Government health insurance scheme to hit salary earners harder

If the proposed national insurance scheme is adopted in its current form, the mandatory tax salary earners pay to the government will increase by 4 per cent.
Already, employers are by law required to deduct from the salaries of their employees and forward to the government local service tax, Pay as you Earn tax (PAYE), and contributions to the National Social Security Fund (NSSF).

For instance, if someone earns Shs410,000 a month, the employer is currently required to collect a total of Shs168,500 per month from such an employee as NSSF contribution and PAYE tax. In addition, the employer will further remit to NSSF another 10 per cent of the employee’s monthly salary, Shs41,000 in this case, as its statutory contribution for the employee.
Whereas the money remitted to NSSF is eventually refunded to the employee, this happens on retirement, death or in case the employee becomes an invalid during their working life.

With the adoption of the proposed insurance scheme, a person earning a gross income of Shs410,000 will pay Shs16,400 every month, translating into an annual contribution of Shs196,800. That person’s monthly take-home-pay will drop to Shs225,100 per month, only slightly more than half of the gross salary.

On the higher end, a person currently earning Shs10m a month will contribute Shs4.8m to the government insurance scheme per year, while their employer will add Shs1.2m to make an annual contribution of Shs5m. Their monthly take-home-pay, including the proposed health insurance tax, will reduce by Shs400,000 per month to about Shs6m.

Easy target
Uganda’s low tax-to-GDP ratio has always been blamed on a narrow tax base, where the government has traditionally targeted the low-hanging fruits, which salaries are, since it is easier to order employers to deduct and remit taxes from salaries.
For the proposed health insurance scheme, for instance, the employer will be required to deduct the 4 per cent from each employee’s salary and remit it to the scheme, failure of which the employer will be fined.

The employer is also required to top up the employee’s contribution to the health insurance scheme with a further 1 per cent of the employee’s gross salary, meaning that the employer will at the end of every month surrender 5 per cent of the employee’s salary to the scheme.
This means the proposed scheme will automatically increase the cost of labour by 1 per cent. The employers are in effect already paying a tax for employing labour, which they do by being required to remit 10 per cent of the gross monthly salary of each employee to NSSF.

When an employer pays Shs1m as gross salary to an employee, for instance, the employer must remit an extra Shs100,000 to NSSF, meaning the employee’s salary is Shs1.1m and not Shs1m. If the proposed health insurance scheme is adopted in its current form, the employer will spend on the employee an extra Shs10,000.
Another category that is likely to be hit hard, especially if employers decide to discontinue health schemes for employees as the national insurance schemes kick in, are insurance companies, which currently collect about Shs300b in medical insurance premiums per year.

Possible flip side
Employers who already offer health insurance to their employees may, by contributing to the new scheme, decide to discontinue their medical insurance plans for their employees in the hope that the national insurance scheme will take care of the employees and their families, but it is difficult to have guarantees that the proposed insurance scheme will provide quality care to the numbers that it is likely to be confronted with.

A managing director of a company who spoke to Sunday Monitor on condition of anonymity, said his company pays an insurance premium of Shs500,000 for insurance per person per year, and that the scheme covers the employee, spouse and four children. He said he would be happy as a top executive to drop the company’s insurance scheme and enlist on the proposed one, although he was unsure whether the proposed one would provide quality care to his employees.

Misguided good intentions?
The Bill tabled before Parliament on Thursday aims to develop health insurance as a mechanism for financing health care in Uganda in order to facilitate the provision of efficient, equitable, accessible, affordable and quality healthcare to all residents of Uganda. It further seeks to ensure quality of healthcare services, equity, appropriate utilisation of services and patient satisfaction in the provision of healthcare.

The Health minister, Dr Jane Ruth Aceng, said while tabling the Bill that private health insurance schemes in Uganda only cover between 1 and 2 per cent of the population, are risk rated and the premium depends on age and existing health conditions. These are good reasons for a new, more inclusive insurance to be adopted.

The annual per capita expenditure on health in Uganda is $53 (about Shs194,000). This is still far below the recommended minimum of $84 (about Shs370,000) per capita expenditure on health.
The total annual health expenditure is Shs7.5 trillion. Of this, 15 per cent is from government funding, 42 per cent from donors, 41 per cent from individuals (out of pocket) when they fall sick and only 2 per cent from pre-payment mechanisms like health insurance or community payment mechanisms.

Self-employed
In the proposed new scheme, self-employed individuals will make an annual contribution of Shs100,000 to the scheme. The flat rate of Shs100,000 to be charged on self-employed individuals, regardless of income, is problematic. This is because many self-employed individuals earn much more than salary earners, yet they do not pay taxes like PAYE, local service tax and don’t compulsorily contribute to NSSF.

This leaves bigger disposable incomes to many self-employed individuals in the informal sector, and the government’s efforts to track and integrate them into the formal income tax bracket have almost been nonexistent, despite the lip service paid to the subject for many years.

Take this comparison. A salaried employee with a gross monthly salary of Shs1m will, under the proposed scheme, pay Shs40,000 per month, totaling to Shs480,000 per year. If we add the contribution by the employer, Shs600,000 will be paid into the scheme in respect of every employee who earns a gross salary of Shs1m per year. Any in the informal sector who earn much higher than this employee and are not subjected to PAYE and other deductions on income will pay a flat fee of Shs100,000 a year.
The Bill also creates a class of “indigents” or poor orphans, other poor vulnerable children, poor older persons, poor persons with disabilities, destitutes and poor refugees, who will access the services under insurance without paying. It, however, does not specify how some of these will be selected.

Despite the good intentions that the framers of the proposed insurance scheme have, it would appear that the scheme would in the end pressure the relatively small group of salaried employees, who already feel overburdened by taxes.
Are there alternative, less ambitious ways poor countries like Uganda, which have a small middle class, can go about health insurance? Perhaps there are examples worth exploring from neighbouring countries.

Background

Earlier attempt. In 2006, the government announced plans to introduce a National Health Insurance Scheme where all Ugandan residents would be required to have a health insurance policy. But the scheme faced stiff criticism from major stakeholders, who described it as another burden to employees, expressing fears that such a policy might increase the already high cost of doing business in the country.

How the employee will be affected. For instance, if someone earns Shs410,000 a month, the employer is currently required to collect a total of Shs168,500 per month from such an employee as NSSF contribution and PAYE tax. In addition, the employer will further remit to NSSF another 10 per cent of the employee’s monthly salary, Shs41,000 in this case, as its statutory contribution for the employee.

With the adoption of the proposed insurance scheme, a person earning a gross income of Shs410,000 will pay Shs16,400 every month, translating into an annual contribution of Shs196,800. That person’s monthly take-home-pay will drop to Shs225,100 per month, only slightly more than half of the gross salary.

How it works in Kenya

Among others, Kenya has the National Hospital Insurance Fund (NHIF), a State parastatal that was established in 1966.
The Fund’s core mandate is to provide medical insurance cover to all its members and their declared dependants (spouse and children). The NHIF membership is open to all Kenyans who have attained the age of 18 years, and have a monthly income of more than Ksh1,000 (Shs36,000).
NHIF has autonomous branches across the country. Each of these branches offer all NHIF services, including payment of benefits to hospitals or members or employers.

Smaller satellite offices and service points in district hospitals also serve these branches.
NHIF registers all eligible members from both the formal and informal sector. For those in the formal sector, it is compulsory to be a member. For those in the informal sector and retirees, membership is open and voluntary.
Voluntary members of NHIF, those in the informal sector, are required to make payments to the Fund. The payments to NHIF are made once a month.

Kenyans under the NHIF fund are issued with NHIF membership cards that come in handy when they visit the hospital covered by the NHIF insurance. In case you are admitted to a hospital as a member of NHIF, medical services are accorded to you and the doctors attend to you until the day you leave the hospital.

How insurance works in Rwanda

Rwanda has about four main insurance schemes, including the Community-based Health Insurance schemes (CBHI) (Mutuelles de Santé) for formal and informal sector members. Others are Rwandaise d’Assurance Maladie, which provides medical insurance to civil servants and employees of state-owned enterprises. Military Medical Insurance provides basic insurance coverage to military personnel and private insurance products.

CBHI schemes in Rwanda, for example, are health insurance organisations based on a partnership between the community and healthcare providers. The CBHI schemes, according to a November 2005 World Bank report, develop their by-laws, organisational structures including general assemblies, board of directors, surveillance committees and executive bureaus to regulate contractual relations between members and the mutual organisation.
Participation in the CBHI scheme is voluntary and is based on a membership contract between the CBHI scheme and the member. In addition, CBHI schemes develop contractual relations with healthcare provider organisations (health centres, hospitals) for the purchasing of healthcare.

By-laws of CBHI schemes and their contracts with healthcare providers include measures for minimising risks associated with health insurance (adverse selection, moral hazard, cost escalation, and fraud). The target population of individual CBHI schemes are inhabitants of the catchment area of their partner health centre: low risk events (health centre package) which are included in the CBHI benefit package are shared at the partner health centre catchment’s area population.

CBHI schemes in a given health district, however, establish a federation at the district level, which plays a risk-pooling mechanism function for high-risk events (hospital package).
The district federation also plays social intermediation and representation roles for individual CBHI schemes in their interactions and contractual relations with healthcare providers and external partners.
Finally, the federation plays other support functions such as training, advice, support and information for individual schemes.

Contributions to the CBHI scheme funds are on a yearly basis. Members have the option to sign up as a family, with up to seven members, which costs $7.6 (about Shs28,000) per family per year. Payment of the yearly premium entitles covered family members to a benefit package, which includes all preventive, curative services, prenatal care, delivery care and laboratory exams, drugs on the Ministry of Health essential drug list, and ambulance transport to the district hospital provided by the partner health centres.

With a health centre referral, members also receive a limited package at the district hospital. Sick members pay a co-payment of $0.30 (about Shs1,000) for each visit at the health centre. At the hospital, referred members have direct access to the hospital package without any co-payment. Health centres play a gatekeeper function to discourage the inappropriate use of hospital services.

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