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How private insurance companies lost the deal

BUSINESS
By | December 31st 2011

Luke Anami

Mid this year, Public Service Minister Dalmas Otieno and Finance Minister Uhuru Kenyatta tabled a joint Cabinet paper that made a persuasive case for a medical scheme to provide out-patient services to civil servants.

The Cabinet approved it and the scheme was supposed to roll out on July 1, with the Treasury having allocated funds in this year’s budget.

Under the scheme, the Government was to reroute the medical allowances given to civil servants, as part of their salaries, and pool that together to offer them medical cover, details of which will be provided next week.

The Cabinet recommended that the medical scheme be placed with a consortium of at least five underwriters for periods of three years. The idea of bringing in the NHIF into the picture was not considered an option at this stage, a decision that saw two Cabinet ministers Anyang’ Nyong’o of Medical Services and Mr Otieno engage in a public spat over the matter.

While Prof Nyong’o rooted for NHIF while his Public Service counterpart preferred a private consortium of medical insurance companies. When the matter came before the Cabinet, it preferred Otieno’s choice.

In June, the Ministry of Public Service put out an advert in the newspapers inviting insurance companies to bid. But when the bids were open, there were only two offers.

One consortium of underwriters put together by AON Insurance Brokers, quoted Sh12 billion. Another consortium put together by Faulu Kenya and Sunland Insurance Brokers came up with Sh3.8 billion.

The Government confronted with poor applications and widely varying quotations and realising that the more technically compliant consortium had quoted much more money than what was in the budget, decided to cancel the bid and to re-tender.

In the second tender, the two groups of insurance companies basically came together and presented a single quotation.

Under a consortium of 10 underwriters, they were given an offer to provide medical insurance to civil servants at a premium of Sh4.2 billion. AON Insurance Brokers and Faulu Kenya were to come in as administrators.

However, it emerged that it was a challenge for private companies to provide medical cover in all the 47 counties without assistance from NHIF which has a ready network of service providers in all parts of the country.

Faced with the task of handling high administrative costs, the private insurance company’s high quotes for premiums discouraged the Government which opted for the ready established State owned NHIF.

Although the Government is yet to officially explain the decision to consider NHIF, the new medical scheme that hang in the balance for the past six month is now a reality.

 

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