NHIA in driver’s seat sets back HMO business model

Once a co-pilot, Health Maintenance Organisations (HMOs) now find themselves facing a rearview mirror filled with dust as the National Health Insurance Authority (NHIA) takes the wheel, significantly impacting their traditional business model.

Major stakeholders including HMOs, banks, health providers, labour unions met in 2004 to forge a consensus for the takeoff of the National Health Insurance Scheme (NHIS) and review its legal framework.

They agreed that participation in the scheme should be made compulsory and it became a reality in May 2022.

Part of the adjustments effected is the change from the NHIS to the NHIA. The scheme was replicated in the states, leading to the creation of States Social Health Insurance Schemes.

Today, aspects of that development have been identified as a pitfall uprooting the existence of the HMOs.

Several HMOs are undergoing a dramatic shift, transitioning from semi-fund holders with enviable benefits to Third Party Administrators (TPAs) for state health insurance schemes and even the NHIA itself. This move redefines their role away from managing funds and towards claims settlement and management.

“It is clear that the former funds-flow payment mechanism both for the public and private sectors through the HMOs to service providers has been gutted, except to the extent that the HMO is acting as a TPA. This move has altered the percentage of contributions payable to and through HMOs. This is a major development, striking at the heart of HMOs erstwhile business model,” Muhammed Lecky, former CEO of National Health Insurance Authority CEO, told BusinessDay.

The setback, which accompanied the operational guidelines of the 2022 NHIA Act, was a subject of concern for industry stakeholders gathered at the last conference of the Health and Managed Care Association of Nigeria and the Institute for Healthcare Finance and Management Limited.

NHIA Provider Payment Mechanisms are now used to transfer funds from the purchaser to healthcare facilities for health services.

The healthcare facilities may be paid by various mechanisms including capitation, fee-for-service, disease related group and per diem, all of which can now happen outside the purview of the HMOs, eroding their influence as moderator of health services.

Analysts including Lecky believe several missed opportunities emerged in aspects such as surplus fee-for-service funds.

HMOs could have advocated for creating a reserve-technical fund which could specifically cover potential excess claims from covered individuals, ensuring adequate financial resources for legitimate needs, he said.

They could have also invested the surplus under NHIS oversight, generating returns to address future unexpected claims that only HMOs have the full visibility of.

He also noted that HMOs could have utilised the surplus for underwriting liabilities to cover existing or anticipated underwriting liabilities.

In the reforms resulting in the New NHIA, the Authority has now assumed a multi-tasking role, taking over the roles previously assigned to the HMOs.

The NHIA, in effect, became a regulator, a fund holder, and a fund administrator.

There is now a more restrictive redefinition of the functions for the HMO, such as having roles as may be assigned to it by the State Health Insurance Scheme including the role of PTA.

They can only function when employed to collect contributions, ensure prompt remittances of contribution to state pools or perform other administrative functions as required under this Act.

Ultimately, HMOs shall not be involved in the direct delivery of healthcare services as any private health insurance plan marketed by the HMO shall be subject to approval by the Authority.

“I am not sure the NHIA nor the SSHIA will have the competency to rise to the challenges. And their inevitable resort to the reliance on experienced HMOs and TPAs may drive-up billable transaction costs to the authority or states,” Lecky added.

Toyosi Odunmbaku, co-sector head of healthcare and pharmaceuticals at Jackson, Etti & Edu, while analysing the sustainability of HMOs under the NHIA operational guidelines, pointed out that the Act is silent on minimum capital requirements.

Odunmbaku noted that Section 27(2) of the Companies and Allied Matters Act 2020 fixes the general minimum share capital for private companies between N100,000 and N2 million for public companies, while the NIPC Act demands N10 million for companies with foreign investment.

Talks of the capital base being raised to about N1 billion this year has come up, with some analysts projecting that the industry will record several mergers and acquisitions as small players give way to the birth of stronger establishments.

“I forecast that most HMOs will likely maintain their 2023 revenue or slightly increase them. The increase in revenue will be recorded by the likes of Hygeia, Axa Mansard, Leadway, Avon, and AIICO. 80 percent will record losses except for those who have alternative sources of revenue,” Oluwafemi Olaleye, head of health banking at FSDH Merchant Bank, told BusinessDay.

Speaking on the mandatory security deposit of 20 percent of paid-up share capital and turnover, Odumbaku said deposit is to be used in the event of default of payment of liabilities to healthcare facilities and contributors.

“HMOs do not have access to the main deposit to be domiciled with the Central Bank of Nigeria. Deposit is a condition for accreditation and the rate is quite high when compared to contingency reserve provision for insurance businesses, which provides for 3 percent of total premium or 20 percent of net profit and amount shall accumulate until it reaches the minimum paid up capital or 50 percent of net premiums,” he said.

Rising to the challenge

In rising to the challenges, the NHIA Act and Guidelines permits the HMOs to develop, market and promote health insurance scheme, Lecky said.

He said there’s scope for additional health insurance benefits packages in response to the changing health-demography of Nigeria.

HMOs also need to take a lead to explore the advantages associated with multi-specialty prepaid group practice with an associated network of hospitals as a model for insured service delivery.

“So instead of a lamentation over ‘pitfalls’, you need to be looking at rising to the challenges in a creative and more beneficial way. For example, I think the Kaiser Permanente, USA model of Prepaid Group Practice, which is a variant of HMO-run health services as opposed to the alternative sole-practice and fee-for-service that is currently dominant in Nigeria, may be worthy of study,” Lecky said.

Also, by extension, the HMOs may benefit by taking steps to undertake self-imposed consolidation of entities, by pursuing cost-effective ways of merging disparate entities and keeping pace with automation, along the model of the banking industry in Nigeria.