The Court of Appeal recently issued its ruling on an application by the Cabinet Secretary for Health seeking a stay of the High Court’s decision of 19 July 2024. The High Court declared some provisions of the Social Health Insurance Act, the Digital Health Act, and the Primary Health Care Act unconstitutional but suspended the effect of its judgment for 120 days to allow for amendments to the unconstitutional provisions and public participation. However, the Court of Appeal has now granted a stay of the entire High Court judgment.
The Court of Appeal noted that the three statutes had been in effect for nine months, and if the 120-day suspension period lapsed without a stay, the health insurance framework would revert to the National Health Insurance Fund (NHIF) framework. In that regard, if the appeal ultimately succeeded, the health insurance sector would then need to transition back to the framework under the SHIA, causing unnecessary uncertainty. It is on this premise that the Court of Appeal took the view that the public interest tilted in granting the stay, as requested by the CS.
Background
The SHIA, DHA, and PHCA were enacted by Parliament on 19 October 2023, with the commencement date initially set for 22 November 2023. The SHIA establishes the Social Health Authority (the Authority) which oversees three health insurance funds; the Primary Healthcare Fund, the Emergency, Chronic and Critical Illness Fund and the Social Health Insurance Fund (SHIF). These contributory funds are intended to replace the NHIF which has been in existence since 1966.
Aggrieved by the process leading to the enactment of the three Acts, Joseph Enock Aura filed a constitutional petition before the High Court challenging their constitutionality on among other grounds, the lack of public participation. In a decision rendered on 12 July 2024 in Aura v Cabinet Secretary, Ministry of Health and 11 Others [2024] eKLR, a three-judge bench held that Sections 26 (5) and 27 (4) of SHIA were unconstitutional to the extent that they violated the right not to be denied emergency medical treatment as guaranteed by the Constitution. Further, the Court found that the Acts were enacted without sufficient public participation.
The court directed Parliament to amend the unconstitutional provisions and undertake ‘’sensitisation, adequate, reasonable, sufficient and inclusive public participation’’ within 120 days, failing which the Acts would cease to have effect for infringing the Constitution. The Acts in question were to remain suspended during the 120-day period.
The CS filed an appeal against the judgment of the High Court and simultaneously sought a stay of the High Court judgement pending the determination of the appeal resulting in the Court of Appeal’s pronouncement on 20 September 2024, which stayed the High Court’s judgment pending the hearing and determination of the substantive appeal. We note that the Court of Appeal failed to appreciate the fact that, even though the Acts were intended to commence in November 2023, that date has been postponed due to factors other than the legal challenges, including lack of preparedness by the Ministry of Health to transition from NHIF to SHIF as evidenced by various public announcements.
Implications
In light of the Court of Appeal’s ruling of 20 September 2024, the three Acts remain fully operational even as we await the final verdict on their constitutionality. Accordingly, all Kenyans and non-Kenyans residing in Kenya for more than twelve (12) months are required to register under SHIF. On 23 September 2024 the Ministry of Health issued a public notice to all employers, reminding them to register all their employees ahead of the transition date, which is now set for 1 October 2024.
The registration process, as outlined in the Ministry of Health’s public notice, requires employers to do the following:
i. Create an account: Visit the SHA website and create an employer account
ii. Verify the account: Follow the instructions to verify account details
iii. Add employees: Enter the relevant employees’ information and register them with SHA
iv. Make contributions: Use the portal to remit SHIF contributions on behalf of employees.
Employers will have access to contribution statements and other reports and can also make changes in their employees’ details on the SHA employer portal.
For households whose income is derived from salaried employment, the required contributions will be deducted monthly from wages or salaries by the employer. According to the Social Health Insurance Regulations of 2024, issued under Legal Notice No 49 of 2024 (the Regulations) these monthly statutory deductions shall be at a rate of 2.75% of the gross salary or wages of the household, and must be remitted by the ninth day of each month.
Employers will therefore be obliged to deduct and remit contributions in relation to their employees by the ninth day of every month with the first contribution to be deducted from the October 2024 salaries, falling due on 9 November 2024. Therefore, payments received on or before 9 October 2024 are likely to be credited to NHIF and payments received on or before 9 November 2024 and thereafter, will be credited to SHA. The last date for admission under NHIF is 30 September 2024 as benefits under the SHA will begin on 1 October 2024.
The contribution rate of 2.75% (without any cap) is a material increase from the current NHIF rates where the highest contribution is KES 1,700 for those earning KES 100,000 and above.
Notably, neither the SHIA nor the Regulations define “gross salary” or “wages” for the purpose of SHIF deductions. It may be the case that a similar interpretation of the term ‘wages or salary’ as applied to the Affordable Housing Levy could be adopted. In that case, the contributions to SHIF would be based on an employee’s basic salary and regular cash allowances, excluding non-cash benefits and irregular payments such as leave allowance, bonus, gratuity, pension, severance pay or any other terminal dues and benefits. However, this remains an area that requires further clarification.
Those not in formal employment will also be required to remit contributions on an annual basis at a rate of 2.75% of the household income, determined by the means testing instrument which is described as a set of indicators that capture various socio-economic aspects of an individual or a household for purposes of conducting a means testing As far as we are aware, this means testing exercise has not been published. The minimum contribution is KES 300, due 14 days before the lapse of the annual contribution deadline. A household includes an eligible contributor and their beneficiaries sharing similar socio-economic needs.
It is important to note that the Senate proceedings on 30 July 2024 annulled the Regulations that are meant to give effect to the 2.75% rate to be deducted. However, the Court of Appeal in its decision held that the laws could still function without the regulations despite the fact that the Regulations are supposed to offer guidance on the rate at which SHIF is to be implemented. It is also not clear how the means testing will be implemented given the circumstances. We are waiting to see if there will be any further guidance on this, as it is not clear how income for non-salaried persons should be calculated.
Employers should be aware that failure to remit contributions within the prescribed period amounts to an offence punishable by a fine not exceeding KES 2 million, or imprisonment for a term not exceeding 3 years, or both.
The Regulations provide that the Authority in collaboration with the Ministry of Cooperatives and other financial institutions, will provide premium financing to help non-salaried individuals pay their contributions. Those in need of financial assistance, as identified by means testing, will receive government support, funded by Parliament and County Assemblies. The Ministry of Social Protection will contribute at the national level, while county governments will be supported by their respective County Executive Committee members after qualification is determined.
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