In good hands: The implementation of mandatory coverage is reshaping the sector

The Health Authority – Abu Dhabi (HAAD) has worked hard to ensure access to health care in the emirate, in part through its successful implementation of a mandatory health care insurance system. Today about 98% of UAE nationals and foreign workers living in Abu Dhabi have medical insurance, a rate that is unparalleled in the GCC region. At the same time, HAAD has also taken steps to structure the insurance system to encourage efficiency, including a 2010 decision requiring all hospitals and insurers to use a standardised contract basing reimbursement on diagnosis-related groups (DRGs) rather than fee-for-service.

UNIVERSAL COVERAGE: HAAD was first focused on foreign workers, introducing a law in 2006 that linked health insurance to residence permits. This meant employers of expatriates would be required to offer health insurance to their employees and their families, many of whom had not had access to local health care services previously. To reduce the financial burden for employers, HAAD at the same time set up a “basic” health insurance programme, which represents the mandatory minimum coverage and is offered at a subsidised price of Dh600 ($163) per year. The scheme is administered by Daman, a government-owned health insurance company established in 2005.

According to data from HAAD, as of 2011 some 1.3m expatriates were enrolled in the basic plan. The rest of the expatriate population – about 1m people – is under one of the many so-called enhanced plans, which offer benefits beyond the coverage afforded by the basic plan. The three largest players in this enhanced product market are Daman, the Abu Dhabi National Insurance Company (ADNIC) and Al Dhafra, which combined accounted for more than 50% of the market in 2011. Finally, all UAE nationals are required to enrol in the Thiqa plan, which was launched in 2008 and had about 440,000 members as of the end of 2011. Daman acts as the administrator for the plan, which offers Emiratis access to a large number of public and private health care providers. Members are charged no premiums and are not required to pay for medical services provided at any facility with which Daman has contracted, with the exception of co-payments or deductibles for certain services. In the past, nationals were able to enrol in both Thiqa and a private plan through their employer, however, HAAD has not permitted this since 2011. Insurance companies are now able to sell “top-up” products to nationals, which provide supplementary coverage, such as certain pharmaceuticals benefits that are not available from the government plan.

These same three categories – basic, enhanced and Thiqa – also determine how providers are reimbursed. For those patients that are covered by the basic plan, the government sets the tariffs that providers receive. For services rendered to patients enrolled in one of the enhanced plans, the private sector insurance companies and providers negotiate payments. For Thiqa plan participants, the health care provider is paid the equivalent of the highest rate negotiated under Daman’s enhanced plans.

IMPACT: Perhaps the most obvious effect of the implementation of mandatory health insurance has been a rise in demand for medical services. This is particularly true for expatriates, many of whom would have previously had to pay cash to see a physician or seek treatment at a hospital. But more importantly, the new system has introduced elements of competition to what was historically a sector primarily run and financed by the government.

In addition, the processing of insurance claims through a mandatory electronic data system has greatly improved the availability of data, including rich economic and clinical data. The HAAD’s systems are among the most advanced in the world, and its data is routinely utilised as the basis for decision making at the system level, alongside performance benchmarking at the provider and physician level. Through the Weqaya programme, this data system is now being utilised to improve the treatment of chronic diseases.

This competition has played out on a number of levels. First, mandatory insurance means patients are allowed to choose where to seek treatment, without having to consider the financial consequences of doing so, as long as the provider is part of their plan. This has created a more level playing field. Providers not only have to work to attract patients, they also compete when it comes to negotiating contracts with insurers. This is not true for the basic product – where the government sets prices – but it does affect enhanced products, which determine Thiqa rates.

Finally, in a competitive insurance market – such as Abu Dhabi’s market for enhanced medical insurance, where the largest supplier (Daman) has a market share of only about 32% – insurers are likely to pass on savings to their customers and perhaps directly to the employees to the extent that they bear any burden when it comes to premiums. Insurers compete in the market for enhanced medical insurance by offering employers plans varying by both price and benefits, with contracts typically negotiated on a yearly basis.

While Daman initially was granted certain competitive advantages in the enhanced product market, this is no longer the case. For example, until mid-2008, government-run entities were required to use the state-owned insurer for their employees’ insurance packages and until January 2010, the company had exclusive rights for direct billing with all facilities owned by the Abu Dhabi Health Services Company (SEHA), the public health care provider. Since these rules have changed, Daman has remained a major player in the market, but other insurers have done well. For example, the number of enhanced policyholders at ADNIC grew by 68% (from 90,190 to 151,654) between 2009 and 2010, according to data from HAAD, while the enrolment figure at Daman declined slightly (from 301,447 to 299,089). As the number of enhanced product customers at Daman picked up in 2011, there were marked changes in market shares for some other players – most notably a sharp increase for Al Dhafra, which saw its number of enrolees rise from 12,590 to 73,549. These developments suggest this is a dynamic market open for entry by new players or expansion by existing suppliers.

STANDARDISED CONTRACTS: The modification in Daman’s status was not the only change in the mandatory health care system, HAAD is set to require hospitals and insurers to use a standardised contract that bases inpatient reimbursement on DRGs rather than pay providers on a fee-for-service basis. DRG-based reimbursement models originated in the US during the 1980s and have since been adopted in many countries. Under this type of system, the payer reimburses the hospital based on the average cost of treating patients with similar clinical profiles and requirements for treatment, rather than the actual cost incurred for a particular patient. That is, the payment is set ahead of time, regardless of the number of tests conducted, the patient’s length of stay, materials used, and so on. Each DRG can be generally thought of as a “product” offered by a hospital, such as an appendectomy.

Since 2010, HAAD has required all hospitals – both private and public – to use DRGs when submitting claims for patients covered by the basic plan, but as of June 2012, all providers and insurers were required to sign new agreements based on a standard contract provided by HAAD that uses DRGs to price all inpatient services. This standard contract specifies a base rate per inpatient stay, but insurers and hospitals are free to negotiate the DRG-specific weights that are applied to this rate, with the outcome of this negotiation depending on factors like a hospital’s cost structure and the bargaining strength of the two parties.

MARKET REACTION: Universal insurance has benefitted Emiratis, but it is a financial burden for the government. With the cost of medical care rising faster than inflation, the emirate has good reason to implement strategies designed to slow this rise in prices. The use of DRGs for the basis of reimbursement – when combined with other changes that have been implemented, such as a standard provider contract – may ensure that providers have incentives to be efficient.