services and procedures that are properly costed using the best quality evidence, including actuarial estimates of supply and demand, based on realistic projections of current and future utilisation:
3. A list of medical products and health technologies that are properly costed, based on realistic projections of current and future supply and demand: emerging technologies should be considered for inclusion provided that their cost-effectiveness and benefits to the people are justified.
4. A periodic work plan of activities based on assignments issued by the Cabinet Secretary for Health.

The panel reviewed the contents of benefit packages and service entitlement in KEPH and NHIF that were delivered through vertical programmes and county governments as per the KEPH criteria. It also reviewed the foundation of vertical programmes and other services offered, including the NHIF’s national scheme known as Supa Cover.

KEPH has more services that target preventive and promotive care, an aspiration Kenya is striving towards.