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NHIf: value for money?

Workers’ monthly contributions to the National Hospital Insurance Fund (NHIF)     in   2015 increased from Sh320 up to a maxi- mum of Sh1700 based on their pay. This naturally aroused outcry from working Kenyans, who have to bear with other deductions such as tax, loans, and not to mention, grapple with the rising cost of living. But is NHIF finally giving Kenyans value for money? Plans are in the pipeline to establish a fund for the ever growing number of cancer and diabetes patients.

NHIF in December 2015 announced that it plans to establish a new fund to finance outpatient treatment for chronic diseases like cancer, diabetes, kidney failure and hypertension in both public and private hospitals. This comes as a huge relief as the prevalence of these non-communicable diseases (NCDs) has not only increased, but treat- ment is evasive because of afford- ability.

NCDs such as cancer are expensive to treat, especially in private hospitals, where, expectedly, treat- ment is faster, if not better. Kenyatta National Hospital (KNH), the coun- try’s foremost public referral facility, charges Sh500 per session of radio- therapy while private hospitals like MP Shah, Aga Khan and Nairobi hospital charge about Sh10000.

Before the landmark announce- ment, NHIF did not offer cover for outpatient treatment for chronic diseases like cancer and diabetes, despite its erstwhile promise to do so. It instead focused on basic care for ailments like malaria, pneumonia and typhoid.

NHIF’s new decision to keep its promise and cover chronic diseases is therefore a welcome step, at least for the Kenyan working class who have been pressing for credible justi- fications for the increased rates.

Drugs, especially for chronic dis- eases such as diabetes, are expensive and out of reach for many, particu- larly in Kenya where despite a rise in income levels, many still don’t make enough to get by. Affordable insur- ance cover from NHIF for chronic illnesses, which require continual treatment, will therefore help most of those who can’t afford this kind of treatment.

NHIF’s decision to cover chronic illnesses also signals an appreciation of the fact that chronic illnesses have become a universal concern and merit the attention of the nation- al government. They are no longer a reserve for the rich.


Affecting all

Chronic illnesses such as cancer, dia- betes and hypertension are no longer solely the concern of the old and well off. Lifestyle changes have swept through the lower income segments of the population as well, especially in the urban centers.

Whereas subsistence farmers in rural settings get lots of exercise and mostly eat vegetables, urban slum-dwellers in Kenya live relative- ly gluttonous lives. Informal traders selling greasy chips, sausages, boiled eggs and samosas off trollies have become a common site in many of the informal settlements across Nairobi. These kinds of foods have replaced the ‘ugali sukuma’ staple. Exercise is also not held in high esteem and young men sit smok- ing cigarettes and drinking illegal chang’aa.

Close to 60 percent of Nairobi’s 3.5 million residents live in informal settlements, signaling that lifestyle changes at the bottom end of the pyramid are indeed affecting a much broader spectrum of the Kenyan population than previously imag- ined. Consequently, lifestyle diseases are affecting all, not just the rich. This is evident in the statistics relat- ing to deaths from NCDs.

NCDs such as diabetes, cancer, cardiovascular diseases and chron- ic respiratory diseases are estimat- ed to account for 27 percent of all deaths in Kenya, data from the World Health Organization (WHO) shows. According to AstraZeneca, a biopharmaceutical company, about

44.5 percent of Kenyan adults have raised blood pressure. Moreover, the prevalence of diabetes has grown from 3.3 percent of the population to

7.2 percent over the last four years.

The same situation is replicated throughout Africa. WHO predicts that by 2030 deaths from NCDs in sub-Saharan Africa (SSA) will sur- pass those of deaths due to infectious diseases. By that year, deaths from NCDs are expected to account for 42 percent of all SSA deaths, up from approximately 25 percent today.

The deaths not just in Kenya, but throughout Africa, are because most people can’t afford consistent treatment. This is simply because most people can’t afford medical insurance. Insurers have not been keen to tailor products that can penetrate the lower end of the market on a price basis, despite demand for these products being high among low income earners.

Only about a quarter of Kenyans have medical cover, according to a report by consulting firm Deloitte prepared for the restructuring of NHIF. And with 83 percent of Kenyans living on less than $2 a day, few can afford to pay out of pocket for services at a private hos- pital. This makes proper treatment of chronic diseases understandably hard.

In   some   informal settlements, residents have taken matters into their own hands. They have joined informal savings clubs that cover unexpected health costs. This is a kind of insurance that, though inspiring, is acutely limited, especially for curing chronic illnesses which require consistent treatment. The funds that a few people can pool together in informal settlements is simply not sufficient to meet the expense of treating a diseases such as cancer. In connection to this, insurance products from well capi- talized insurers simply need to pene- trate the market.

The need for insurance products to penetrate the lower segment of the market in order to provide cover for chronic illnesses is intense. NHIF has done well to establish a fund for the same, particularly one whose premiums, though mandatory, are significantly lower than premiums charged for private medical cover. NHIF collects about Sh 1.9 bil- lion every month, according to the fund’s chairman Mohamud Ali. This is sufficient to treat chronic illnesses, at least in comparison to informal emergency funds that most Kenyans rely on.

Expensive affair
Treating chronic illnesses such as cancer is an expensive affair and NHIF is certainly not under any illu- sions about the obstacles it may face along the way. Private insurers have often cited the cost of healthcare in the country as a barrier to entry in the market.

Consultancy fees for most private hospitals, which incidentally offer better treatment for chronic illnesses than their public counterparts, has increased in the recent past. Top private hospitals in 2014 increased their charges by up to 50 percent, building on a familiar trend that has seen a sustained increase in charges over the past decade.

According   to   insurers, hospital fees increase once a year and sometimes even twice a year, a development that compels them to implement corresponding increases in their premiums. “When hospitals review their rates, medical insurance premiums also have to increase,”said Patrick Tumbo, the CEO of Jubilee Insurance, adding that insurers bear the burden until they can adjust medical premiums during policy renewals.

This means that for NHIF to be able to keep up with the ever rising costs of insuring against chronic illnesses, it may in future be compelled to review its rates upwards.Technically, this is possible. Realistically, however, it is not. NHIF cannot increase its rates any further without much public outcry. This is certainly not a course of action it would be willing to take, especially after considering the tense politi- cal climate that will precede in the imminent 2017 General Elections.

The only plausible route for NHIF if it wishes to maintain cover for chronic illnesses over a   long period is investing its surplus fund in investments that can yield high returns. As earlier mentioned, the fund collects about Sh1.9 billion each a month. This is a sizeable sum that can yield great returns if invest- ed in instruments such as T-bills, bonds and other fixed income assets. Successful investment of NHIF surplus funds, of course, calls for the deeper involvement of professional portfolio managers, possibly from the private sector. It also calls for greater oversight after considering the integrity iWssues that beset the private and public sectors in Kenya. Some   measures   to   strength-

en NHIF’s ability to make sound investments that have been proposed in the past by the fund include: to enhance the board of directors’ fiduciary responsibility by defining specific skills required (financial management/investment), to con- duct periodic independent board performance evaluations, to conduct periodic public disclosure of finan- cial and operational data and to fully operationalize wide risk manage- ment, among others.

These reforms can help institute better management of funds, which will generate returns that can suffi- ciently cover the higher cost of insur- ing against chronic illnesses.

The high cost of treating chronic illnesses cannot be squarely attribut- ed to hospitals’ high fees, though it remains a lead factor. The cost of drugs for chronic illnesses such as cancer, diabetes and hypertension is also an equally strong contributory factor. The process of bringing a drug to market is exceedingly costly. Although actual drug manufacturing is cheap, the research and develop- ment that precedes the manufac- turing of a drug is very expensive and time consuming. Research can take several years, even decades, and costs can run into the billions of dollars.

The only way manufacturers can recoup costs once a drug comes to market is by securing an interna- tional patent that gives the drug developer exclusive rights to make and sell it for a set period in order to recoup their outlay. Over the set period, drug companies usual- ly charge high prices in order to recover their costs, repay their debts and make profits. The World Trade Organization (WTO) currently gives pharmaceutical patent protection for 20 years, but drug companies usual- ly battle to maintain the patents for as long as they can in order to lock out competition and make profit.

Because of the high cost of drugs, it is likely that going forward, the cost of insuring chronic illnesses will only increase. NHIF will therefore need to bring more people onto its program, especially sidelined people in the informal sector. It will also need to maximize its investment capabilities in order to grow its sur- plus funds and cover chronic illness- es much better.

More involvement
Ultimately, the issue of treating the rising cases of chronic illnesses in Kenya is a moral issue. It entails at its very heart, putting a price on human life. For this reason, all players in the health sector, not just insurers, but even manufacturers, need to be more involved. Cost of drugs and insurance simply needs to come down in order to provider better healthcare. The government also needs to step in, if not through subsidies, then through favorable regulation for players in the health sector.

It is encouraging that Novartis, a global drug manufacturer, has cho- sen Kenya as the first country for its Novartis Access program.

Novartis Access is simply a port- folio of 15 affordable medicines to treat cardiovascular diseases, diabe- tes, respiratory illnesses, and breast cancer.

The Novartis portfolio is being offered to the Kenyan government, non-governmental organizations and other public-sector healthcare pro- viders for just USD 1 per treatment, per month.

“Novartis and Kenya have a rela- tionship of more than 40 years, so   I   am   delighted   that   Kenyan patients will be the first to benefit from Novartis Access,” said Joerg Reinhardt, Chairman of the Board of Novartis. Kenya is the pilot for the program and based on the experience in the market, Novartis will expand the program in other nations, presumably in other coun- tries across Africa where NCDs are prevalent and affordability is still out of reach for many.

Still, branded drugs are expen- sive and insurers will continue charging high premiums as long as branded drugs continue to be the only option. This can introduce dif- ficulties for NHIF. As a solution, the government can encourage deeper penetration of generic drug brands into the market through favorable legislation.

Generics are legal copies of branded drugs that have previously been developed by other companies but which can be produced legal- ly under international intellectual property law. Generics are always cheaper than their branded coun- terparts.

As an example, Cipla, a renowned Indian generic drugs manufacturer, was in the year 2000 able to offer a substantively huge discount on Anti- retrovirals in Africa, markWing a new step in the war on HIV.

Cipla was able to market a combination of three drug anti-ret- rovirals at $800 per patient per year, in comparison with a rate of about $12,000 a year in the devel- oped world. Incidentally, India has emerged as the foremost generic drug manufacturer.

Cheap drugs for chronic illnesses in Kenya will be a game-changer. It will lead to lower premiums and/or wider coverage not just for NHIF, but also for private insurers.

More importantly, it may help tame the growing cases of cancer, hypertension and diabetes in Kenya, which are striking the srich, poor alike.