Evolution from NHIF to SHA: Key Changes

Introduction

Kenya’s healthcare financing system has undergone a significant transformation with the shift from the National Hospital Insurance Fund (NHIF) to the Social Health Authority (SHA). This evolution, driven by the pursuit of Universal Health Coverage (UHC), addresses longstanding challenges in accessibility, equity, and efficiency. The NHIF, operational since 1966, provided limited coverage primarily to formal sector workers, leaving millions uninsured. In contrast, the SHA, established under the Social Health Insurance Act of 2023 and fully operational from October 1, 2024, introduces a more inclusive, mandatory framework managed through three specialized funds. This article explores the historical context, drivers of change, legislative reforms, and pivotal differences, highlighting how these shifts aim to protect Kenyans from financial hardship due to medical expenses.

Historical Background of NHIF

The NHIF traces its origins to the post-independence era, established in 1966 as a voluntary health insurance scheme for public servants and formal employees. Initially modeled after colonial-era provident funds, it aimed to pool resources for hospital care but remained exclusionary, covering only a fraction of the population. By 1998, the NHIF Act made contributions mandatory for salaried workers, introducing income-based premiums ranging from KSh 150 to KSh 1,700 across 17 salary bands. Despite expansions, such as outpatient benefits in 2015 and maternity coverage, NHIF struggled with low enrollment—only about 26% of Kenyans were covered by 2023, with informal sector uptake below 20%.

Key limitations included fragmented benefits (primarily inpatient-focused with capped outpatient services), administrative inefficiencies, and rampant fraud, including ghost beneficiaries and delayed claims payments. Corruption scandals, such as the 2022 Auditor General’s report revealing billions in unremitted funds, eroded trust. The 2010 Constitution’s Article 43, guaranteeing the right to health, exposed these gaps, prompting UHC pilots in four counties in 2018. These efforts revealed NHIF’s inadequacy for nationwide scaling, setting the stage for reform.

Drivers for Transition to SHA

The move from NHIF to SHA was propelled by the need to achieve UHC, a flagship goal under President William Ruto’s administration and aligned with Sustainable Development Goal 3. Pre-2023 assessments showed NHIF’s coverage left 70% of the population vulnerable to out-of-pocket payments, which averaged 26% of health expenditures and pushed 1.5 million into poverty annually. Informal workers (over 80% of the workforce) and the poor were particularly underserved, with enrollment rates under 5% for the indigent.

Reforms were informed by global models like Thailand’s universal scheme and Rwanda’s community-based insurance, emphasizing risk pooling and subsidies. The COVID-19 pandemic highlighted systemic weaknesses, accelerating legislative action. By 2023, Kenya’s health spending was only 4.5% of GDP, far below the Abuja Declaration’s 15% target, necessitating a more equitable financing mechanism.

Legislative Framework and Repeal of NHIF

The cornerstone of the transition is the Social Health Insurance Act, 2023 (No. 16 of 2023), which repeals the NHIF Act of 1998 and dissolves the NHIF as a parastatal. Enacted on October 26, 2023, the Act establishes the SHA as a state corporation under the Ministry of Health, tasked with managing social health insurance. Complementary legislation includes the Primary Health Care Act, 2023; Facility Improvement Financing Act, 2023; and Digital Health Act, 2023, creating an integrated ecosystem for UHC.

Key provisions mandate universal registration for all residents (Kenyans and legal foreigners), with the NHIF Board required to wind up operations within one year of the Act’s commencement. The Social Health Insurance Fund Regulations, 2024, gazetted in July 2024, detail benefits, tariffs, and accreditation. A High Court ruling in July 2024 declared certain sections (e.g., on spousal consent for family planning) unconstitutional, prompting amendments, but the core framework remains intact. The transition committee, formed in February 2024, oversaw asset transfers, staff integration (over 2,000 NHIF employees), and service continuity until July 2024.

Key Structural Changes

The SHA introduces a tripartite fund structure, a major departure from NHIF’s single-fund model:

This layered approach ensures PHCF (fully government-funded) handles preventive care, SHIF pools contributions for standard services, and ECCF covers high-cost treatments like dialysis or cancer therapy without caps.

Changes in Contributions and Registration

Under NHIF, contributions were flat-rate and band-based, making it regressive for low earners (e.g., KSh 500 minimum for informal). SHA shifts to progressive, income-proportional rates: 2.75% of gross monthly earnings, deducted at source for salaried workers (minimum KSh 300, no upper limit). Informal sector members pay annually via self-assessment or means-testing, with government subsidies for the indigent (via the Inua Jamii program). Employers remit by the 9th of the following month, facing 2% monthly penalties for delays, plus fines up to KSh 2 million or imprisonment.

Registration is now mandatory and digital: principals use national ID/biometrics via SHA portal, USSD (*147#), or agents; dependents (unlimited spouses/children) are auto-enrolled. NHIF members were migrated automatically, but re-verification is ongoing. This contrasts with NHIF’s voluntary informal enrollment, boosting projected coverage to 100% by 2030.

Enhancements in Benefits and Services

NHIF benefits were curative-focused, with inpatient coverage up to KSh 400,000 annually and limited outpatient (e.g., KSh 1,000 per visit). SHA’s uniform package, defined by the Benefits and Tariffs Authority, expands to preventive, promotive, rehabilitative, and palliative care across all levels:

• Outpatient/Primary: Unlimited visits via PHCF; NHIF capped at 10/year.
• Inpatient/Tertiary: Full coverage for surgeries, maternity (up to KSh 20,000+), and chronic conditions; no family caps.
• Specialized: ECCF for emergencies, oncology, renal dialysis, mental health, optical/dental, and overseas treatment—areas minimally covered or excluded under NHIF.
• Equity Features: No waiting periods; subsidies ensure access regardless of payment status.

Services are referral-based, with community health promoters linking to Level 1 facilities. Early data shows reduced out-of-pocket costs by 40%, though some specialized treatments (e.g., certain prosthetics) remain partially covered.

The Transition Process

The handover began November 22, 2023, with NHIF ceasing new admissions by September 30, 2024. Assets (KSh 50 billion+), liabilities, and contracts transferred seamlessly, though initial glitches affected claims. By October 9, 2024, remittances shifted to SHA’s paybill (222222). Public campaigns via radio, SMS, and Huduma Centres drove 15 million registrations by mid-2025. Employer portals streamlined compliance, but informal sector uptake lags at 30%.

Challenges and Criticisms

Despite progress, the transition faced hurdles. A March 2025 Auditor General report flagged procurement irregularities in SHA’s IT systems, echoing NHIF scandals. Public perceptions, per GeoPoll’s 2025 survey, show 60% awareness but concerns over the 2.75% rate’s affordability amid inflation. Court challenges delayed rollout, and provider payment delays (up to 90 days) caused strikes. Rural access remains uneven, with only 70% of facilities digitized. Critics argue SHIF’s equity is undermined by inadequate subsidies, potentially hindering UHC.

Conclusion and Future Outlook

The evolution from NHIF to SHA marks a paradigm shift toward inclusive, sustainable health financing in Kenya. By repealing outdated laws, introducing progressive contributions, and expanding benefits through specialized funds, SHA addresses NHIF’s core flaws, aiming for full UHC by 2030. As of September 2025, with over 20 million enrolled and digital tools like Afya Yangu gaining traction, the system shows promise. However, sustained anti-corruption efforts, increased funding (targeting 5% GDP), and inclusive policies are vital. If navigated effectively, this reform could redefine healthcare as a right, not a privilege, for all Kenyans.

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