Introduction
Health care financing and equity currently dominate policy agendas worldwide [
1,
2]. Governments and international organisations are recognising that equitable health systems are essential to achieving health related millennium development goals, that financing approaches are critical for the performance of any health system and for achieving universal coverage [
1‐
3]. Consequently, many low income countries, including Kenya, are considering how to reform their health financing systems in a way that promotes equity and efficiency.
In 2005, the 58
th World Health Assembly called for health systems to move towards universal coverage, where all individuals have access to "key promotive, preventive, curative and rehabilitative health interventions for all at an affordable cost, thereby achieving equity in access". It urged member states to ensure that health financing systems incorporate an element of pre-payment and risk pooling [
1,
4]. Universal health systems seek to be equitable in terms of delivery and financing. Equitable health financing requires that health care payments are on the basis of ability to pay; that there exists financial protection to ensure that everyone in need of health services is able to access them without putting people at risk of a financial catastrophe and that there are risk and income cross-subsidies (i.e. from the healthy to the ill and from the wealthy to the poor). Equitable delivery of health services ensures that people benefit from health services according to need for care [
1,
3]. Responding to the WHO call, the 56
th session of the regional committee for health in Africa urged member states to strengthen their national prepaid health financing systems, to develop comprehensive health financing policies and strategic plans and to build capacity for generating, disseminating and using evidence from health financing in decision making. They also called on the World Health Organization (WHO) to provide support to fair and sustainable financing and to identify financing approaches most suitable for the African region [
5].
Health financing systems have three inter-related functions, which are central to achieving universal coverage (UC). They include revenue collection, pooling and purchasing [
6]. Revenue collection refers to the process by which health systems receive money from households and organizations. Pooling refers to the accumulation and management of revenues to ensure that the risk of paying for health care is borne by all the members of the pool and not by each contributor individually. It embodies the insurance function within a health system. Pooling can be explicit or implicit: explicit, when people knowingly subscribe to a health insurance scheme; and implicit, where contributions are through tax revenue [
6,
7]. Purchasing is the process by which pooled funds are paid to providers in order to deliver a set of health interventions. It involves the transfer of pooled resources to service providers on behalf of the population for which the funds are pooled [
6]. Purchasing can be strategic or passive [
7]: strategic purchasing involves a continuous search for the best ways to maximise health systems performance by deciding which interventions should be purchased, while passive purchasing implies following a pre-determined budget or simply paying bills when presented. Strategic purchasing is best for universal coverage. In most cases, pooling and purchasing are implemented by the same organisation. Depending on how they are designed, payment mechanisms can influence provider behaviour [
6]; they can act as incentive/disincentives to providers. Achieving UC will depend on the extent to which countries combine these functions to ensure there is equitable and efficient revenue generation, the extent to which financing systems encourage cross-subsidisation and the degree in which health systems provide or purchase effective health services for the population [
1,
7].
The aim of this paper is to assess the extent to which the Kenyan health financing system meets the key requirements for universal coverage including income and risk cross-subsidisation. Using the Kutzin framework [
6], the paper demonstrates how the Kenyan health system performs the key financing functions and the implications of these arrangements for equity and UC. It also demonstrates the progress Kenya has made towards achieving internationally accepted benchmarks in health care financing and makes recommendations on how the country can progress towards universal coverage. The paper provides a comprehensive description of Kenya's health care financing system, how it has changed over time and the key equity concerns arising from current, past and upcoming health financing policies.
History of health care financing in Kenya and implications for equity
Table
1 provides a summary of key health financing policy developments in Kenya. Following independence in 1963, the Kenyan post-colonial government made universal health care a major policy goal. Two years after independence, the post-colonial government abolished user fees that were implemented by the colonialist. Health services were funded primarily through general tax up to 1988, when the Kenyan government yielded to pressure from the World Bank and International Monetary Fund to introduce user fees and other major reforms in the health sector. Poor economic performance, inadequate financial resources and declining budgets were some of the reasons given to justify the introduction of user fees [
8]. In the post colonial period, user fees were first introduced in 1989, but were suspended in 1990 and reintroduced in phases in 1991 [
9]. Reasons for the failure of the 1989 implementation were attributed to various factors including: hurried implementation; massive declines in utilisation of health services; lack of quality improvements; and poor revenue collection [
9‐
12]. Following the reintroduction in 1991, user fees were charged for individual services like drugs, injections, and laboratory services, instead of consultation as was previously the case. Revenue collected was returned to the district level to cater for public health needs within the district and facilities developed detailed plans for spending 75% of the revenue. A waiving policy to protect the poor was put in place, and children below five years were exempted from all charges, but in reality waiving mechanisms hardly existed [
10].
Table 1
Development of health care financing policies in Kenya
Colonial period | User fees in all public facilities | Discriminative policy against Kenyans, imposed by colonial government |
1963-1965 | User fees initially introduced continued to exist for two years after independence | Negative impacts of affordability and utilisation of health care services |
1965 | User fees removed at all public health facilities. Health services provided for free and funded predominantly through tax revenue | Potential for equity provided there are mechanism to ensure that the poor benefit from tax funded system |
1989 | User fees introduced in all levels of care. | Negative impact on demand for health care especially among the poorest population; decreased utilisation including essential services like immunisation |
1990 | User fees suspended in all public health facilities. Waivers and exemption put in place to protect the poor and vulnerable. Failure linked to poor policy design and implementation. | Increase in utilisation patterns, confirming previous reports that user fees are a barrier to access. |
1991-2003 | User fees were re-introduced in 1991, through a phased implementation approach stating from hospital level. Children under five, special conditions/services like immunisation and tuberculosis were exempted from payment. User fees continued to exist in Kenya at all levels of care. | User fees major barrier to access, high out-of-pocket payment, catastrophic impacts, and negative implications for equity. |
2004 | User fees abolished at dispensaries and health centres (the lowest level of care), and instead a registration fees of Kenya shillings 10 and 20 respectively was introduced. Children under five, the poor, special conditions/services like malaria and tuberculosis were exempted from payment. | Utilisation increased by 70%; the large increased was not sustained, although in general utilisations was 30% higher than before user fee removal. Adherence to the policy has been low, due to cash shortages |
2007 | All fees for deliveries at public health facilities were abolished | No data on extent to which policy was implemented and no evaluation has taken place. |
2010 | A health sector services fund (HSSF) that compensates facilities for lost revenue associated with user fee removal introduced. Dispensaries and health centre receive funds directly into their bank accounts from the treasury. | Possible positive impacts on adherence to fee removal policy and equity. |
User fees and other out-of-pocket payments (OOPs) have impacted negatively on utilisation of health care services in Kenya [
12‐
15]. The majority of the population cannot afford to pay for health care, the poor are less likely to utilize health services when they are ill, and wide disparities in utilization exist between geographical regions and between urban and rural areas [
14,
15]. Socio-economic and geographic inequities are wider for inpatient care than outpatient care. Those who pay for care incur high costs that are sometimes catastrophic and adopt coping strategies with negative implications for their socio-economic status, while other simply fail to seek care [
16,
17].
In addition to user fees, the government encouraged development of the private health sector, a move that saw an upsurge in private health care providers in the country. Many private providers came up to respond to the demand for health care. Since public hospitals charged fees and were perceived to offer low quality care, people opted to pay for private services that were perceived to be of better quality. The private sector has since grown in Kenya, owning 49% of health services and regulating it remains a major challenge [
18].
Discussion
This paper set to examine the Kenyan health system in terms of key financing functions namely: revenue collection, pooling and purchasing. Here, the main findings are discussed and recommendations made on how the Kenyan health system can make progress towards universal coverage.
The results show that out-of-pocket payments remain the main sources of health care funds in Kenya. The negative consequences of OOPs are well documented [
11,
13,
17,
40‐
44]: they are regressive; are considered the worst form of health care financing; they lead to catastrophic financial payment and impoverishment, especially among the poor; and are a major barrier to health care. Waiving mechanisms introduced to protect the poor from paying user fees have not been effective in Kenya or other parts of Africa [
10,
11,
45]. Efforts have been made to reduce user fees at the primary care level where varying charges were replaced with a standard fee of KES 10 and KES 20 for dispensaries and health centres respectively. While this is an important step towards promoting access to health care among the poorest populations, similar reforms should be implemented at the hospital level. Strong commitments to move away from user fees and other forms of OOPs towards tax funding and health insurance are required. However, it is worth noting that the majority of Kenyans work in the informal sector and poverty levels are high; suggesting that even with the introduction of mandatory health insurance, a large number of Kenyans would still require to be fully covered through tax funding. Caution should therefore be taken when introducing any financing reforms to ensure that the needs of the poor and vulnerable are protected and that they are implemented within the context of universal coverage [
46].
An important indicator of government's commitment to health is the proportion of government's budget allocated to the sector. In 2001, African heads of states met in Abuja and committed to allocating at least 15% of annual budgets to the health sector. Government spending on health in Kenya is less than half the Abuja target [
26] and has been declining, in addition to being the lowest in East and Southern Africa [
47]. Although very few African countries have achieved the Abuja target, most countries are slowly increasing their allocation to the health sector [
47], with the exception of Kenya. The WHO commission on Macroeconomics for health made a case for more investment in health to attain the average of US$ 34 per capita expenditure needed to make health care accessible to the entire population [
48]. There has been a steady increase in Kenya's government health expenditure per capita from US$ 5 in 2000/2001, to US$ 13.4 in 2007/2008. This increment reflects the growth in absolute terms of government's allocation to the health sector. When donor funds are incorporated into the analysis, total health expenditure per capita increased significantly to US$ 27 in 2005/2006 [
19]. Although the commission recommended that developing countries be supported by donors to achieve the US$ 34 target, the increase in per capita spending on health in Kenya is largely due to an influx in donor support for HIV/AIDS. Per capita spending would be significantly lower if HIV/AIDS related funds were excluded from the analysis. While donor funds have significantly contributed to better access to health care in Kenya, particularly for people living with HIV/AIDS, they should supplement but not replace government funding.
The Kenyan government should aim at gradually increasing their share to the health sector to avoid serious drawbacks should donor funds be significantly reduced or suspended. Various alternatives can be adopted to increase the proportion of government funds allocated to the health sector. First, the government can simply increase the share of budget allocated to health, and in so doing reduce the percentage share allocated to other sectors. While this may appear relatively straightforward, it can have some challenges including, opposition from other sectors that are also advocating for more resources. Health is influenced by many other factors beyond the ministries of health for example, education, agriculture, and housing. Reducing the share allocated to these sectors could negatively impact on the health status of the population. Nevertheless, some negotiations should be done to increase the share of health spending in a way that does not undermine other sectors influencing health. Secondly, the government can direct efforts towards increasing the amount of revenue collected through strengthening taxation of corporate and personal incomes, and allocate a large proportion of the increased revenue to the health sector. Interestingly, the Kenyan government has been recording massive increments in the amount of tax revenue, but this has not translated to any noticeable increment to the percentage share of government budget allocated to health. Thirdly, earmarking some taxes for health care might ensure that a certain proportion of government revenue is protected for the health sector, and in so doing increase the budgetary allocations to the level required to provide the essential package for health.
The Kenyan health financing system is very fragmented. Fragmentation refers to the existence of a large number of separate financing mechanisms and a wide range of health care providers in a country [
49]. It exists when funds collected from different financing mechanisms are not pooled and people from different socioeconomic status are covered under different arrangements [
49]. OOPs present the main form of fragmentation in the Kenyan health system. Other forms of fragmentation exist in the form of NHIF, CBHIs, private insurance and donor funding. The NHIF mainly covers people working in the formal sector; private health insurance companies cover the high income groups, while most CBHI members are small scale farmers. There is very limited income cross-subsidisation in CBHIs and private health insurance since members are of similar socio-economic status, and they often exclude the poorest. For example, each of the 32 CBHIs in Kenya functions independently, resulting to very small pools that offer limited protection to a minority of the population. Plans are underway to integrate all CBHI schemes in Kenya, but it is still unclear what aspects will be managed under the larger pool. Although the NHIF enjoys high membership, these funds are not pooled together with CBHI contributions, or with tax funding. The local government also collects revenue and funds 100 health facilities country wide. Revenue from the local government is not pooled with tax funds allocated to the ministries of health. Donor funds are also very fragmented; most projects operate independently, and it is common to have different donors funding similar health projects within the same district, but with little, if any, cooperation in terms of financing, operations and service delivery. Funding specific health programmes independently undermines sustainability of health financing. The WHO has called for better coordination of donor funds to ensure that external funds are consistent with countries priorities and within the broader objective of universal coverage [
4]. Failure to pool donor resources in Kenya promotes inequities because they are not considered when government allocations are being made, especially where regions with less need benefit from significant donor funding and also receive a large share of government funding.
Fragmentation is not unique to Kenya. Health systems in low and middle income countries have in the past been highly fragmented. Some countries including Ghana, Kyrgyzstan, Thailand, are making progress towards universal coverage under a less fragmented system. Other countries including South Africa and Tanzania are in the process of implementing major reforms that will promote harmonization and universal coverage [
49‐
51]. Various authors highlight the need to harmonize health care financing arrangements if universal coverage is to be achieved [
46,
49,
51]. They note that health financing should be approached from a systemic perspective that is informed by policy goals, rather than implementing piece meal reforms, which focus on each source of funding independently and in so doing promote fragmentation and segmentation. It is clear that past and current health reforms in Kenya have not adopted a systemic approach to health care financing. A potential starting point for promoting a unitary system is to pool NHIF funds with tax funding and purchase health services centrally. Linking CBHIs and other microfinance institutions offering financial risk protection to those outside the formal sector with the NHIF, in order to maximise income cross-subsidisation would also promote harmonisation. Ensuring that donor funds are integrated in the health system to ensure a coherent approach to health care delivery is also critical.
The way health care resources (tax, donor funds, health insurance) are allocated to purchase health care services has implications for equity and universal coverage. Allocation of public health funding in Kenya is done on a historical incremental basis. Resource allocation formulas exist, but they are hardly applied. Relying on an incremental approach to allocate funds promotes inequities since demand and supply factors are the major determinants of budgetary allocation. Historically advantaged regions (i.e. those with high number of health facilities), receive larger budgetary allocations than disadvantaged regions with less health facilities. The Kenyan government should ensure that resources are allocated according to need. A potential starting point is to review the formulas presented in Table
2. The main indicators captured in the current formulas relate to infrastructure and utilisation patterns, which suggest that they allow for historical allocation. Need based indicators that have been widely shown to promote equity in resource allocation including population size, infant mortality and under five mortality are not included in the formulas [
49]. An important element of ensuring that equity is achieved and that need based resource allocation is widely accepted is to estimate equity targets for each hospital or geographical region. These equity targets should guide reallocation of resources in a phased manner to ensure that facilities make adjustments in preparation for budgetary increments or reductions and that opposition is minimised.
Donor funds constitutes a large proportion of health expenditure and depending on how they are allocated, they can promote or hinder equity. Where funds are channelled directly through project funding, inequities can exist, especially when donors show preference for one geographical location based on purely practical and historical reasons rather than need for care. Channelling donor funds through the budget support and ensuring that the same are allocated to different regions using a need based formula can promote equity. This however requires that the government can be trusted by donors to spend funds efficiently. Nevertheless it is important that donor funds are allocated and managed in a way that is consistent with the broad objective of the Kenyan financing system in order to support the country's move towards universal coverage.
Only a minority of Kenyans have insurance cover. The majority of Kenyans with health insurance cover work in the formal sector and comprise the richest population. The NHIF is the main source of insurance cover for individuals working in the formal sector, and although it allows voluntary membership for informal sector workers, coverage levels remain low [
15]. Plans are under way to introduce a national health insurance scheme that offers financial protection to all Kenyans. While this is a good development, it remains unclear when this policy change will be implemented. More important, how to provide coverage to those working in the informal sector remains a major challenge for universal coverage in Kenya. The challenges of increasing health insurance coverage among informal sector workers are well documented. Thailand, for example, made slow progress towards universal coverage for many years, until the government decided to purchase premiums for informal sector insurance using tax funds [
52]. As a part of the preparation towards implementing the new financing strategy for universal coverage, the Kenyan government should reconsider the equity implications of covering informal sector workers through contributory health insurance versus tax funding. Such assessments should form the basis of moving the financial debates in the country forward.
Until the translation to a national health insurance fund is implemented, the NHIF will remain the main source of health insurance in Kenya. The NHIF plays an important role in protecting households from high inpatient related costs, but the poor and those working in the informal sector do not benefit from its services. Efforts to increase NHIF coverage among those working outside the formal sector have achieved limited success. Consequently, there is very limited income cross-subsidisation in NHIF. The proposed national health insurance scheme is regarded as the main mechanism towards universal coverage. However, it is not clear how the 'new' national insurance will address the low coverage levels experienced by the NHIF.
The government together with NHIF should identify ways of how to best fund premiums for informal sector workers, either through government tax or donor support. Should donors commit to contributing towards premiums for the informal sector, this should be a short term strategy as government puts measures in place to offer financial protection to all its citizen.
The NHIF offers a comprehensive benefit package to members seeking treatment in government and faith based hospitals. Those seeking care from private hospitals often incur OOPs since the benefit package only meets a small percentage of inpatient costs. Large co-payments undermine the financial risk protection provided through health insurance. It is important to design an affordable and sustainable benefit package with minimal or no copayments. Currently, the NHIF operates at a surplus and spends a large proportion of revenue on administration, while providing a very minimum benefit package. Restructuring the NHIF to minimise the administration costs can release funds for purchasing comprehensive services to members. Finally, any improvements in the NHIF benefit package should be done in consideration of the wider health system, to ensure that the goal of achieving universal coverage is achieved.
A major limitation to most of the past and present policy developments in Kenya is the failure to involve the public in the identification and implementation of policy interventions. Policies may have good intentions, but translating them into practice and ensuring that the intended gains are achieved can be a challenge [
53]. The government should engage with the public when designing policies to promote universal coverage in order to ensure that their preferences are adequately considered. Engaging the public in early stages of policy design can promote acceptability and thus contribute towards effective implementation.
Competing interests
The authors declare that they have no competing interests.
Authors' contributions
JC was responsible for the overall design of the study. JC and VO were involved in reviewing the literature and policy documents. Both authors read and approved the manuscript.