Tighten belts further as Rutocare comes at extra cost to salaried workers

President William Ruto during the signing of Universal Health Care Bills, State House, Nairobi. [PCS]

Payslips for Kenyans employed in the formal sector will shrink further following the signing of the Universal Health Coverage bills into law.

The new laws increase contributions that Kenyans have been making to 2.75 per cent of their pay for the State health insurance that will then be matched by their employers.

In the new model where employees will pay 2.75 per cent of their pay, it will mean that if you are earning Sh90,000 a month, your contribution will go up to Sh2,475.

This is more than double your current contribution of Sh1,200 per month.

NHIF rates are currently on a graduated scale with the least contribution being Sh150 per month while those earning Sh100,000 and above pay the highest Sh1,700 per month.

It was changed in 2021 when workers and their employers paid a combined Sh700 per month, or Sh350 per month each.

The new law has a minimum contribution to the Social Health Fund of Sh300 and caps the contribution at Sh5,000, which means for high-income earners, the monthly cost might go up to Sh5,000 from the current cap of Sh1,700.

The new contributions are a further blow for Kenyans who are still adjusting to higher taxes on the personal and business front imposed by the Finance Act 2023.

Kenyans are also grappling with the higher cost of living as the Finance Act also introduced measures that have hiked the cost of essential products such as fuel which has had a multiplier effect in terms of increasing the prices of goods and services.

Additionally, the economy is still reeling from the effects of multiple shocks it has been dealt with in recent years including the Covid-19 pandemic, prolonged drought and geopolitical factors such as the Russia-Ukraine war, with analysts also noting that the recent Israeli-Hamas conflict could have an impact on the local economy considering it is already impacting oil prices.

The laws have scrapped the National Health Insurance Fund (NHIF) and instead created three new funds that the State hopes will bring to reality accessible and affordable healthcare, something that has been elusive for the country through the years.

The new health laws that the government expects will revolutionise public healthcare are the Primary Health Care Act, 2023, the Digital Health Act, 2023, the Facility Improvement Financing Act, 2023 and the Social Health Insurance Act, 2023.

The Social Health Insurance Act scraps the current NHIF and establishes three new funds - the Primary Healthcare Fund, the Social Health Insurance Fund, and the Emergency, Chronic and Critical Illness Fund.

President William Ruto said the Primary Healthcare Fund will purchase services from health facilities at levels one to three while the Social Health Insurance Fund will cover services at levels four and six.

He said the Emergency, Chronic and Critical Illness Fund will handle emergency and chronic illness costs once social health insurance is depleted.

"These laws will transform healthcare in Kenya; they will save lives, empower communities and make us a stronger and healthier nation," said President Ruto when he assented to the bills on Thursday.

Additionally, the Facility Improvement Financing Act addresses underfunding in public health facilities, while the Digital Health Act streamlines technology adoption to enhance data sharing and resource utilisation.

The president said the Act will complement the Community Health Policy and Primary Health Care and Health Financing Strategies, putting an end to challenges in healthcare service delivery.

He is confident that with the new laws the Kenya Kwanza administration will succeed where other administrations have failed.

"The government has instituted a paradigm shift to preventive and promotive health rather than curative," he said.

"This approach also makes economic sense. Community health reports state that for every Sh1 invested in community health, Sh9.40 are realised in economic and social gains.

"In our plan, the delivery of primary healthcare services at the community level will start with Community Health Promoters (CHP)."

The Social Health Insurance Act makes it mandatory for all Kenyans to be members of the Social Health Insurance Fund.

"Every Kenyan shall register as a member of the Social Health Insurance Fund," reads the Act in part.

Latest assault

"The following persons shall be liable to contribute to the Fund under this Act - every Kenyan household, a non-Kenyan resident, ordinarily residing in Kenya for a period exceeding twelve months, the national government, the county government and any other employer."

It is the latest assault on the earnings of Kenyans, which has in recent years seen higher taxes and levies such as the new Housing Levy Fund and the increase in the National Social Security Fund (NSSF) rates, this year alone.

The Finance Act 2023 introduced the Affordable Housing Levy Fund, which has been disputed, in which employees pay 1.5 per cent of their gross pay that is then matched by the employers, also at 1.5 per cent.

Earlier this year, the state hiked the rates for NSSF, whose costs are shared between the employee and employer.

The rates went up to Sh1,080 up from a previous Sh200.

Other than the direct deductions on employee pay that reduce their disposable income, the government has introduced a host of taxes on essential products that have further pushed up the cost of living.

These include the doubling of the value-added tax (VAT) on petroleum products that has forced many Kenyans to rethink their mode of commuting to work while increasing operating costs for companies.

Industry players say that these costs have made it increasingly expensive to create and sustain jobs in the country, and have severally asked the government to have a predictable taxation policy that allows companies to absorb one tax measure before introducing another one.

The consequences on the labour market have been evident, with most companies refraining from hiring new employees unless it is absolutely necessary for critical positions.

According to Stanbic Bank's Purchasing Managers' Index (PMI) for September, there has been a decline in employment levels among Kenyan companies.

"Kenyan companies registered a slight drop in employment levels in September... around four per cent of companies reduced their headcounts, which was often linked to lower new business levels. However, a similar proportion noted a rise. Four of the five monitored sectors saw a decline in employment, the exception being agriculture," said the PMI report.

The Federation of Kenya Employers (FKE) recently said the amount of taxes levied on employers and employees has become unbearable.
Following a recent internal meeting, the employers noted that the UHC bills would increase business costs and at the same time strain the already squeezed incomes of many Kenyans.

"(They are being introduced) at a time when Kenyans are struggling with the high cost of living," said FKE.

"The Federation holds the view that the approach by the government to place the burden of funding UHC on formal workers and employers is misguided, since the formal sector accounts for a small percentage of overall wage employment in the country as compared to the informal sector.

"FKE holds the view that this model will face challenges given that the formal wage employment is only 15 per cent of the total wage employment."

The employers added that the move by the government to increase the tax base has placed a huge burden on formal employers and employees and could result in business closures, job losses and a slowdown in economic growth.

Sustained higher labour costs might affect Kenya's attractiveness as a destination for investors who may consider other countries in the region.

"All this raft of changes, whether it's looking at health, training, PAYE, and housing levy just means that there is more burden on employers, and they have to find innovative ways of getting the job done without being stuck with a fixed wage bill.....the more you tax the formal sector, the more you make it difficult for those with enterprises to create jobs, and we're seeing that," said FKE.

The Finance Act has also increased taxes for the very small businesses that pay turnover tax to three per cent from one per cent, which will also see these companies change the manner in which they engage with employees, many of them engaged as casual workers as it is.

Analysts say job creation as well as retention of the current force in the labour market might prove difficult in the coming years with the employers expected to react to new taxes that will see labour costs shoot up by holding off hiring plans.

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