The recent revelation by the Ministry of Health that only 3.3 million out of the 19 million registered Kenyans actively contribute to the Social Health Insurance Fund (SHIF) is a stark wake-up call for the policy and political elites of the Kenya Kwanza (KK) government. However, when examined against broader economic data, this outcome is not entirely surprising.
The 17% active contributor rate closely mirrors the country’s formal employment figures. According to the Economic Survey Report of 2024, formal sector employment accounted for an average of 16.7% of the total workforce between 2019 and 2023. The informal sector, which has consistently comprised about 83% of employment since the early 2000s, remains largely outside formal taxation and social security schemes.
Further, Kenya Revenue Authority (KRA) data indicates that only around 8 million Kenyans, out of the estimated 20 million engaged in economic activities, filed tax returns by June 30, 2024. Even among those who complied, many filed nil returns, indicating they were not earning taxable income. This aligns with the broader issue: a vast majority of Kenyans operate within a fragile economic framework where mandatory contributions to SHIF are neither practical nor sustainable.
With such a small percentage of contributors, SHIF is poised to suffer chronic financial shortfalls, similar to its predecessor, the National Health Insurance Fund (NHIF). While the government initially projected SHIF would collect Ksh133 billion annually, this estimate now appears overly optimistic. The underlying economic conditions—low formal employment, high tax burdens on a small percentage of earners, and widespread financial strain—suggest that the fund will struggle to meet its financial obligations.
Despite the government’s enthusiasm in promoting the scheme, officials have been reluctant to disclose the actual amounts collected under the new 2.75% levy over the past four months. This secrecy breeds skepticism, making voluntary contributors hesitant to participate. The government’s reliance on statistical jargon like “Mean Testing” does little to address the fundamental issue: without economic growth and higher disposable incomes, increasing registration does not translate into higher contributions.
The Kenya Kwanza administration appears to have miscalculated by assuming that systemic economic problems could be resolved through policy mandates and additional levies. Burdening an already overtaxed minority with more deductions, while the majority remains outside the tax net, is not a sustainable approach. If SHIF fails to meet its financial targets, it risks joining the ranks of other struggling government initiatives, such as the University Funding Model and the Hustler Fund, both of which have faced implementation challenges.
Government economic advisor Dr. David Ndii recently admitted that the Hustler Fund was never designed as a loan scheme but rather as a credit score alignment program. This candid acknowledgment raises questions about whether SHIF is similarly based on unrealistic assumptions rather than a well-structured financial model.
For SHIF to succeed, the government must reconsider its approach to universal health coverage. The World Health Organization (WHO) defines universal health coverage as a system where all people have access to essential health services without financial hardship. Given SHIF’s current financial outlook, this vision is unlikely to materialize under the present funding structure.
Several alternative approaches should be explored:
Economic Formalization – Encouraging formal employment and entrepreneurship growth can expand the tax base, ensuring more people contribute to healthcare and other social programs.
Healthcare System Reforms – Before imposing additional levies, the government should focus on addressing inefficiencies within the existing system, eliminating corruption, and improving service delivery.
Diversified Funding Models – Relying solely on payroll deductions is inadequate. Exploring public-private partnerships, donor funding, and innovative financing mechanisms could provide more sustainable revenue streams.
Community-Based Healthcare Solutions – Strengthening community health programs and integrating traditional medicine can reduce the burden on hospitals and improve accessibility to preventive care.
Countries like China provide valuable lessons in healthcare financing and delivery. China’s healthcare system integrates traditional and modern medicine while emphasizing preventive care and lifestyle education at the community level. This approach reduces the strain on government resources while ensuring broad-based healthcare access.
Kenya’s healthcare reforms should prioritize systemic economic changes rather than short-term revenue-generation measures. Without addressing the root causes—high unemployment, informal labor markets, and healthcare inefficiencies—SHIF risks becoming another well-intended but underfunded initiative.
President Ruto and his administration must take a step back and reassess the SHIF model. Rushing to implement a flawed policy risks long-term damage to Kenya’s healthcare system. A strategic pause to rework the framework, broaden economic participation, and introduce institutional reforms could pave the way for a more sustainable and inclusive healthcare financing system.
The question remains: Will Kenya’s policymakers acknowledge these deep-seated issues and rethink their approach, or will SHIF become another failed initiative burdening already struggling citizens?
