A social security system built on the weak foundation of generosity and charity in a capitalistic society cannot sustain itself
By Edwin Okoth
As the clock ticks towards July, when employee contributions towards the National Hospital Insurance Fund (NHIF) are expected to be adjusted, concerns are ripe over the massive wastage and wanton misappropriation of funds that has dogged the health insurer in the past.
The ghosts of land deals that have dragged on for 16 years and hundreds of millions paid for delayed projects have come back to haunt the NHIF. Overpaid hospital services, inflated construction costs, and shady investments witnessed in the past have continued to expose the national insurer. If the whole system is not overhauled, it will be tough to implement the planned changes that will see formally employed workers start contributing 2.7% of their monthly earnings from July 2023.
NHIF has also been struggling to get the best from land it bought in Karen in 2002, which measures 24.7 acres, and has remained idle with close to Sh2 billion worth of stalled projects.
“The Fund is pursuing the matter and has already taken the necessary steps to ensure the matter is determined in its favour,” NHIF acting chief executive Dr Samson Kuhora recently told the National Assembly Public Investment Committee.
The matter is before the Office of the Director of Public Prosecution, and there is little hope that it will be resolved after close to two decades of dragging between state agencies charged with investigations and prosecutions.
The MPs were not amused that the national insurer whose principal business is providing insurance services had spent more than Sh100 million in 2002 to purchase land meant to set up a Medical Centre of Excellence and Institute.
The proposed medical centre, consisting of a referral centre, medical education centre, medical research centre, and support facilities, had gobbled up Sh1.4 billion in drawings and designs. It turned out that the project’s construction had not yet commenced because of a lack of approval from the parent Ministry other than the land ownership dispute in court.
Four court cases had cropped up surrounding the Karen project, among them emanating from contractors whose payments had been delayed, drawing more losses in interests and penalties from the health insurer. Some cases are yet to be resolved as more lawyers smile to the bank in fees accumulated over the years.
Unlike the stalled Karen project that almost never took off, NHIF’s car park at Upper Hill is another mess – it was conceived and started around the same time the Karen land was bought. The local contractor had committed to finalising it by August 2003 at a staggering cost of Sh909.7 million.
NHIF missed the August 2003 target by more than seven years and varied the cost by more than 300% upwards. The contractor ended up earning Sh 3.9 billion in 2011. Dr Kuhora says the seven-storey parking lot, which is designed to accommodate 780 cars, had been temporarily stopped in 2003 by the Ministry of Health.
“The management, as per the contract provisions introduced vehicular lifts that were not part of the tendered designs and bills of quantities. The cost could not be retained at the original cost of Sh 909 million since the contractor had already increased the project’s service area. This led to design changes to the structure and foundation works. An additional basement floor was created to cater to the displaced area arising from vehicular lifts, ramps, and design overhaul. This led to an increase in the service area and an additional cost of (about) Sh 673.5 million,” Kuhora explains.
The construction delays also gobbled up more money as material and labour costs rose as NHIF kept bleeding funds outside its core mandate of providing insurance cover. Another sustainability threat flagged in the NHIF audit was non-core mandate activity, lending. The insurer lent Moi Teaching and Referral Hospital (MTRH) Sh370 million, which had a balance of Sh314 million. The loan was said to have been advanced without any agreement between the two entities and had been disputed by MTRH. This expensive dispute had gobbled another Sh40.8 million, according to Auditor General Nancy Gathungu.
“Although the management has acknowledged the omission, it was not explained how the anomaly will be resolved and the fall-back plan in case of default by the Hospital,” the auditor said.
NHIF invested in the Consolidated Bank of Kenya shares. This move may have earned the institution some returns needed to cushion policyholders in taking care of the ever-increasing cost of medication. However, the investment was not quoted in the books, and the shares worth Sh54.2 million were not being traded and had not returned a single shilling in dividends for nearly 20 years. It turns out the money was swept off by another bank after a former chief executive used it to guarantee a personal loan which was defaulted in one of the most open cases of embezzlement.
“The bank offset the entire deposit of Sh49,500,000 against a guarantee executed by the former Fund Chief Executive Officer on behalf of Euro Bank Ltd. It is unclear, and the management has not explained the circumstances under which the Fund’s deposit was used as a guarantee by the then Chief Executive Officer,” NHIF wrote in its response to audit queries.
Parliament had recommended that the former CEO be held accountable for losses incurred in the irregular investment. Also recommended for prosecution were the Consolidated Bank CEO at the time and the then managing Director for loss of insurers’ premiums at NHIF.
“NHIF should relentlessly pursue Consolidated Bank for recovery of Sh49.5 million,” MPs wrote in their recommendation. Nothing happened after that.
In a somewhat ironic twist, the insurer had failed to claim compensation for a vehicle it had insured with Amaco Insurance Company after it was involved in an accident in 2018 and subsequently written off.
The vehicle, KCK 509U, was valued at Sh4.4 million, and its compensation was still pending despite numerous engagements via emails and letters. The most recent communication to the client was done on December 10, 2021, a move that forced NHIF to complain to the regulator.
“The insurance company has since not made payment despite numerous follow-ups. Due to this, The Fund has made further engagements with the regulator (IRA) to pursue the debt to ensure it is fully recovered. Fund has shared policy details with the IRA and waits for further action,” Dr Kuhora told MPs.
NHIF has also been flagged for overpaying medical bills in a scheme that could be bleeding the insurer. The auditor found that Sh 828.7 million had been overpaid for various services, with more than Sh24 million overpaid for C-sections and normal delivery births.
Although NHIF needs funding, given its yawning deficits that hit Sh8 billion in 2020, the increased employee collections would need many more safeguards. The insurer has become the cash cow in one of the most corrupt ministries, the Ministry of Health.
A report released by the United Nations Office on Drugs and Crime (UNODC) and the Ethics and Anti-Corruption Commission (EACC) in mid-May 2023 found the Ministry of Health highly prone to corruption, with tenders awarded through kickbacks and project costs highly exaggerated.
“The study found that favouritism, conflict of interest, bribery, manipulation of costs, distortion of procurement plans, manipulation of tender application, tribalism, nepotism, making payment on substandard work are rampant in the ministry while undertaking healthcare projects,” the report said.
The government has been struggling with the question of social security for decades. That the current regime has resorted to increasing deductions, only time will tell whether the new NHIF rates will help cushion payslip workers.
