Health Systems & Reform ISSN: 2328-8604 (Print) 2328-8620 (Online) Journal homepage: http://www.tandfonline.com/loi/khsr20 Kenya National Hospital Insurance Fund Reforms: Implications and Lessons for Universal Health Coverage Edwine Barasa, Khama Rogo, Njeri Mwaura & Jane Chuma To cite this article: Edwine Barasa, Khama Rogo, Njeri Mwaura & Jane Chuma (2018) Kenya National Hospital Insurance Fund Reforms: Implications and Lessons for Universal Health Coverage, Health Systems & Reform, 4:4, 346-361, DOI: 10.1080/23288604.2018.1513267 To link to this article: https://doi.org/10.1080/23288604.2018.1513267 Published with license by Taylor & Francis Group, LLC© 2018 International Bank for Reconstruction and Development / The World Bank Accepted author version posted online: 24 Sep 2018. Published online: 06 Nov 2018. Submit your article to this journal Article views: 1936 View Crossmark data Full Terms & Conditions of access and use can be found at http://www.tandfonline.com/action/journalInformation?journalCode=khsr20 Health Systems & Reform, 4(4):346–361, 2018 Published with license by Taylor & Francis Group, LLC ISSN: 2328-8604 print / 2328-8620 online DOI: 10.1080/23288604.2018.1513267 Research Article Kenya National Hospital Insurance Fund Reforms: Implications and Lessons for Universal Health Coverage Edwine Barasa *,1,2, Khama Rogo3, Njeri Mwaura 3 , and Jane Chuma3 1 Health Economics Research Unit, KEMRI–Wellcome Trust Research Programme, Nairobi, Kenya 2 Centre for Tropical Medicine, Nuffield Department of Clinical Medicine, University of Oxford, Oxford, UK 3 The World Bank Group, Kenya Country Office, Nairobi, Kenya CONTENTS Abstract—This article identifies and describes the reforms under- Background taken by the National Hospital Insurance Fund (NHIF) and examines Methods their implications for Kenya’s quest to achieve universal health cover- Results age (UHC). We undertook a review of published and grey literature to Discussion identify key reforms that had been implemented by the NHIF since References 2010. We examined the reforms undertaken by the NHIF using a health financing evaluation framework that considers the feasibility, equity, efficiency, and sustainability of health financing mechanisms. We found the following NHIF reforms: (1) the introduction of the Civil Servants Scheme (CSS), (2) the introduction of a stepwise quality improvement system, (3) the health insurance subsidy for the poor (HISP), (4) revision of monthly contribution rates and expansion of the benefit package, and (5) the upward revision of provider reimburse- ment rates. Though there are improvements in several areas, these reforms raise equity, efficiency, feasibility, and sustainability concerns. The article concludes that though NHIF reforms in Kenya are well intentioned and there has been improvement in several areas, design attributes could compromise the extent to which they achieve their intended goal of providing universal financing risk protection to the Kenyan population. BACKGROUND Keywords: efficiency, equity, social health insurance, universal health Low- and middle-income countries (LMICs) are increasingly coverage adopting universal health coverage (UHC) as their health policy Received 30 April 2018; revised 16 July 2018; accepted 8 August 2018. priority.1 To achieve UHC, countries must expand the range of *Correspondence to: Edwine Barasa; Email: edwinebarasa@gmail.com services they provide to their citizens, expand population cover- Color versions of one or more of the figures in the article can be found online at www.tandfonline.com/khsr. age with a prepayment mechanism, and reduce the proportion of © 2018 International Bank for Reconstruction and Development / The World Bank direct costs that citizens pay to access health care services.2 This is an Open Access article distributed under the terms of the Creative Kenya has made a commitment to achieve UHC by 2022. The Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, country has a mixed health financing system that is financed by provided the original work is properly cited. revenues collected by the government (national and county) 346 Barasa et al.: Health Insurance Reforms in Kenya 347 through taxes and donor funding, the National Hospital Rwanda, and Tanzania have contributory public health insur- Insurance Fund (NHIF) through member contributions, private ance schemes, and South Africa, Swaziland, Lesotho, Sierra health insurance companies through member contributions, and Leone, Liberia, Zambia, Uganda, Bukina Faso, and Zimbabwe out-of-pocket spending by citizens at points of care.3 Purchasing are considering establishing one.4–6 The Kenyan government of health care services is carried out through (1) supply-side has made a decision to use the NHIF as one of the key subsidies to public facilities by national and county governments strategies for scaling up population coverage with a prepay- —for instance, the county departments of health provide line ment health financing mechanism.7 budgets to county hospitals to finance service delivery to citi- The NHIF is a public institution that was established in zens within the county; (2) the NHIF, which contracts public and 1966 to provide mandatory health insurance to formal sector private health care facilities in Kenya and pays them for services employees, and its mandate later expanded to cover informal provided to its enrolled members; and (3) private health insur- sector workers in 1998.8 Membership in to the NHIF is ance companies that contract private health care facilities and mandatory for formal sector workers, who pay an income pay them for services provided to their enrolled members.3 rated monthly contribution through statutory deductions, Table 1 outlines the country’s key health financing indicators. whereas it is voluntary for informal sector workers, who Contributory health insurance has gained popularity as a pay a flat rate contribution directly to the NHIF. Previous health financing mechanism in Kenya and other LMICs, analysis has shown that NHIF’s purchasing is passive rather reforming their health systems for UHC.4 An increasing num- than strategic.7 Health insurance coverage in Kenya is gen- ber of sub-Saharan African countries have either established or erally low (19%; Table 1). The NHIF is the main health are in the process of establishing a contributory public health insurer in Kenya, covering 16% of Kenyans, whereas the 32 insurance scheme. For example, Ghana, Kenya, Nigeria, private health insurers collectively cover a mere 1% of the Kenyan population.9 In efforts to enhance the NHIF’s capacity to deliver the 2002– 2005– 2008– 2013– 2015– Health financing indicators 2003 2006 2009 2014 2016 promise of UHC to Kenyans, the Kenyan government has introduced several reforms in the last eight years. In this Percentage of population 9.7 n/a 10.0 17.1 19 article, we analyze the implications of these reforms for with health insurance Kenya’s quest to achieve UHC. We focus on the entire coverage range of recent reforms given that they are linked and Percentage of total health 29.6 29.3 28.8 33.5 37 expenditure financed by aimed at the same objective: increasing population coverage public sources with the NHIF to increase access to quality health care Percentage of total health 16.4 31.0 34.5 24.7 23.4 services while offering protection from the adverse effects expenditure financed by of out-of-pocket payments. This analysis adds to the literature donors on health financing reforms in LMICs by illuminating Percentage of total health 54.0 39.3 36.7 40.6 39.6 Kenya’s experience with implementing health insurance expenditure financed by reforms and providing lessons on how the configuration of private sources such reforms can influence progress toward UHC. This Percentage of total health n/a n/a 25.1 26.6 26.1 expenditure paid for experience and lessons are relevant not only for Kenya but through out-of-pocket for other LMIC settings that either have or are planning to expenditure introduce a contributory health insurance mechanism. Total health expenditure per 51.2 59.5 66.3 77.4 78.6 capita (USD) Government health 7.9 5.1 4.8 6.1 6.7 METHODS expenditure as % of total government expenditure Study Approach Total health expenditure as 5.1 4.7 5.4 6.8 5.2 % of gross domestic We reviewed both peer-reviewed publications and grey litera- product ture that contained information on the NHIF. To obtain peer- Public expenditure on health 1.5 1.4 1.6 2.3 2.2 reviewed and grey literature, we conducted Google searches as % of gross domestic and a search in Google Scholar and PUBMED using the product following keywords: “national hospital insurance fund Kenya,” “NHIF Kenya,” “NHIF reforms Kenya,” and TABLE 1. Selected Health Financing Indicators for Kenya3 “NHIF policies Kenya.” We also specifically searched on 348 Health Systems & Reform, Vol. 4 (2018), No. 4 the websites of the Kenyan Ministry of Health, NHIF, key is allocatively efficient if resources are allocated to services international development organizations that support the addressing the heaviest burden of ill health in the community Kenyan Ministry of Health and NHIF on health financing for which effective interventions exist, while giving priority initiatives (the World Bank Group, German Development to the most cost-effective interventions.30 A health financing Corporation, United States Agency for International mechanism is considered sustainable if it has long-term sta- Development, and World Health Organization) and an online bility and potential for generating revenue.30 Sustainable database of Kenyan laws. We restricted our search to docu- financing mechanisms should not be subject to considerable ments and papers that were published from 2010 onwards. and frequent fluctuations.30 We chose 2010 as our stating point because this was the year A limitation of our selected approach and framework is that the report of a strategic review of the NHIF commis- that it does not examine the effect of NHIF reforms against sioned by the Kenyan Ministry of Health and the the ultimate UHC goals of effective service coverage and International Finance Corporation (IFC); hereafter refered to financial risk protection. This is due to a lack of data that as the strategic review was released. The strategic review could inform this analysis that are specific to NHIF reforms. assessed the performance of the NHIF in the period preceed- However, the criteria outlined in the McIntyre framework ing 2010. Further, the period after 2010 is the period during reflect health financing configurations that are instrumental which substantial reforms were implemented by the NHIF. in attaining the ultimate UHC goals and hence an analysis We only included documents, reports, and peer-reviewed using this framework is informative regarding whether the papers that contained information relating to NHIF reforms direction of health financing reforms is appropriate. Another and/or a description of NHIF operations or performance. We limitation is the inability to causally attribute reforms to identified seven peer-reviewed papers and 16 grey literature. effects. We used this framework to carry out a qualitative Table 2 outlines the documents identified and reviewed. assesment of the reforms rather than a quantitiative impact assessment of each of the reforms against the four framework criteria. Analytical Framework To analyze the information obtained from the retrieved docu- RESULTS ments, we applied the framework proposed by McIntyre30 for assessing health financing mechanisms. This framework pro- The strategic review commissioned to assess the performance poses that health financing mechanisms should be assessed of NHIF in relation to its existing mandate identified several on their feasibility, equity, efficiency, and sustainability.30 weaknesses.8 Among others, the strategic review revealed The McIntyre framework offers a range of feasibility consid- that health insurance coverage by the NHIF in Kenya was erations for health financing mechanisms. These include low and that informal sector membership was characterized actor/political support or opposition to aspects of revenue by high attrition rates.8 The report further highlighted that the collection, risk pooling, and purchasing; the feasibility of NHIF was inefficient, with a benefit payout rate of 55% and a collecting funds (willingness and/or ability of citizens to proportion of administrative costs of 45% in 2010.8 The make contributions); and whether there is adequate capacity report made recommendations for reforms in five key areas (such as technical, administrative, resources) to ensure suc- of the NHIF8: (1) policy and regulatory framework, (2) gov- cessful implementation.30 With regards to equity, there is ernance, (3) financial sustainability, (4) effectiveness, and (5) general agreement that individuals should contribute to health efficiency. Interested readers can refer to the report for further care according to their ability to pay and benefit according to details on its findings and recommendations. Since then, the their need for care.31 An equitable health financing system NHIF has embarked on several reforms. Given that NHIF will therefore involve cross-subsidies from the rich to the membership is mandatory for individuals in the formal sector poor and from the healthy to the ill.30 With regards to effi- and voluntary for individuals in the informal sector, the ciency, revenue collection of a health financing mechanism is strategic review recommended that efforts to scale up NHIF efficient if it generates a relatively large amount of funds coverage should focus on enrolling informal sector indivi- while minimizing collection costs.32 Efficiency is assessed duals. This focus is reflected in the NHIF strategic plan24 and based on how aspects of revenue collection, pooling, and in the NHIF informal sector strategy.26 Most of the reforms purchasing influence technical and allocative efficiencies. implemented by the NHIF since 2010 (other than the intro- For instance, the resource allocation mechanism of a health duction of the Civil Servants Scheme) are hence aimed at financing mechanism is technically efficient if it provides expanding membership coverage with a specific focus on the resources to the maximum number of fundable services and informal sector.33 In this section, we will begin by describing Barasa et al.: Health Insurance Reforms in Kenya 349 Author (date) Study/report title Study/report objective Peer-reviewed papers 1 Abuya et al.10 Historical Account of the National Health Insurance To trace the historical process of the development of the Formulation in Kenya: Experiences from the Past National Health Insurance Scheme proposal and Decade illuminates factors that led to the failure of implementing the policy 2 Barasa et al.11 Extending Voluntary Health Insurance to the To examine the experiences and perceptions of informal Informal Sector: Experiences and Expectations of sector individuals regarding membership with the the Informal Sector in Kenya NHIF 3 Kazungu and Barasa9 Examining Levels, Distribution and Correlates of To examine the levels, inequalities, and factors associated Health Insurance Coverage in Kenya with health insurance coverage in Kenya 4 Munge et al.7 A Critical Analysis of Purchasing Arrangements in To critically analyse purchasing arrangements in Kenya, Kenya: The Case of the National Hospital using the NHIF as a case study Insurance Fund 5 Oketch and Analysis of Universal Health Coverage and Equity on To critically review the various initiatives that the Lelengwe12 Health Care in Kenya government of Kenya has initiated over the years toward the realization of UHC and how this has impacted health equity 6 Okungu et al.13 Extending Coverage to Informal Sector Populations To document the views of informal sector workers in Kenya: Design Preferences and Implications for regarding different prepayment mechanisms and Financing Policy critically analyze key design features of a future health system and the policy implications of financing UHC in Kenya 7 Sieverding et al.14 Private Healthcare Provider Experiences with Social To explore private providers’ perceptions of and Health Insurance Schemes: Findings from a experiences with participation in two different social Qualitative Study in Ghana and Kenya health insurance schemes in sub-Saharan Africa—the National Health Insurance Scheme in Ghana and the NHIF in Kenya Grey literature 8 Gesellschaft für Willingness and Ability to Pay for the NHIF Premium To examine the willingness and ability to pay the NHIF Internationale among the Informal Sector premium among the informal sector in Kenya Zusammenarbeit (GIZ)15 9 IFC8 Strategic Review of the National Hospital Insurance To carry out a comprehensive strategic review of NHIF Fund and a market assessment of prepaid health schemes/ health maintenance organisations in Kenya 10 IFC16 HISP Process Evaluation Report To evaluate the implementation process of the HISP pilot 11 IFC17 NHIF–SafeCare Program End Term Evaluation To evaluate the NHIF–SafeCare program Report 12 Kimani et al.18 Baseline Survey of the Health Insurance Subsidy To examine the baseline characteristics of HISP Programme beneficiaries in Kenya 13 Mbau et al.19 Strategic Purchasing in Healthcare in Kenya: To examine how recent NHIF reforms have influenced Examining Purchasing Reforms by the National the ability of the NHIF to purchase health care services Hospital Insurance Fund strategically 14 Mbau et al.20 Examining Multiple Funding Flows to Healthcare To examine how multiple funding flows to health care Facilities in Kenya facilities have influenced provider behavior in Kenya 15 NHIF21 Civil Servants Scheme Operations Manual To outline the operational arrangement and implementation plan of the civil servants program 16 NHIF22 Health Insurance Subsidy for the Poor (HISP) To outline the operational arrangement and Operations Manual implementation plan of the HISP program 17 NHIF23 NHIF Management Report (2013–2014) To analyze and present the performance of the NHIF for fiscal year 2013–2014 18 NHIF24 NHIF Strategic Plan 2014–2018 To outline strategic objectives of the NHIF over the period 2014–2018 (Continued on next page ) 350 Health Systems & Reform, Vol. 4 (2018), No. 4 Author (date) Study/report title Study/report objective 19 NHIF25 NHIF Management Report (2014–2015) To analyze and present the performance of the NHIF for fiscal year 2014–2015 20 NHIF26 NHIF Informal Sector Strategy To outline strategic objectives of the NHIF during the period 2016–2018 with regard to expanding membership among the informal sector 21 NHIF27 NHIF Management Report (2015–2016) To analyze and present the performance of the NHIF for fiscal year 2015–2016 22 NHIF28 NHIF Management Report (2016–2017) To analyze and present the performance of the NHIF for fiscal year 2016–2017 23 The World Bank29 Impact Evaluation of the Health Insurance Subsidy To examine the effectiveness of the health insurance Program in Kenya subsidy program in increasing health care utilization and financial risk protection among the poor in Kenya TABLE 2. Documents and Papers Included in the Document Review the key reforms undertaken by the NHIF since 2010, fol- restricted settings to go through stepwise structured improve- lowed by an analysis of the implications of the reforms for ment programs to deliver safe and quality-secured care to UHC in Kenya. their patients according to internationally recognized standards.17 This differs from traditional quality assurance mechanisms that have a dichotomous approach to quality Reforms Undertaken by the NHIF standards and hence allows small, poorly resourced health The Introduction of the Civil Servants Scheme care facilities to implement a quality improvement plan with In 2012, the NHIF introduced an insurance scheme for formal the goal of meeting the required standards for accreditation sector government workers and their dependents (civil ser- and contracting by the NHIF to provide health care services. vants) known as the Civil Servants Scheme (CSS).34,35 Under the CSS, the Kenyan government remits the medical allow- The Health Insurance Subsidy for the Poor ances, previously paid directly to civil servants, to the NHIF Another strategy adopted to expand population coverage as premium contributions.34 Funds for the CSS are managed with the NHIF and improve equity in coverage was the separately from other NHIF funds, and beneficiaries enjoy a introduction of a health insurance subsidy for the poor wider benefit package,34 including comprehensive outpatient (HISP) program.16 In April 2014, the Kenyan government and inpatient services accessed through contracted health care launched the HISP pilot program—a comprehensive, fully providers. Since the inception of CSS, civil servants have subsidized, health insurance program for selected poor successfully negotiated for expansion of the benefit package orphans and vulnerable children—benefiting from the gov- to include treatment abroad and land ambulance and airlifting ernment’s cash transfer program.16,36 The HISP pilot tar- services.19 Civil servants and their dependents are capitated geted 23,000 households (approximately 142,000 to their preferred health care provider at a rate of 1,500 Kenya individuals) across the country for two years, with plans shillings (KES; 15 USD) per annum for public facilities, and to progressively scale up coverage to the poorest 10% of 2,850 KES (28.5 USD) for private facilities.34 The different the population.16,36 These households were selected from rates account for supply-side subsidies received by public the poverty list of orphans and vulnerable children devel- facilities from the government through annual budgetary oped and maintained by the country’s Ministry of Labor, allocations. Approximately 600,000 civil servants and their Social Security, and Services.16,22 Those on the list were dependents are registered under this scheme. targeted using a combination of proxy means and commu- nity verification.16,22 In August 2016, the HISP program Introduction of a Stepwise Quality Improvement System was scaled up to approximately 170,000 households In 2013, the NHIF, with financial support from the IFC and (approximately 600,000 individuals). HISP beneficiaries technical support from the PharmAccess Foundation, intro- receive comprehensive services from contracted public duced the SafeCare quality improvement system.17 SafeCare and private providers.36 At the time of its launch, the aims to support basic health care providers in resource- NHIF did not cover outpatient services, with the exception Barasa et al.: Health Insurance Reforms in Kenya 351 of the CSS. However, to provide adequate financial risk informal sector increased by 213%.37 This increase was protection, an outpatient package was specifically designed accompanied by expansion of the benefit package to include for the HISP beneficiaries. Although the HISP benefit pack- outpatient services and a range of what the NHIF labels age was much narrower than that of the civil servants,36 the special packages that include chronic diseases, surgical care, capitation rate payable to contracted providers remained the chemotherapy, renal dialysis, kidney transplant, and magnetic same. resonance imaging and computed tomography scans.19,38 Compared to the CSS, contracted public providers receive a lower annual capitation rate of 1,200 KES for public provi- Revision of Monthly Contribution Rates and Expansion of the ders and 1,400 KES for private providers.28 Additionally, Benefit Package facilities are reimbursed separately for the special packages In April 2015, the NHIF increased contribution rates for its as outlined in Table 4. national scheme members (Table 3), to account for increased cost of service provision and to expand the benefit package.37 Prior to this revision, the NHIF premiums were last The Upward Revision of Provider Reimbursement Rates revised in 1988.11 The monthly contributions for the lowest (2016) paid formal employee increased by 400%, and rates for the In March 2016, the NHIF increased the inpatient reimburse- highest earners increased by 431%. Contribution rates for the ment rates following negotiations with health providers, as a Old income groups and premium contribution rates (KES) New income groups and premium contribution rates (KES) Monthly salary Monthly premium Income group Premium % increase 1,000–1,499 30 Less than 5,999 150 400 1,500–1,999 40 275 2,000–2,999 60 150 3,000–3,999 80 88 4,000–4,999 100 50 5,000–5,999 120 25 6,000–6,999 140 6,000–7,999 300 114 7,000–7,999 160 88 8,000–8,999 180 8,000–11,999 400 122 9,000–9,999 200 100 10,000–10,999 220 82 11,000–11,999 240 67 12,000–12,999 260 12,000–14,999 500 92 13,000–13,999 280 79 14,000–14,999 300 67 15,000 and above 320 15,000–19,999 600 88 20,000–24,999 750 134 25,000–29,999 850 166 30,000–34,999 900 181 35,000–39,999 950 197 40,000–44,999 1,000 213 45,000–49,999 1,100 243 50,000–59,999 1,200 275 60,000–69,999 1,300 306 70,000–79,999 1,400 338 80,000–89,999 1,500 369 90,000–99,999 1,600 400 Over 100,000 1,700 431 Informal sector 160 500 213 TABLE 3. Revisions of NHIF Contribution Rate 352 Health Systems & Reform, Vol. 4 (2018), No. 4 Provider payment method Benefit covered Reimbursement rate Capitation Outpatient services for national scheme, sponsored 1,400 KES per beneficiary per year scheme and civil servants of job groups A–K (outpatient services include consultation, treatment, basic diagnostic tests: laboratory and X-ray; day care surgery and drugs under the Kenya Essential Drug List of 2010) Case-based payment Maternity package (national and sponsored schemes) Normal delivery 10,000 KES Caesarean section 30,000 KES Free maternity program Normal delivery and caesarean section 5,000 KES Renal dialysis 9,500 KES per session twice weekly Includes pre-dialysis, intra-dialysis session, and post-dialysis care Surgical package Major surgeries: • 80,000 KES (levels three and four) • 130,000 KES (levels five and six) Minor surgeries: • 30,000 KES (levels three and four) • 40,000 KES (levels five and six) Fee-for-Service Radiology package Magnetic resonance imaging capped at 15,000 KES Computed tomography scan capped at 8,000 KES Dental Capped at 40,000 KES Optical Capped at 50,000 KES Maternity for managed schemes Capped at 200,000 KES Outpatient services for civil servants of job groups L Job group L capped at 100,000 KES and above Job group M capped at 150,000 KES Job group N capped at 200,000 KES Job group P capped at 225,000 KES Job group Q capped at 250,000 KES Job groups R, S, T capped at 350,000 KES Inpatient services for civil servants of job groups L Job group L capped at 1,000,000 KES and above Job group M capped at 1,250,000 KES Job group N capped at 1,500,000 KES Job group P capped at 1,750,000 KES Job group Q capped at 2,000,000 KES Job groups R, S, T capped at 2,250,000 KES Rebate (per diem) Covers admitted medical and surgical conditions 2,000–4,000 KES per day (no copayments in public facilities) A job group represents seniority and corresponding salary scales where a higher alphabet represents more seniority TABLE 4. NHIF Reimbursement Rates28 means to reduce the proportion of direct costs payable by its Implications of the NHIF Reforms for UHC members for inpatient care.19,39 For example, reimbursement Feasibility for a normal delivery increased from 6,000 KES to 10,000 The first feasibility concern is the push to expand coverage KES, and the daily rebate for inpatient care in a public using a voluntary contributory mechanism. In absolute num- facility doubled, from 600 KES to 1,200 KES.39 Though health providers expressed their dissatisfaction with the bers, the number of Kenyans (principal members plus bene- ficiaries) enrolled in the NHIF increased from about lower capitation rates, they agreed to provide outpatient ser- vices if the NHIF increased inpatient and special package 2.7 million in 2010 to 6.6 million in 2017, the number of reimbursement rates (Table 3). NHIF members who belong to the formal employment sector Barasa et al.: Health Insurance Reforms in Kenya 353 FIGURE 1. Absolute Number of Kenyans Enrolled in the NHIF increased from 2 million to 2.5 million, and the number of surprising that at 19%, health insurance coverage in Kenya informal sector employees increased from 652,000 to 1.6 closely mirrors the proportion of formal sector workers. million between 2010 and 2017 (Figure 1).23,25,27,28 Though informal sector individuals form 83% of total employed Computations from NHIF administrative reports show that individuals in Kenya,42 they contributed only 24% of the total despite an increase in the proportion of the Kenyan popula- number of individuals enrolled in the NHIF in 2017.28 Further, tion enrolled in the NHIF between 2010 and 2017, the level in 2017 the proportion of enrolled informal sector individuals of health insurance coverage by the NHIF remains low who subsequently did not renew their membership was 73%,28 (Figure 2).23,25,27,28 These numbers computed from NHIF signaling a high attrition rate. Enrollment and retention among administrative data are in the same range as estimates com- the informal sector using a voluntary contributory mechanism is puted from nationally representative household surveys.9,40 problematic for several reasons.4,41 One, a significant propor- International experiences show that few countries have made tion of informal workers are less well off compared to formal substantial progress toward UHC on a voluntary basis.4,41 sector workers and therefore have a lower ability to pay for Kenya, like most LMICs, has a large proportion of informal health insurance.43,44 Second, given that the informal sector is sector workers. The challenge with scaling up voluntary health not organized in sizeable groups, it is administratively difficult insurance among the informal sector is already evident. It is not to recruit, register, and collect regular contributions in a FIGURE 2. Changes in Population Coverage by the NHIF in Kenya 354 Health Systems & Reform, Vol. 4 (2018), No. 4 cost-effective way. Membership and premium payments are Equity therefore often voluntary, leading to low uptake and poor The expansion of services among the informal sector and the retention.4,45 Third, informal sector worker incomes are often introduction of the HISP program would ideally improve equity. unpredictable,4 which makes it difficult to collect premiums However, several key design features of NHIF reforms raise regularly and increases attrition rates among this population. equity concerns. First, the decision to first expand coverage to The second feasibility concern relates to service provision civil servants, who represent a sizeable number of the well-off constraints. Creating an entitlement to service benefits population, undermines fairness and equity. This inequity is (whether comprehensive or limited) does not guarantee especially so because a sizeable proportion of Kenya’s popula- access to these services,41 unless a strong and well-distributed tion is in the informal sector, and 36% of the population lives service delivery system is in place.41 The capacity of the below the national poverty line.48 As expected, health insurance purchasing organization and whether or not it engages in coverage is skewed in favor of the rich (Figure 3).9 An analysis strategic purchasing is also critical.41 It has been reported of benefits paid by the NHIF reveals that the per capita (per that though the de jure NHIF benefit package was compre- enrolled individual) benefits paid by the NHIF for members of hensive, the range of benefits that its members de facto the civil servants scheme is six times (60 USD) more than that received was limited because certain services were often not paid for members of the national scheme (11 USD). available from the health care providers that NHIF had con- Second, feasibility challenges discussed previously have tracted to provide services to its members.11,19,35,46 This compromised the intention to enhance equity through the included medicines, laboratory, and radiological tests. Although the NHIF has clearly embarked on an ambitious introduction of the HISP program. An analysis of the baseline data of the HISP beneficiaries revealed high levels of inclu- plan to expand both the breadth and depth of coverage, this sion errors. This analysis reported that 65% of HISP bene- needs to be matched by increased capacity to support such ficiaries were in the richest two quintiles (quintiles four and reforms. A weak link in the NHIF system is the number and five) when their asset index is mapped onto the asset index type of providers contracted and the quality of services pro- scores in a nationally representative household survey data vided to its members.11,19,35,14 Though the NHIF expanded set (Kenya National Demographic and Health Survey).18 its contracted health care facility network from 675 in 2010 to Third, expansion of the benefit package for both the CSS 4,011 in 2018, this is still only 40% of the total number of and the national scheme increases service coverage, albeit health care facilities in Kenya.19 One of the barriers to expan- sion of the NHIF health facility network is the slow and with equity implications. Given that it is unlikely that the NHIF will significantly increase membership among the cumbersome health care facility empanelment process.16,14 For example, access to health care services by HISP benefi- informal sector and the poor, the increase in the benefit package will only benefit formal sector workers. By increas- ciaries was compromised by, among others, the slow empa- ing benefits, the NHIF is implicitly trading off population neling and contracting of health care facilities.16 The NHIF coverage for greater benefits. This is because there is an also has weak capacity to monitor and enforce contracts, expansion of services without an expansion of population including mechanisms to assess quality of services offered coverage and yet the current covered population is predomi- to their members.19,35 nantly composed of the well-off. Moreover, because the bur- The third feasibility concern is the implementation chal- den of disease is likely to be higher among the poor lenges and scalability of the HISP program. These include population, this trade-off further exacerbates inequities in (1) the capacity to carry out poverty targeting to identify beneficiaries of the HISP program (the poverty list devel- access to health services. There is evidence that the different benefit packages for civil servants and the rest of the popula- oped and maintained by the Ministry of Labor has only tion not only create perceptions of unfairness among NHIF about 600,000 poor individuals, whereas the estimated members11 but incentivize health care facilities to preferen- number of poor Kenyans is 17 million16); (2) weak com- tially treat civil servants and discriminate against the rest of munication and hence low awareness among beneficiaries the population.19,20 For instance, it has been shown that one of their entitlement and how to access services; and (3) of the reasons informal sector individuals did not want to slow contracting of health care facilities by the NHIF.16 enroll in the NHIF was because they felt that the NHIF These challenges perhaps contributed to the finding of the prioritized civil servants.11 It has also been shown that health HISP impact evaluation that there was no statistically sig- nificant effect of the HISP program to either health care care facilities preferentially allocated resources to civil ser- vants by setting up, staffing, and equipping special civil utilization or level of out-of-pocket payments by HISP beneficiaries.47 servant clinics in hospitals at the expense of the rest of the Barasa et al.: Health Insurance Reforms in Kenya 355 FIGURE 3. Trends in Health Insurance Coverage in Kenya by Socioeconomic Quintile9 service areas that served non–civil servants20 and preferen- per month).11,13,19 Further, a study on willingness and ability to tially treated civil servants by, for instance, letting them jump pay the NHIF premium by the informal sector showed that the queues at the expense of non–civil servants.19 new rate was unaffordable for 75% of this population group.15 International experiences show that expanding coverage to Sixth, contracting of health care facilities to provide ser- the well-off and the formal sector first exacerbates inequal- vices to NHIF members is biased in favor of urban facilities, ities and impedes countries’ progress toward UHC.4,41 predominantly hospitals, rather than small outpatient facilities Indeed, one of the unacceptable trade-offs highlighted by that provide primary health care.19 The poor typically reside the World Health Organization’s Consultative Group on in rural regions and tend to use smaller outpatient facilities, Equity and UHC relates to providing universal coverage to rather than hospitals and/or facilities in urban areas. This bias those with the ability to pay, while excluding informal work- therefore promotes inequities in access to services. ers and the poor.49 As Kenya makes the difficult choices Seventh, the NHIF signs different contracts with the same related to what services to provide and to whom and the health care facilities depending on the scheme and benefit extent of financial risk protection, it is important that such package. These contracts have overlapping provider payment decisions ensure fairness and equity. Providing varying ben- mechanisms but different payment rates and service entitle- efit packages, not by virtue of need but by ability to pay, may ments. For example, whereas the NHIF pays an annual capi- not only promote inequities in access to health services but tation rate of 2,850 KES for members of its CSS, it pays the potentially promote inequities in health outcomes. same facility an annual capitation rate of 1,200 KES for Fourth, voluntary health insurance is regressive. An earlier outpatient care for the general population. Similarly, whereas analysis of the NHIF premiums showed that contributions for the NHIF reimburses the full cost of delivery for the civil both formal and informal sector workers were regressive.50 servants based on a fee-for-service payment mechanism, it The revised premiums, though well intended, increased the pays the same facility 10,000 KES per delivery for members regressivity of contributions among both formal sector indi- in the national scheme using a case-based payment system. viduals by broadening the income bands and informal sector These multiple provider payment mechanisms and payment individuals by increasing the contribution rate of a flat rate rates may generate conflicting and unwanted incentives premium. It is important that any efforts to revise the design for providers.20 There is evidence that these incoherent pro- of NHIF premiums ensure that progressivity is maintained. vider payment mechanisms have resulted in preferential treat- Fifth, the upward revision of the NHIF premium contribu- ment of civil servants at the expense of non–civil tion rates is unaffordable to informal sector individuals. servants.19,20 This includes practices like sending non–civil Informal sector individuals have expressed concern about the servant NHIF members to purchase medicines from private affordability of the revised premium contribution rate (500 KES pharmacies outside the hospital using out-of-pocket 356 Health Systems & Reform, Vol. 4 (2018), No. 4 payments, while providing medicines to civil servants within risk-sharing and income cross-subsidization,4,52 resulting the hospital because of the perception that the capitation rate in higher risk-adjusted costs coverage than would have for non–civil servants was inadequate.19 Multiple payment existed under a larger pool, thus compromising technical mechanisms therefore potentially incentivize unfairness in the efficiency.4 system. Fourth, the voluntary nature of informal sector individual membership has left the NHIF susceptible to adverse selec- tion. For instance, it has been reported that health care pro- Efficiency viders encourage and even facilitate the enrollment of There are a number of efficiency concerns for the NHIF. First, patients in need of long-term inpatient care or expensive eventhough the annual revenue collection by the NHIF procedures.20 increased sixfold from 5.9 billion KES in fiscal year Fifth, weak accountability mechanisms have led to an 2009–2010 to 37 billion KES in fiscal year 2016–2017 increase in cases of fraud by the NHIF and health care (Figure 4),23,25,27,28 this amount represented approximately 5% providers.19 Fraud leads to leakage of resources, which of the country’s current health expenditure.51 This implies that results in inefficiencies. the NHIF is not an efficient mobilizer of revenues for health care Sixth, it has been reported that the NHIF has poor because of the feasibility challenges discussed previously. quality assurance mechanisms that have resulted in pur- Second, though administrative costs as a share of total rev- chasing of poor quality of care.7 For instance, though in enues were reduced from 42% to 22% and the benefit payout theory the NHIF is meant to carry out regular monitoring ratio increased from 52% to 75% between 2010 in 2017 of health care facilities and conduct clinical audits to check (Figure 5),23,25,27,28 these indicators are still poor, indicating on quality of care, in practice these activities are persistent operational inefficiencies. An analysis of NHIF infrequent.7 Spending scarce resources on poor-quality reports reveals that staff costs contributed 63% of administative care compromises techncial efficiency. Though an ade- costs in fiscal year 2016–2017, indicating that staffing is a key quacy assessment of the SafeCare program reported that driver of operational inefficiencies of the NHIF. This is consis- the median quality score of enlisted facilities improved tent with the findings of the strategic review. from 41% (interquartile range 33%–51%) to 51% (inter- Third, NHIF’s fragmented risk pools also contribute to quartile range 44%–63%),17 the number of health care the inefficiency of the NHIF. The NHIF operates three facilities that were enlisted in the SafeCare program was schemes (CSS, the national scheme, and HISP), each offer- low (852 health care facilities as of 2017).17 ing different benefit packages.19,28,35 Though each of these Finally, allocating resources preferentially to hospitals that packages includes inpatient and outpatient care, there is are predominantly located in urban areas rather than the more considerable variation between them.19 The multiple bene- cost-effective primary health care services compromises allo- fit packages and fragmentation of risk pools undermine cative efficiency. FIGURE 4. NHIF Revenue Collection in Absolute Terms by Year Barasa et al.: Health Insurance Reforms in Kenya 357 FIGURE 5. NHIF Administrative Cost and Benefit Payout Ratio Sustainability “purchaser capture,” a situation in which the actions of a purchaser are influenced by, and in favor of, health care The expanded benefit package offered by the NHIF coupled providers. Table 5 presents a hypothetical scenario in which with the upward revision of provider reimbursement rates is the NHIF recruits one million more members from the infor- unsustainable. The upward revision of inpatient reimburse- mal sector population, a more than 100% increase from the ment rates was a result of lobbying by private health care current rate. providers as a condition for accepting the introduced capita- Scenario one is an optimistic scenario. Under this sce- tion rates.39 Private health care providers are a powerful nario, at a monthly premium rate of 500 KES, the annual interest group in the Kenyan health policy landscape and revenues will be six billion KES. Assuming a very conserva- are represented in the NHIF management board by profes- tive dependency ratio of two beneficiaries for each principal sional associations. Their influence on the NHIF with regard member (the average household size in Kenya is four), the to reimbursement rates represents what we will call here Scenario 1 Scenario 2 Number of principal members 1,000,000 1,000,000 Dependency ratio 2 4 Number of dependents 2,000,000 4,000,000 Total membership 3,000,000 5,000,000 Monthly premium contribution 500 KES 500 KES Annual premium contribution 6,000 KES 6,000 KES Total annual premium contribution 6,000,000,000 KES 6,000,000,000 KES Annual outpatient capitation rate 1,200 KES 1,200 KES Total annual capitation paid 3,600,000,000 KES 6,000,000 KES Annual inpatient claim 1,475 KES 1,475 KES Total annual inpatient claim 4,425,000,000 KES 7,375,000,000 KES Percentage of administrative cost 7.5% 22% Total annual administrative cost 450,000,000 KES 1,320,000,000 KES Total payout 8,475,000,000 KES 14,695,000,000 KES Net annual cash flows −2,475,000,000 KES −8,695,000,000 KES % Deficit 29% 59% a Assumes current level of administative costs and the NHIF assumption for dependency ratio. TABLE 5. NHIF Annual Cash Flow Outlook for a Hypothetical Population of One Million Informal Sector Principal Members (in KES)a 358 Health Systems & Reform, Vol. 4 (2018), No. 4 total number of new NHIF members entitled to benefits will social health insurers globally. For instance, an analysis of be three million. At the current annual capitation rate of administrative costs of insurance schemes in 58 countries 1,200 KES, the NHIF will be required to pay 3.6 billion found that the average level of administrative costs among KES to facilities annually for its newly registered members. public insurance schemes was 4.7%.32 According to the last financial report, the NHIF paid an Further, when the NHIF reforms are examined, it is clear average of 1,475 KES annually for inpatient claims per that there are concerns regarding the feasibility, equity, effi- registered member.28 At this rate, the NHIF will need to ciency, and sustainability of the Kenyan government’s policy pay 4.42 billion KES for inpatient claims. The total annual decision to move toward NHIF using a voluntary contributory expenditure (payments to health care providers plus adminis- mechanism. These findings mirror the results in other settings trative cost) will therefore be 8.5 billion KES against total that operate contributory mechanisms.53 It is important that annual revenues of six billion KES, which gives a deficit of policy design and implementation are aligned with “best two billion KES (25%). A modest administrative charge of practice” and enhance the country’s aspiration to achieve 7.5% increases this deficit to 2.5 billion KES (29%). Under UHC. Several policy actions are imperative. scenario two in which the current NHIF level of administative First, regarding revenue collection, Kenya will not mobilize cost (22%) and the current assumption used by NHIF for sufficient resources using a voluntary contributory mechanism. dependency ratio (four dependents per principal member), the Though NHIF can feasibly mobilize resources from formal deficit increases to 59%. sector workers through payroll deductions, expanding national Although in the current membership mix, where the pools through public subsidy is key to expanding population majority of NHIF members are formal sector employees, the coverage with prepayment financing in a setting like Kenya that deficit from the informal sector risk segment will likely be is characterized by high informality and poverty. Kenya should offset by the revenues from the formal sector segment, the consider allocating tax revenues to the NHIF to provide cover- calculus will tip in the direction of financial deficits and age to Kenyans. To do this, robust actuarial analysis should be unsustainability when more informal sector members are conducted to inform the estimates on the resource requirements registered, as formal sector worker enrollment remains con- for the NHIF. One option could be to use tax funds to provide stant. Thus, the assumption that the formal sector contribu- full subsidies for the poor and partial subsidies for the rest of tions cushion the NHIF from financial collapse is probably the informal sector with some ability to pay premiums. To overly optimistic. Though we do not have access to data on provide subsidies for the poor, Kenya will need to develop revenues from the formal sector, the structure of incomes in and implement a framework for targeting/identification of the Kenya is such that a majority of Kenyans earn very low poor at scale. Without a national framework for poverty identi- salaries, which implies that the average contribution from fication, it will be impossible to scale up a health insurance formal sector workers may be just slightly above 500 KES. subsidy program for the poor. This option comes with several caveats. First, several target- ing approaches vary in inclusion and exclusion errors, which DISCUSSION have implications for who benefits from an intervention tar- The implementation of these reforms demonstrates both com- geted at the poor.55,56 Targeting mechanisms also require robust mitment and political will by the Kenyan government to steer capacity in technical skills, information systems, and verifica- the country toward UHC. The reforms implemented by the tion. It has also been argued that targeting may not always be NHIF resulted in several positive outcomes. However, our cost-effective and may lead to poor-quality service delivery.57 analysis shows that these improvements are not sufficient. The capacity to implement a targeting mechanism and the cost- For instance, though population coverage by the NHIF has effectiveness of a targeting approach must hence be assessed to increased, it remains considerably low at 14%. This resonates inform a decision to target subsidies. with findings from other LMICs that have attempted to An alternative approach for the use of tax funds is to adopt expand health insurance coverage using a voluntary a universal approach and provide subsidies to everyone who mechanism.4 Though the NHIF has doubled its revenue col- is uninsured (informal sector and the poor). Such an approach lection, this amounted to only 5% of Kenya’s total health should, however, be weighed against the fiscal capacity to do expenditure.51 There is overwhelming evidence from other so. Unlike contributory health insurance, a tax funding settings that voluntary mechanisms do not mobilize sufficient approach has the potential to expand coverage faster and resources for health.53,54 Though the NHIF has reduced its may be more administratively efficient. This approach will administrative costs by half, at 22% the NHIF is still highly not only resolve the challenge of expanding population cov- inefficient. This level is much higher compared to other erage but also resolve the challenge of the financial Barasa et al.: Health Insurance Reforms in Kenya 359 unsustainability of the NHIF. Rather than playing both rev- FUNDING enue collection (by collecting premiums from individuals) Edwine Barasa is funded by a Wellcome Trust Research and purchasing roles, the NHIF’s mandate could be restricted Training Fellowship #107527. Njeri Mwaura, Khama Rogo, to strategic purchasing, with revenues collected through and Jane Chuma work for the World Bank Kenya country direct and indirect taxes by the country’s tax collecting office. The views expressed in this article are those of the agency and allocated to the NHIF to purchase services for authors and do not reflect those of the World Bank. Kenyans. Secondly, with regard to risk pooling, the NHIF should consider consolidating the CSS, national scheme, and HISP DISCLOSURE OF POTENTIAL CONFLICTS OF scheme into one pool. This will allow for greater cross-sub- INTEREST sidization and minimize administrative costs. The authors declare that they have provided technical and Third, with regard to purchasing, and related to risk pooling, financial support to some of the examined reforms. consolidation of the risk pools has to be accompanied by harmonization of benefit packages. We recognize that this might be politically difficult, especially if it means reducing ORCID benefits that certain groups, such as civil servants, are entitled to. However, schemes with comparable benefit packages could Edwine Barasa http://orcid.org/0000-0001-5793-7177 be harmonized initially and a policy decision made not to Njeri Mwaura http://orcid.org/0000-0002-6613-4963 introduce new benefit packages but rather to progressively review and update the existing ones toward harmonization. Fourth, NHIF should adopt similar provider payment rates for REFERENCES similar services to minimize the generation of perverse 1. Sachs JD. Achieving universal health coverage in low-income incentives. settings. Lancet. 2012;380(9845):944–947. doi:10.1016/S0140- Fifth, the determination of provider payment rates should be 6736(12)61149-0. 2. Chan M. Making fair choices on the path to Universal Health informed by evidence generated from rigorous costing and Coverage. Heal Syst Reform. 2016;2(1):5–7. doi:10.1080/ actuarial analysis, rather than recommendations from health 23288604.2015.1111288. care providers. The NHIF should avoid what we call here 3. 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