The National Health Insurance Fund (NHIF) grappled with a Sh908 million deficit in the financial year ending June, significantly exceeding its targeted revenue.

The data, shared with the National Treasury, reveals a concerning trend as the fund slid into a deficit status due to a surge in member defaults on monthly premium contributions.

NHIF had set an ambitious target to collect Sh93 billion but fell short, collecting only Sh82.1 billion. Concurrently, claims paid out surged to Sh74.2 billion from Sh68.66 billion the previous year.

The financial strain stems from the challenges in retaining members, especially in the informal sector, where only 22 per cent of registered members remained active, far below the targeted 74 per cent.

Formal sector retention rates also fell short at 77 per cent against the expected minimum of 88 per cent.

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"The slight negative variance was attributable to the low retention rate, especially in the informal sector of the national scheme due to adverse selection of the members under this sector and the difficult economic times experienced in recent years," explained NHIF.

The deficit of Sh908 million sheds light on the fund's struggles in settling claims from hospitals, leading to instances where medical facilities turned away patients with NHIF covers in protest over unpaid claims.

NHIF expressed concern that the current scenario, where individuals discontinue premium payments after receiving benefits, is rendering the scheme financially unsustainable.

This adverse selection scenario poses a significant risk to the insurer's ability to settle claims and cover administrative costs.

NHIF disclosed that the benefit pay-out ratio reached 90 per cent, exceeding the projected ratio of 85 per cent.

For every Sh100 collected in revenue, Sh90 was spent on paying hospital bills.

The benefits paid out continued to escalate, reaching Sh74.2 billion in the reviewed financial year, compared to Sh52.6 billion in 2020/21 and Sh68.6 billion in 2021/22.

Personnel emoluments for the year ended June amounted to Sh5.2 billion, slightly below the budgeted Sh6 billion, while other recurrent expenditures totalled Sh3.5 billion against a budget of Sh4.1 billion.

NHIF, founded 57 years ago, is currently undergoing a transition to the Social Health Authority.

The new entity will oversee three funds, namely the primary healthcare fund, healthcare fund, and emergency, chronic, and critical illness fund, as outlined in the Social Health Insurance Act, 2023.

The new legislation mandates contributions, with proposed rates set at 2.75 per cent of gross salary for formal employment and a minimum of Sh300 for the informal sector.

This shift aims to address the financial challenges and sustain the provision of health coverage to all members.