OPINION: Uganda’s proposed Health Insurance Scheme is designed to fail

There is pressure on Uganda to pass this bill because most countries in the EAC have some form of National Health Insurance.

In Kenya NHIF takes a small deduction from employees and gives a limited medical benefit, which only contributes to some of the costs incurred by the patient. In Tanzania there are two schemes, one for civil servants and another from NSSF. Both these schemes are more comprehensive than in Kenya. Rwanda has the most comprehensive NHIS, in the form of two schemes: one for the urban middle class who earn over a certain threshold, and one for the rural poor who pay a small amount and use the network of government hospitals.

The Uganda model proposes three different pools of insurance. The first is the existing private health insurance, which mostly covers those in the formal sector who work for employers who provide medical insurance as an extra benefit to their staff. The second pool will be the social health insurance scheme itself.

This will be a giant government health insurance company which collects contributions and runs the insurance scheme. The third pool will be a community insurance scheme that will cover the rural poor. The first and second pools will have to contribute to the third, since the amount of money collected from the poor will be insufficient to cover the cost.

In principle, national health insurance schemes should improve healthcare, and they are being pushed by the big international donors as a way to attain universal health coverage, but as we have seen, their implementation varies from country to country. The Ugandan bill has several major flaws, the most obvious of which is the heavy burden of taxation on the already squeezed formal sector.

This not only places an extra burden on the employee, but could make the cost of doing business in Uganda more expensive than in other countries. This would make Uganda a less attractive destination for investment.

The proposal is that the cash to run this National Health Insurance Scheme will be raised from an added deduction from those working in the formal sector. This will be 4% from the employee, matched by 4% from the employer. PAYE already stands at 30%, but after taxation, NSSF adds another 15%, and NHIF would add a further 8%. If we take an example of an employee taking home 500,000 shillings, the cost to the company currently stands at 680,308 shillings, including PAYE and NSSF. With the new tax, the employee’s take-home would drop to 475,263 shillings, but the employer would be paying 705,046 shillings. The total deductions in this case are 48%, but this figure rises for higher salaries.

This means that the cost of every employee to a company in the formal sector, is approximately another 50% on top of what that employee receives. Taxes are inevitable, but these are generally around 30%. In Uganda we also have the highest rate of NSSF in the region at 15% uncapped, and now we propose to add a further 8% NHIF tax, bringing these extra deductions to 23%, on top of the 30% tax. If we were a rich country with a high taxation regime, such as Norway, there would be no problem, because ordinary people are already well provided for, but I fail to see how, in the present straightened economic climate, we can put more strain on employers, and take more money out of the pocket of employees.

The second issue is the method by which the scheme will be run: as an independent authority with its own collection and administration system. This means that 15%- 20% of the cash collected will go on administration (using the current lowest admin cost of most health insurance companies), not to speak of the history of rampant corruption in many such government bodies.

The third issue is the method of paying the providers by using a ‘fee for service’ model. This means that a doctor gets paid on an item of service basis, so he charges for consultation, drugs, lab tests and procedures. The problem with this method is that it carries a built in financial reward for giving more treatment, hence costs spiral and eventually the scheme collapses. Most health insurance companies in Uganda are already losing money because of this method of payment.

There is also the issue that the burden of payment for the scheme falls mainly on the small formal sector, and the sums don’t work. One cannot raise enough money from two million people who are employed to pay for the healthcare costs of the other thirty-eight million people.

This all makes me sound rather negative, but I am not against NHIS; I am simply against a scheme that is designed to fail. The proposal for NHIS has been around for over ten years, during which time the MOH was carrying out extensive ‘consultations’, but these consultations resulted in no change in the basic architecture of the scheme.

It has been strongly suggested that NHIF should be run through NSSF, since they have a collection mechanism in place, and are already collecting 3% more than the norm in the region.

One could take this 3%, add on a further 1% from the employee and 1% from the employer, giving a total of 5% for NHIS and design a reasonable and sustainable benefit package.