Why medical insurers should tighten checks on hospitals

The recent row between Nairobi Hospital and medical insurer Jubilee once again brings to the fore a simmering but less talked about issue: medical inflation. It is no doubt that medical insurance companies in Kenya will eternally fund hospitals, and specifically private ones. Jubilee talked of Sh1 billion in annual funding of Nairobi Hospital. Quite a staggering figure.

The medical business is the second largest segment in general (short-term) insurance and accounts for a third of general insurance gross premiums—the largest being motor vehicle cover. It should be making them money.

Yet, for medical insurance companies, it continues to bleed money due to the high claims incurrence (incurred claims ratio on the medical business stood at 74 percent in 2019, which was the second largest).

The high claims also partly speak to the (weak) underwriting quality. In 2018, for instance, it cost insurers 31 per cent of gross premiums to re-insure medical risks, which was quite higher than the industry level of 28 per cent. In 2019, medical insurance providers incurred claims worth Sh20 billion.

Yet, they are still being bullied by hospitals. It is time they took control of service providers and instituted a number of changes.

First, they can easily set a price list, with an allowance for occasional price escalations. There is a huge dislocation in medical prices, from drugs, procedures, tests, to bed charges. For instance, different hospitals set own different prices for various services and items it offers. You could be paying a premium for an antibiotic at one hospital while another facility offers lower prices.

Second, they should set a standard settlement cycle, which keeps on varying from one service provider to another. The big hospitals, for instance, have flexed muscles and cut settlement cycles to around seven days, while the cycle is longer for smaller off line facilities.

But even as I advise medical insurers to take control of the service arrangements, they must also strive to put own houses in order; and there are a number of strategies they should employ.

Firstly, they must automate businesses. The cost of running medical business for insurers is rising every day. In 2018, medical insurers spent Sh8 billion, or a third of earned premiums, on operating expenses and agent commissions. A key area that is ripe for automation is claims processing. The bio-metric card solutions were meant to make patient interactions at every service point real-time, thereby giving insurance companies full visibility of transactions.

But for a number of reasons, transactions remain off line, which then continues to create a lag, and in turn gives hospitals room to interfere with the integrity of the bills.

Beyond, automation, medical wallets should be another agenda, especially for outpatient products. A wallet, when implemented on the back of real-time claims management removes the billing lag that is a major source of fraud as well as introducing some element of deterrence on the part of wallet owners.

And if possible, they can also integrate with service providers in whichever permissible form.