Why Kenya’s National Hospital Insurance Fund should become more transparent

This post is an extract from the IBP Brief 14 prepared by Jason Lakin and Vivian Magero, both of the IBP.

Over the last decade, it has become clear that Kenya’s National Hospital Insurance Fund (NHIF) is the vehicle through which the government hopes to eventually offer health insurance to all Kenyans. Since 2006, the fund has increased its membership of formal and informal sectors alike, and the share of national health resources that are under its direct management. The recent controversial attempt to expand outpatient coverage is also intended to position NHIF for a larger role in the health system.

However, if NHIF is going to anchor universal health coverage in Kenya, then it must be capable of managing its finances in an effective manner. Moreover, the Fund, like all state corporations, collects and spends public money and must report on its use of funds to permit effective oversight by Parliament and the public. State corporations in Kenya manage massive sums: approximately 610 billion KSh (US$7 billion) in FY 2011/2012, of which 139 billion KSh constituted government funds from the budget. Put into perspective, that is roughly 13 percent of budgeted expenditure for FY 2011/2012. Given their public role, state corporations like NHIF must be held accountable for the money they use, and this requires timely and transparent financial reporting.

Measuring Health Fund Transparency

In IBP Brief 14, we ask whether NHIF communicates financial and policy information to the public in a clear, consistent, and transparent form, as befits a major state corporation with ambitions to provide universal health coverage. Our answer is no.

In order to answer this question, we sought information from NHIF offices and the NHIF website between March and May of 2012. We looked for information that would answer five questions:

  1. How much money does the Fund take in each year from its main activities, and how much does it spend on benefits?
  2. Does NHIF receive subsidies from the government beyond the contributions employees make and if so, what is the amount received and how is it used?
  3. How does the Fund manage its investments or expenditures other than member benefits?
  4.  Is the Fund accountable for the money that it raises and spends?
  5. What are official NHIF policies (Who contributes? How much? What benefits do they have access to?) and how are these changing over time in line with the Fund’s expanding role in the health sector?

The NHIF website contains no financial information about the Fund. And not one of these five types of information is available from the NHIF offices. After repeated requests over nearly two months, we were told we could have it only if we signed a strict confidentiality agreement! We did obtain information from other sources — difficult but not impossible to get — including the Kenya National Audit Office (KENAO). What we found reinforced the value of these five types of information for oversight.

For example, consider our third question on investments and other spending. Between 2004 and 2010, KENAO has raised concerns about the construction of NHIF’s multi-storey car park. The car park was originally contracted for about 900 million KSh in 2002. It was completed in 2008, but at a total cost of over 3.3 billion KSh. Then, an additional 626 million KSh was spent on the car park, resulting in a total expenditure of more than four times the original contract. As the auditor observes, “the escalation of costs…has not been justified, [and] the final completion certificate for the project had not been issued” two years after completion. This raises serious concerns about financial management and accountability at NHIF. NHIF also spends a very high share of revenues on personnel and administration: 45 percent in 2010.

Our brief argues that the lack of transparency at NHIF is representative of a broader problem of inadequate public reporting on the financial activities of Kenyan state corporations. For the last two years, the government has tabled an annex to the budget including estimates of revenue and expenditure for state corporations. However, this document is of limited utility, as it lacks critical information that would facilitate public oversight, and it is not available online.

What is to be done?

In light of the foregoing, we make a number of recommendations in this brief, including:

  1. NHIF should immediately post on its website its audited financial statements for the past 10 years. This degree of transparency is not extraordinary for public corporations, even in Kenya. For example, the National Social Security Fund has posted audited financial statements from 2007 on its website.The annex to this brief contains other global good practice examples of health fund transparency. NHIF should also post online narrative information about its policies.
  2. The Treasury should immediately post the annex on state corporations to its website, but should also revise it to include additional information. This would include much greater disaggregation of the income and expenditure of state corporations, a short narrative explaining each corporation’s business model, definitions of terms used, and an explanation of when blank spaces and dashes refer to zero income, and when they refer to unreported income.

Budget Brief 14.pdf

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