World Bank urges scrapping of SHIF deductions for low-wage workers, cites threats to UHC goals

The World Bank has called on the Kenyan government to eliminate mandatory Social Health Insurance Fund (SHIF) contributions for low-wage formal sector workers, warning that the current payroll-based system is hindering progress towards achieving Universal Health Coverage (UHC).

According to the World Bank's recent report, "Beyond the Budget: Fiscal Policy for Growth and Jobs – A Public Finance Review for Kenya", the 2.75 per cent payroll deduction under SHIF places a financial burden on low-income workers and small employers.

The global lender warned that this discourages formalisation and risks widening healthcare access gaps in a country where nearly 80 per cent of the workforce is employed in the informal sector.

"Workers in the informal sector, who account for up to 80 per cent of the national workforce, are mandated to contribute 2.75 per cent of their household income, but the majority do not contribute. As a result, SHIF is projected to collect only Sh67 billion per year—far below the target of Sh157 billion Kenyan shillings," the report reads.

"Moreover, the payroll tax design discourages formalisation, particularly for low-wage workers and small employers who face higher costs when joining the formal sector. This creates a structural contradiction: SHIF depends on formalisation to succeed yet actively undermines it."

Operational and funding issues

The report also points to operational and funding issues within Kenya's 2023 health reforms.

While the Primary Health Care Fund (PHCF) and the Emergency, Chronic, and Critical Illness Fund (ECCIF) were designed to provide essential services and high-cost care, they remain significantly underfunded, receiving just Sh4.1 billion and Sh2 billion respectively, against estimates of Sh61 billion and Sh107 billion in 2024/25.

According to the World Bank, Kenya must urgently transition to a domestic health financing model, especially as donor support continues to decline.

The World Bank also highlighted deep-rooted issues in Kenya's healthcare system that threaten the sustainability of SHIF.

"The success of the Digital Health Act hinges on the creation of a national health information system, estimated to cost Sh104 billion. SHIF has encountered system failures, challenges in transitioning from the National Health Insurance Fund, weak coordination with providers, and limited capacity to enforce payment of contributions from informal sector workers," said the bank.

"Further, the SHIF benefit package is ambitious and currently unlikely to be affordable. Without stronger public financing and better administrative systems, the full benefits of these reforms may not materialise."

To address these issues, the World Bank has urged Kenya to remove SHIF contributions for low-wage formal workers to reduce labour market distortions and encourage formalisation and to focus collections on formal workers while fully subsidising contributions for poor and informal workers

The bank has also recommended the improvement of coordination between national and county governments, the strengthening of the health workforce, the equitable distribution of resources and the rationalisation of SHIF's benefit package to match available resources.

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• World Bank urges scrapping of SHIF deductions for low-wage workers
• cites threats to UHC goals