A Standard Medical Cover May Fix NHIF’s Moral Hazard Problem
This post was inspired by my Mum’s experience trying to get approval from NHIF for an inpatient medical procedure she desperately needs. She is a teacher, and she pays her NHIF dues and a mandatory monthly amount to AON, the insurance provider for teachers employed by the Teachers Service Commission. When it became apparent that she would need to be admitted at the hospital, the hospital instructed her to get approval from NHIF before admission, which is what she has been trying to get for a couple of weeks. She finally got it but the process got me thinking about NHIF’s current payment processes and why it is so susceptible to fraud.
The process as I understand it is that the hospital or doctor provides a procedure quotation and supporting documentation such as radiology reports, which are reviewed by NHIF’s (medical I hope) personnel, who then approve and the patient proceeds to be treated.
The approval for Mum’s case delayed for weeks because NHIF felt that the hospital had overcharged for the procedure. This is not unique. According to Daily Nation, NHIF reported losing up to KES 1.9 billion due to inflated bills from private and public hospitals.
The current arrangement creates a moral hazard, where private hospitals know that NHIF, being a public health insurance providers may not have in place systems to comb through each and every bill. Secondly, it is possible that NHIF takes time to pay the hospitals, so the hospitals resort to padding the bills to account for the cost of the funds they need to run their hospitals. Finally, medical care is not immune to the corruption we see in other government departments.
As I was thinking about how NHIF could make this easier for the patients while reducing fraudulent claims, I looked at how they currently offer cover. According to their website, they have the following categories of cover:
- Category A (government hospitals) – Members enjoy full and comprehensive cover for maternity and medical diseases including surgery.
- Category B (private and mission) hospitals – Members enjoy full and comprehensive cover but where surgery is required, the contributor may be required to co-pay.
- Category C (private) – NHIF pays specified daily benefits under the current arrangements.
The problem with the current arrangement
The categories arrangement looks sensible if you assume that Category A hospitals are cheaper than Category B, which are then cheaper than Category C. The intention is for NHIF not to overpay for procedures in private hospitals.
The problem with this categorization though is that it does not stop Category A and B hospitals from quoting higher prices than they would charge private insurance or cash-paying customers when NHIF is paying. From what I gathered during the process, some Category B hospitals even collude with private insurers, to get NHIF to pay the bulk of the fees hence subsidizing private insurance.
The second problem is that the patient who opts for a Category C hospital gets a raw deal, despite being a fully paid member. The last time I checked, Category C patients are covered for part of the bed charge and a minimal amount for other procedures – lower amounts than they would pay in a Category B hospital.
In effect, NHIF is creating business for Category B hospitals, possibly at their own expense and the expense of Category A.
My proposed alternative gets rid of the moral hazard and might save NHIF some money
Moral hazard is a situation where one party in a transaction acts in a way they would not if they bore the risks or costs of their actions. In the current arrangement, private hospitals charge inflated fees because they do not bear any of the risks or costs – they are assured of payment, unlike in the case of private insurers who rigorously check against this, or non-insured folk who will most probably seek a second opinion and look for a cheaper hospital.
To eliminate the moral hazard, NHIF should come up with standard reimbursement rates for all procedures, whether in public or private hospitals. This eliminates incentives for hospitals to inflate bills. It has an additional benefit of giving all payers equal coverage, no matter their choice of hospital. That way, NHIF is not paying less for a patient, simply because they chose a Category A hospital.
They could choose to use Category C costs as a benchmark. Say if NHIF sets the reimbursement level for a c-section at KES 40,000 in a government hospital. This would be the overall reimbursement level at all hospitals. The patient is then free to choose a hospital, based on their willingness to either get additional private insurance cover or top-up the NHIF reimbursement in cash.
Ultimately, funding healthcare is not easy and even as we attempt to finance our Universal Healthcare agenda, we need to find financing arrangements that minimize moral hazard, while giving beneficiaries autonomy to choose their healthcare providers.
What has been your experience with NHIF? Have you or your family
