The introduction of health insurance and broader reform may radically alter the health care landscape in Kuwait – and the wider GCC – over the next 5-10 years. The development of the Kuwait Health Assurance Company (KHAC) is expected to meet some of the future demographic challenges and rising costs that Kuwait will confront in its health care sector.

RISING COSTS: The country’s impressive economic growth has attracted increasing numbers of expatriate workers. In 2010, expatriates accounted for about 68.2% of the population. Out of a total of 3.56m residents in the country, there are 1.13m Kuwaiti nationals, compared to some 2.43m foreigners. According to data from The Advisory Group, a consulting firm that is currently engaged in several health care projects around the country, over the 10-year period from 2000 to 2010 expatriate numbers have risen solidly, with a compound average annual growth rate of 4.41% between 2000 and 2005. This rate then peaked at 7.81% during 2006-09 before falling somewhat to 5.18% in the 2006-10 period.

Overall, the cost of health care provided to both nationals and expatriates has risen in parallel with population growth. Per-capita operating expenditure has increased by an average annual growth rate of 12.6% from 2002-09. Average annual expenditure on health care is forecast to rise from KD1bn ($3.6bn) in 2009 to KD8bn ($28.8bn) by 2025.

However, as with education, health care remains a pillar of the welfare state, and the government is firmly committed to providing universal access to all of its citizens. So how can the government remain faithful to its pledge while coping with expected expenditure increases? One answer lies in getting the private sector involved in providing health assurance plans to expatriates and their families, a role KHAC will undertake from 2015.

PRIVATE SECTOR PARTNERSHIP: To shift the burden from the public purse, the government is now looking to involve the private sector in health care management to a greater level. “This is a landmark project in the region,” Ahmad Nsouli, a partner at the Advisory Group, told OBG. “GCC states have used their wealth over the years to provide free education and health care, which is much admired throughout the world. When budgets are in surplus this can just work, but when deficits arrive, as in the past, the present model becomes unsustainable.”

KHAC is a managed care organisation that will offer its own health assurance plans. KHAC will either directly provide or manage the services it covers, and will partner with the Ministry of Health (MoH) to develop and offer its health plans to expatriates throughout the country. Regarding Kuwaiti nationals, KHAC will offer its services on a fee-for-service basis. However, nothing prevents KHAC from developing managed care plans for Kuwaiti nationals, and marketing the same in the future.

“The model most looked at is the Kaiser Healthcare Permanente plans provided in [the US state of] California,” Nsouli told OBG. “KHAC will partner with the MoH and will be able to provide health care plans, insurance and services to expatriates at its own facilities. In the future, KHAC could develop to provide health care to Kuwaiti nationals if they wish.”

NEW FACILITIES: The new company will build and manage three new general hospitals and a network of primary care facilities in order to provide its own primary and secondary care services.

The government has allocated three major plots of land – one in each of the three major health regions around which KHAC is organised – which it will lease to KHAC under a 20-year rental agreement. Tertiary care (i.e. that provided by specialist hospitals) will be contracted from the MoH at a fixed rate of the company’s premiums.

OWNERSHIP: Private health care consortia are being offered a 26% stake of KHAC, while the Kuwait Investment Authority (KIA) will take a 24% share and the remaining 50% will be offered to Kuwaiti nationals in a public offering. Firms currently bidding for the project include seven separate consortia that are made up of local financial firms Kuwait Finance House and KIPCO Asset Management Company, as well as GE Healthcare from the US, among others. With a total capital of KD318m ($1.1bn), KHAC is expected to be the largest initial public offering in the country’s history. Those involved on the project acknowledge that as the first of its kind in Kuwait, as well as in the GCC, there is much at stake.

“The main challenge is that KHAC is the first private health management company in the country,” Mohammad Saad Al Munaifi, the chairman of the establishing committee charged with realising KHAC, told OBG. “We still have a number of difficulties in such areas as adjusting the investment laws to improve the current structure of build-operate-transfer firms. We know that players in the private sector have been calling for this. The aim of KHAC is to increase private sector participation.”

Once finalised, the new project will be the largest private health care system in the GCC, and, in addition to providing services to Kuwaiti nationals on a fee-for-service basis, is designed to meet all the health care needs of expatriates in the country. By 2015 the estimated expatriate population eligible for KHAC health plans will reach around 1.73m, and by 2024 this figure is expected to rise to 2.23m. The MoH and the KIA are responsible for the project, while the Kuwait-based International Counsel Bureau and The Advisory Group are consulting.

INDICATORS: As part of its contract, the new firm must meet some key performance indicators set out by the government. Embedded in the indicators is the most radical part of the new company’s mission statement – that KHAC will need to ensure the business model it sets up can be extended to provide for Kuwaiti nationals in the future, as well as expatriates.

As part of its remit to manage the provision of care, KHAC will establish an electronic medical record system to control the provision of health care services in the country. As the provider of its primary and secondary health services, KHAC will also have the responsibility of managing and staffing a network of primary health care centres and three new general hospitals, as well as establishing an integrated operating system for these facilities, covering clinical and non-clinical support and administration.

The Middle East region currently does not have this type of health maintenance organisation, so the system will be the first of its kind. The format is likely to be copied by a number of other ministries of health across the GCC and thereby have a sizeable impact on health care provision in the region.

FACILITIES: Once a consortium is selected to run KHAC, the new firm will start construction on three new hospitals – to be completed within a five-year period. A 340-bed general hospital and three primary health care centres will be built in Al Ahmadi, in the centre of the country. A hospital and one of the centres will also be built over a 36,494-sq-metre area in Sabahia in the south. Two other centres will be located in Sabah Al Salem and Funaitees ( just south of the capital) on 2164 sq metre plots each.

In Farwaniya, a 712-bed general hospital will be built along with nine primary health centres. A new hospital and primary care centre will also cover a 50,000-sq-metre plot located in Dajeej. The other eight centres will be constructed in Farwaniya, Khaitan, Salmiya, Hawally, Jleeb Al Shuwaikh and Bneid Al Gar – each on 2222-sq-metre plots.

Finally, a 240-bed general hospital and three primary health centres will be built in Jahra, in the north-central region of the country. The hospital and centre will cover a 50,000-sq-metre area allocated by the government in the Amghara industrial area. In addition to this, the newly formed company will have to purchase two further plots for the other planned health centres, which will be factored into the technical and commercial proposals submitted by firms bidding for KHAC.

INCOME: KHAC will be allowed to charge up to KD130 ($469) for annual health plan premiums once it starts operations in 2015. By 2024, the premiums are due to rise to KD190 ($685). The Advisory Group expects the most likely scenario for the company’s future income statement is that it will record net profits of KD2.9m ($10.5m) in 2015, which will be its first year of operation. Income is then expected to grow to up to KD70.4m ($253.8m) by 2024, according to forecasts from The Advisory Group.

PRIVATISATION: The government is keen to ensure that the role of the private sector in health care provision is clearly defined and supported. In 2001 the state allowed private firms to offer health insurance to the expatriate population for both public and private hospitals. The experiment did not measure up to expectations, however. The billing system did not work effectively and the MoH and hospitals could not collect money from private insurance companies efficiently. Medical insurance policies were also limited so that in some cases patients were not covered for even basic treatments in public hospitals.

Nevertheless, the government has moved towards the implementation of a comprehensive health insurance scheme. In 2010, two bills were drafted – one to create a health insurance plan for Kuwaiti nationals, the other to create an independent health authority to regulate the system. Within these programmes the government would pay health insurance fees for the compulsory medical care required by citizens – including overseas treatment – while individuals would pay for optional medical services.

The state wants to drastically reduce its overseas treatment bill for Kuwaitis, which, due to nationals seeking care abroad, has risen steadily over the years. “The government covers health expenses and living costs for Kuwaitis that seek treatment in Europe and other places. This is a real burden on government finances,” Al Munaifi told OBG.

CHALLENGES: As in other countries, there are worries that by removing the role of the government in health care provision the cost of health insurance plans will fall on individuals. Non-profit health policy groups such as the Kuwait Health Initiative have raised concerns that schemes run by private firms for profit will lead to inequalities in health care access and delivery. By implementing the policy gradually, the government hopes to gain a greater sense of just how effective an overall health system run by KHAC would be before incorporating nationals.

Across the GCC governments are grappling with the challenges coming from the rising number of expatriates needed to sustain economic growth and the resulting increased costs of care provision.

A report by the McKinsey Group, a US management consultancy, states the GCC will require a two-fold increase in hospital beds over the next two decades, following a 240% rise in the treatment of lifestyle-related diseases such as obesity and type 2 diabetes.

Kuwait has chosen to target the expatriate population first with the intention of offering health plans to Kuwaiti nationals later. If Kuwait can pull it off, it will have pointed the way for other GCC states.