How we can make the informal sector workers part of UHC

The government has identified universal health coverage (UHC) as part of its Big Four development agenda, with the National Hospital Insurance Fund (NHIF) at the centre of this plan.

Countries face significant challenges as they develop and implement UHC strategies. Many low- and middle-income countries, including Kenya, are opting to introduce or expand national health insurance as a way to progress towards UHC.

Providing health insurance coverage for people outside the formal employment sector poses a key hurdle for this approach. It is administratively difficult to collect premiums from the informal sector as it is not organised, and many rely on low and irregular sources of income.

The informal sector employs over 80 per cent of Kenyans in jobs that often expose them to  hazards and illness, thereby increasing their need for healthcare.

Currently, NHIF enrolment is mandatory among workers in the formal sector, but voluntary for the informal sector.

The question, therefore is, how will the government extend coverage to the informal sector? Two main options have been discussed to date: Collect contributions to NHIF from the informal sector enrollees, which could either be voluntary or mandatory, or use general government taxes to provide full or partial subsidies to informal sector households. 

What happens if we go with the first method?

Adverse selection

World over, voluntary contributions lead to low coverage. Many are more likely to pay for NHIF when they are sick leading to adverse selection. Mobilising resources from the informal sector through mandatory NHIF enrolment would increase coverage and revenues.

Other concerns regard equity in contributions:  Is it fair to charge the same flat rate to all informal sector households?  Kenya can learn from countries such as Rwanda, where Ubudehe a socio-economic stratification system is used.  The wealthier pay higher health insurance premiums compared to the poor.

The other option to expand informal sector NHIF coverage is using government revenues to subsidise NHIF enrolment. Countries that have financed informal-sector health coverage from general revenues have high coverage rates.

A tax financing approach requires significant resources and commitment. 

One of the other ways of increasing fiscal space to finance UHC would be introduction of special “sin” taxes to earmark funds for UHC.

The ideal scenario would involve government using tax revenues to subsidise enrolment for the informal sector. However, due to the current fiscal landscape, the government should consider a phased approach and a mix of financing approaches. 

Having a single flat premium for the contributing informal sector will still not be equitable, but if all the poor are covered, this is a way to strike a compromise in the short term.