How is Kenya financing universal health coverage?

The government has taken major steps in reforming the health system. Through the five-year “Bottom-up Economic Transformation Agenda” (commonly known as BETA), the government has committed to delivering a universal health coverage (UHC)  system built on three pillars:

Publicly financed primary health care (through a Primary Health Care Fund), universal health insurance (also known as social health insurance), and a  publicly financed national fund to cover costs for chronic, critical, and emergency illness and injury that are not covered by social health insurance (through the Emergency, Chronic, and Critical Illness (ECCI) Fund) 

But how is Kenya financing these reforms? After the roll-out of the ambitious plan, questions remain about how the government will finance these reforms.

Perhaps more importantly, questions remain about whether the financing mechanisms employed will improve the quality of care, health outcomes, and financial risk protection that are the ultimate goals of health system reform.

So far, the government is pursuing reforms across the three health financing functions —  revenue generation, risk pooling, and strategic purchasing.

Revenue generation

Under its newly established Social Health Authority (SHA), Kenya is rolling out social health insurance financed by both tax revenues and individual/household premium contributions. This mixed model of financing UHC is more sustainable than relying on a single stream of financing and, once enrolment numbers stabilise, the contributory social health insurance will also be predictable. 

However, additional tax revenue will still be necessary to help finance the current essential benefits package ( the health services covered), which is estimated to cost Sh277 billion per year, with approximately Sh61 billion coming from the new primary health care fund, Sh50 billion from the ECCI fund, and Sh166 billion from social health insurance contributions (described in more detail under “risk pooling”).

Given Kenya’s current economic situation, there is limited opportunity for the government to increase taxes to generate the additional revenue needed to finance the enhanced package of care offered under the new health insurance scheme. Instead, the government is implementing tax reforms to widen the tax base, meet fiscal deficit targets, and generate additional resources for government programmes. Among other things, the tax reforms include:

Enhancing the use of electronic systems in tax administration, introducing a common cash receipting system and using turnover tax to increase tax compliance

These measures have increased the fiscal space for the government to publicly finance health care services, in line with the UHC reforms. In addition, the government recently enacted the Facility Improvement Financing Act (2023) to provide a legal framework for public-sector facilities to use the funds they collect from insurance claims (SHA reimbursements), user fees, grants, and contributions to improve services locally.

Risk pooling

To provide financial protection for citizens, the government has made payment of social health insurance mandatory, thereby pooling risks and resources. All individuals pay a prescribed insurance premium, equivalent to 2.75 per cent of their gross income. Government assistance is available to individuals who cannot afford to pay the insurance premiums, with eligibility determined by using a means testing tool. For those in the informal sector, a government insurance financing programme is available, which provides no interest borrowing to pay for health premiums.

Pooling health risks protects citizens against large, unpredictable medical expenses when seeking services in higher level facilities (levels four-six). Also, by transitioning from the National Health Insurance Fund to the SHA, the government has reduced fragmentation and improved equity and efficiency, lowered administrative costs, and provided the basis for more effective risk pooling and purchasing.

Strategic purchasing

Purchasing procedures have important implications for cost, access, quality, and consumer satisfaction. Efficiency gains from purchasing arrangements provide better value for money and thus are a means of obtaining additional financing for a health system. Under the new reforms, the government has designed a costed essential benefits package of primary health care services. From this package, the government buys health services and provides them at no cost to those enrolled in the SHA who seek care from SHA-contracted public and private facilities (levels two-three). Services offered outside the essential benefits package are paid for out-of-pocket or through private arrangements. These payment approaches are also used if the costs of care exceed the published tariffs, in which case facilities are allowed to do balance billing (providers bill patients for the difference between the published tariffs and the total cost of providing the service).

Kenyans who have enrolled in the  SHA can now access primary health care services free-of-charge in SHA-contracted facilities. Those who pay the full premium (2.75 per cent of gross income) can further access services in higher level facilities without incurring out-of-pocket medical expenses. These are game changers and hold the promise of improving the health of Kenyans across the country. The UHC reforms are also designed to enhance equity through publicly funded mechanisms and improve quality by reimbursing facilities for their outputs and incentivising facilities to improve efficiency and responsiveness, which will in turn attract more patients to seek care. However, the success and sustainability of Kenya’s social health insurance scheme, and the UHC reforms, depends on citizens’ enrolment into the programme. For that, the government will need to increase communication and advocacy efforts aimed at rallying the population. 

David is a health economist and a project director at Palladium