Healthcare Financing in East Africa: Lessons from Kenya’s Social Healthcare Insurance Fund Bottleneck
The financing of healthcare in East Africa stands at a critical crossroads, with only 34% of the population able to access essential health services as of 2024. Despite the region’s growing demand for equitable healthcare, governments allocate a mere 5% of their GDP to the sector – far short of the 15% target set by the Abuja Declaration. This chronic underfunding leaves millions vulnerable, forcing citizens to shoulder the burden through out-of-pocket (OOP) expenditures, with Uganda leading at a staggering 38%, followed by Tanzania at 34%, Kenya at 24%, and Rwanda at 11.7%.
Meanwhile, health insurance coverage remains shockingly low, covering less than 2% of the population in Uganda and South Sudan, 25% in Tanzania, and 28% in Kenya. Consequently, maternal mortality is alarmingly high at 368 deaths per 100,000 live births; under-five mortality rates stand at 49 deaths per 1,000 live births; and access to physicians is abysmal, averaging just 0.2 doctors per 1,000 people. This stark reality underscores a healthcare system stretched to its limits, leaving millions at risk and demanding urgent, transformative solutions.
To alleviate these challenges, regional governments have adopted and implemented Universal Healthcare Coverage Initiatives, pioneered by the World Health Organisation, to enable access to health services with no financial hardship as per the United Nations Sustainable Development Goal 3. Kenya has led this effort with 26% of its population being covered by the collaboration between private insurers and the National Health Insurance Fund (NHIF) now known as the Social Healthcare Insurance Fund (SHIF). This article analyses Kenya’s newly adopted SHIF, drawing lessons from it, and tests the viability of healthcare insurance as a mainstream financial solution to the low levels of universal healthcare coverage within the region.
Kenya’s Social Healthcare Insurance Fund
Preceded by the National Hospital Insurance Fund (NHIF) as the pioneer healthcare insurance fund in the region, the SHIF aims to establish a more inclusive universal healthcare coverage structure. Emphasis has been placed on decentralisation of service provision especially at county levels to relieve the high patient burden carried by hospitals such as Kenyatta National Hospital. Whereas the NHIF ran on a partially progressive contribution model, the SHIF uses a purely progressive deduction system without a contribution cap, hence widening the pool of funds available to support patients with chronic illnesses, expensive surgical procedures, and prolonged healthcare needs. However, many implementation issues have so far been registered, including system glitches, unprocessed claims, and exclusion of critical patient records.
Overview of Healthcare Financing in East Africa
With regards to out-of-pocket (OOP) share of healthcare expenditure, most EAC nations, save for Uganda and South Sudan, are below the Sub-Saharan African average of 30.02%, with a 15-20% range recommended by the World Health Organisation except for Rwanda which has a 10.13% OOP share. To alleviate the inadequacy of OOP, donor funding remains a key cog in the funding equation for most East African nations. Data from EAC nations indicates that Rwanda, Uganda and Rwanda are reliant on donor funding, with all three having a share higher than 35%.
Given the difficulty in mobilising donor financing more recently, what is left is government initiatives such as subsidies, price controls and government insurance schemes such as the NHIF. Subsidies on expenses such as medicine are now limited due to fiscal constraints faced by the Kenyan government relating to the nation’s foreign debt obligations. Price controls on major inputs such as drugs and wages are not viable since Kenya is primarily an importer. This makes a cap on the profit margins of private sellers the most pragmatic price controlling strategy. Following this, the government cheekily tries suppressing public hospital doctor wages ever so often. However, they tend to eventually capitulate once the health system grinds to a halt and pay doctors the agreed amount.
This raises the question of why the NHIF itself was simply not reformed. Some theories on why have been presented over the years. Among the most compelling ones is that NHIF was headed from technical insolvency to real insolvency. This necessitated a new entity to be created as the NHIF was rendered redundant and shut down before that occurrence.
Risk Pooling and Private-Public Partnerships
Risk pooling within government insurance schemes occurs at two levels, at individual and inter-government level. Individual level entails every policyholder paying premiums to a collective pool of funds to avoid ruinous losses. Every member of the pool covers the other using the pooled funds – managed by an insurer.
Intergovernmental risk pooling, describes when entities within government may pool their risks together to cover one another in the event of having liabilities that exceed their assets. The NHIF had a similar structure, with the civil servants' scheme, parastatals scheme, Kenya and National Police Service Scheme and other entities within government all contributing premiums annually to the NHIF, as per their income statement under the auditor’s annual report of the fund.
Kenya’s Social Health Insurance Fund and Distinct Differences from the National Health Insurance Fund
The shift to the Social Health Insurance Fund (SHIF) was justified by its alignment with global universal healthcare coverage (UHC) goals. It seemingly offers expanded services like comprehensive outpatient cover and addressing structural issues in NHIF, such as claims fraud.
With regards to the Kenya UHC Policy, several measures are considered most favourable to its alignment objectives. These include the institution of mandatory pre-payment mechanisms and the alignment of risk pooling through a single UHC fund. Additionally, the development of a progressive health benefits package, subject to regular review, is a key component. SHIF employs a progressive premium payment model where it is a percentage of one’s earnings that is paid rather than a flat fee. The contributions will be mandatory, with steep penalties to ensure wider coverage and to avoid the freeriding problem that exists globally of individuals opting into policies when symptoms manifested rather than paying the entire time.
It also looks to make up for the inequality in healthcare access in the country, with the percentage of people with some form of health insurance in the country standing at 26% for males and 27% for females as of 2022. Despite private health insurance premiums accounting for more than 45% of total premiums paid, they only insure 3% of the Kenyan population, implying that NHIF cover 23% to 24%.
Structure & Mechanisms of the Social Health Insurance Fund
With regards to funding sources, SHIF and NHIF have similar sources of funds but with some relevant changes. For indigent households – households too poor to make contributions – vulnerable and legally detained persons, NHIF that a list of them be prepared by the state department and the appropriate subsidies be paid out by the government. Under SHIF, the government takes on a more direct role. With SHIF, each government ministry responsible for these listed persons is on their behalf, as per the Social Health Insurance Fund Act.
A new addition to those obligated to contribute are non-Kenyan residents, ordinarily residing in Kenya for a period exceeding twelve months. This will likely include expatriates that likely do not use government health insurance and earn higher than the median Kenyan wage. As such, it is likely to further contribute to the redistributive nature of the fund.
A new feature of the contributions structure is the introduction of means testing, meant to capture higher contributions from high earning self-employed individuals such as business owners. Rather than a voluntary contribution of Ksh 500 a month, means testing will be carried out to estimate their income and their contributions will be set at 2.75% of that.
Coverage is set to expand to include services such as digital healthcare, tele-healthcare, and greater emphasis on pre-hospital care. It will also formalise coverage for out-of-country treatment, complications before and after pregnancy, and establish a dedicated fund for chronic illnesses. The fund also targets to meet 100% coverage of every citizen in the country.
The rollout and transition to the Social Health Authority (SHA) has been slower than expected. Currently, 15.5 million people are under the fund, most of whom transitioned from NHIF. Before the transition began, NHIF had 15.4 million total members and 6.7 million active members. This is underwhelming given the goal of the fund is universal health. There were concerns over the accuracy of the means testing system – the system SHA is using to calculate informal sector worker earnings. Because informal sector workers are the majority within the country there is a likelihood that this will be problematic if not urgently resolved. Despite government claims that the new fund is improving healthcare outcomes across the country, system crashes are leading to significant holdups at health facilities, leading to pessimism among citizens at large on its efficacy compared to NHIF.
Initial Outcomes and Challenges
One of the major changes during the transition from NHIF to SHIF is the shift in premium structure. The model changed from a partially progressive system to a purely progressive one, with salaried workers being charged a strict 2.75% of their income. The same 2.75% is charged on the incomes of informal workers after means testing is done, with a Ksh 300 floor. Under the previous NHIF policy, lower income earners were, objectively speaking, at a disadvantage compared to higher income earners past the Ksh 39,000 income mark.
Figure 1. NHIF contributions for each income band. Source
In this sense, SHIF is objectively more equitable than NHIF and is more favourable to lower income earners as opposed to NHIF before. Higher earners however will have more taken from them monthly, in line with the redistributive nature of these policies of taking from each as their means allow.
SHIF seeks to ensure greater allocative efficiency and reduction in wastage via regular quality assurance checks, inspections and audits. These will help maintain the highest standards in healthcare provision and hopefully mitigate the issue of fraudulent claims that plagued its predecessor the NHIF. In addition to stringent audits, strict penalties will be put in place such as removal of healthcare providers that are found to have been falsifying claims. This will seriously impair their revenues hence acting as a strong incentive against fraudulent activities hence reducing frequency of fraud as well as amount lost.
The fund is also looking to efficiently allocate resources via mobilisation of more funds into primary health care through the Primary Healthcare Fund, one of the three funds that will be administrated by SHA. According to the World Bank, primary care encompasses a focus on people’s health needs as early as possible along the continuum from health promotion to prevention to treatment and the other stages thereafter. Preventative measures such as screenings, vaccinations and even provision of supplements have been shown to be cost-effective means of preventing costlier treatments down the road and nipping severe diseases in the bud.
As things stand, the newer, more progressive funding model for SHIF seems set to increase premiums revenue compared to NHIF once it fully comes online. Now that the cap on premiums contributions for the top earners of Ksh 1,700 has been removed, this unlocks a significant portion of premiums that the fund can mobilise for the now wider range of services that they are set to offer.
SHA are targeting collections of Ksh 133 billion, 68.8% higher than the amount collected by NHIF in their final financial year. This ambitious target assumes that many more members are onboarded. Long term, it is indeed possible to achieve especially if the higher earning informal workers and higher earning formally employed persons are successfully onboarded.
Applicability to Other East African Countries
The applicability of this model to other East African nations will require the buy-in of stakeholders at all levels of the economic ladder for it to be a success. Otherwise, a low level of trust in the system will disincentivise policyholders from continuing their premiums payments. This occurred with the NHIF towards its latter years – where the number of dormant members rose to 8.8 million people from 5.03 million in the previous financial year.
The Kenya Revenue Authority (KRA) has struggled collecting from the informal sector, leading to excessive strain on the formal sector that is much smaller, approximately 5 times smaller as per Statista but easier to track. Hence, the SHIF must learn from KRA’s initiatives and other regional health insurance authorities from SHIF to better overcome this hurdle. It will be prudent for SHIF to model its means testing system after the methodology that KRA opt for when estimating the earnings of self-employed and informal sector persons, given they have more experience.
Conclusion
The implementation of SHIF faces significant technical and systemic challenges, but the greatest obstacle remains low public trust, with 76% of Kenyans feeling the country is moving in the wrong direction. Rebuilding this trust will require deliberate efforts to meet citizens where they are, particularly in rural areas where 70.48% of the population resides. Community-based health insurance schemes, while optional and often underfunded, can serve as valuable supplements to the national healthcare insurance system, especially in reaching the poorest and most vulnerable populations.
To succeed, the Kenya Kwanza administration must prioritize fostering goodwill among citizens, government officials, healthcare providers, and member clinics. Strengthening engagement, ensuring transparency, and delivering tangible benefits will be key to securing widespread buy-in. Additionally, a proactive focus on preventative care will enhance the allocative efficiency of SHIF, allowing for better utilization of limited resources. With these efforts, the new SHIF and SHA structures hold great potential to transform Kenya's healthcare system into one that is more equitable, sustainable, and trusted by its people.
