The FINANCIAL — Health insurance has shown the fastest growth in recent years (CAGR 2010-13: 45%), by comparison to all other general insurance business, contributing 24% to the overall general insurance gross premium in 2013. However, the Kenyan health insurance industry is currently facing severe difficulties such as rising costs, increasing fraud, and high claim ratios, according to Ernst & Young Global Limited (EY).
The Insurance Regulatory Authority’s 2012 Insurance Industry Report shows that health insurers collectively experienced a claim ratio of around 77% with 50% of health insurers not generating an underwriting profit. This has led to health insurers raising premium rates, and as a result the market has become highly price sensitive.
Innovation is the solution to address the challenges – whether that means developing new and innovative products matching the risk profile of policyholders or modifying existing methodologies improving processes and efficiencies to reduce total healthcare costs.
Total healthcare costs can be contained or decreased only by some combination of the following
Incentivising the appropriate use of healthcare services
Alignment of service provider reimbursement and quality of care
Limiting fraudulent activity
Containing non-healthcare expenditure
Incentivising the appropriate use of healthcare services
Many strategies can incentivise the appropriate use of healthcare services, consequently reducing unnecessary healthcare expenditure.
These strategies include limiting the type and number of visits that are reimbursed, increasing deductibles and co-payments, decreasing allowable amounts for covered procedures, and establishing or decreasing duration based maximum expenditures. Further strategies may involve insurers only subsidising the use of generic drugs or, when appropriate, more cost-effective brand-name drugs in order to reduce drug costs without infringing on quality of care, according to EY.
To be implemented successfully, the application of such strategies should be considered holistically so as not to cause patients to avoid necessary care. For example, women may avoid screening (e.g. pap smears or mammography) and subsequently present with late-stage cancer.
Holistic implementation should include incentivising preventative primary care and encouraging and educating self-management of chronic conditions. As a minimum benefit, insurers could pay towards the full cost of early detection procedures for the high-costing diseases specifically prevalent with the population group. Similarly, to encourage proper management of chronic conditions, insurers could employ chronic condition related benefit waivers. Further implementation strategies could include educating and incentivising policyholders to make healthier lifestyle choices. This could also be achieved through the creation of loyalty programs specifically aimed at achieving a healthier insured population group whilst acting as a market differentiator, according to EY.
Alignment of service provider reimbursement and quality of care
Provider behaviour is often a natural consequence of the reimbursement method used. The incentive within each of the provider reimbursement mechanisms is therefore a key consideration when designing the overall mix of the reimbursement methods.
The fee-for-service method, which is commonly used, is often criticised for encouraging an over-servicing of health services because providers are paid for each service given. For the same reason, there is a tendency to reduce the time spent by activity or delegate to less qualified health professionals, so the provider can maximise their income, according to EY.
Strategic interventions that can remedy the problem of over-servicing include combining fee-for-service models with budgets, adjusting fees after a specified level of services is exceeded, or using co-payments for patients accompanied with greater consumer education regarding benefit designs and payment procedures. This empowers healthcare consumers to monitor their own health services and may assist in limiting unnecessary procedures.
Monitoring, such as peer reviews, can also help counter inappropriate delegation and insufficient time spent per activity. This would however require provider buy-in and clear frameworks and systems to ensure that the monitoring exercises are objective and feed back into the system so as to enable healthcare quality improvement.
Different reimbursement methods are also seen to be more applicable for various types of services based on the diverse models. For example, line budgets, where expenditures are based on historical needs, though applicable to the hospital system would not be appropriate or efficient for the primary care setting.
Appropriate remedial strategies should be used to ensure that each type of reimbursement method gives the optimal impact on cost containment and quality of care. A mix of reimbursement methods may be desirable to achieve this, according to EY.
Limiting fraudulent activity
According to a study by CIC insurance on outpatient claims, fraud cases were estimated to be between 30-40% of all claims in 2012. Fraud extends beyond policyholder fraud and encompasses service provider fraud as well as administrator fraud.
In order to combat proactively these many facets of fraudulent activity, insurers can establish focused divisions within their anti-fraud departments to develop and implement detailed methodologies to address and reduce fraud specifically prevalent under health insurance. Concrete proof as evidence including documentation, statements made by the customer and his family members and even neighbours should be taken into consideration.
Handling fraud manually has always been costly for insurance companies, even if one or two incidences of high-value fraud went undetected. In addition to this the growth in unstructured data always leaves room for a lot of fraud going undetected if data is not analysed thoroughly enough. Advanced analytical solutions, utilising models and algorithms can be employed to exploit the existing data in order to effectively detect, predict, manage, and report fraudulent activity.
Fraud monitoring processes need to be simplified, with stricter guidelines for third-party administrators. Internationally, some insurers have gone so far as to put in place additional checks such as visiting the hospital during the insured’s healing or at home to examine case papers to prevent fraudulent claims, according to EY.
Containing non-healthcare expenditure
Given the high levels of fraud experienced, claims administration poses an additional obstacle to insurers. Internationally recognised standards suggest that only 15-20% of total expenditure should be afforded to non-healthcare expenditure i.e. for administrative costs and profits. Whilst this seems as an impossible task, improvement can be achieved through firstly enabling payers and providers to electronically exchange eligibility, claims, and other administrative information as soon as possible. Second, public and private payers and providers should use a single, standardised physician credentialing system. Currently, physicians must submit their credentials to multiple payers and hospitals. Third, payers should provide monthly explanation-of-benefits statements electronically but allow patients to opt for paper statements. Fourth, electronic health records should integrate clinical and administrative functions — such as billing, prior authorisation, and payments — over the next five years. For instance, ordering a clinical service for a patient could automatically bill the payer in one step.
The health insurance industry is at a crucial point and despite the signs of stress the picture is not all gloomy. The industry stands at the threshold of moving towards a stronger and better founded health insurance industry. Most players should now look to reassess the entire business model from product, pricing, risk management, distribution, claims and fraud management. Stakeholders should work together toward maintaining a favourable environment for stable growth, expanding health insurance coverage in Kenya and increasing the industry’s contribution to the economy, according to EY.
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