Will the proposed AKSN work?

Hans Vriens, Managing Director, APCO Indonesia, Jakarta

Recently a plenary session of the legislature reviewed a new draft bill to introduce a national health insurance in Indonesia, the so-called AKSN (Asuransi Kesehatan Sosial Nasional). The aim of this scheme is to provide improved, basic (but unspecified) health care services in Indonesia. It is being presented as a way of providing free health care to all Indonesians, including the poor and the needy. No doubt a popular proposition for politicians, in particular in view of the upcoming elections.

There can be little doubt that there is room to improve basic health care services. However, what will be the consequences of the introduction of an expensive compulsory national health insurance? Can the country afford it, and who is likely to benefit? Is it a dream come true or could it all end in tears?

Let's look at the major features of the legislation that according to the Minister for Health will be introduced before the end of this year:

o Participation in this scheme will be compulsory for all Indonesians and residents of Indonesia for longer than 180 days, including foreigners.

o There are no opt-outs or salary caps, even for Indonesian middle and upper management, and foreigners who will most likely not use the scheme at all.

o There will be a payroll deduction of 6 percent to be paid by employer and employee. But employees will expect the employer to foot the bill.

o Companies may, at their discretion, provide health services (insurance, clinics etc.) over and above the basic services provided for by the law but will, nonetheless, still be required to contribute to the payroll deduction.

o The government will pay the contributions for the poor and needy commencing at an unspecified date.

o A trust fund and an implementing body, similar to the social insurance firm Jamsostek, will be established to manage this multi-billion dollar program. It will collect contributions and be responsible for providing the medical services. The implementing body will have representative bodies in all regencies.

National health insurance schemes all over the world are in financial trouble. Even rich Asian countries like South Korea and Taiwan have come to the conclusion they can't afford it. The drain on the government budget is too big.

Health costs in Germany are so out of control that the German government and opposition agreed this summer to the biggest social service overhaul since reunification in 1990 with plans to slash health costs by US$26 billion per year.

The funding needed for the AKSN is estimated to be $6.5 billion per year of which the government's contribution is estimated to be $3.1 billion. There is no clear indication as to where this government money will come from and how it will be budgeted.

In other words, the scheme will not benefit the poor. The government simply doesn't have the money. The poor and unemployed may be covered by AKSN one day, but we are unlikely to witness that day in our lifetime.

What kind of services can employees expect -- employees who suddenly have to cancel their existing health insurance and are forced to move to this new national government scheme. According to health care specialists the answer is simple: AKSN will deliver unspecified second-rate treatment by second-rate providers.

Experience in other countries where similar schemes have failed also teaches us that providers like doctors, and hospitals will prioritize "paying patients". This will represent a lower standard of care than that provided by existing health insurance arrangements.

Private health care providers are not in favor of such an approach and the scheme will not attract them, either hospitals or specialists. Therefore, to ensure first class coverage for employees, employers will be required to maintain existing health insurance arrangements and the 6 percent compulsory payroll contribution will in effect become just another tax.

It is also unclear why we need a new trust fund and an implementing body, while the official policy is to privatize existing state-owned companies. It is possible that this fund, which will manage at least $3 billion a year could become the victim of corruption, collusion and nepotism. Comparable state owned firms like Jamsostek and ASKES (health insurance) have a far from unblemished track record.

A recent study conducted by the International Labor Organization ILO entitled Restructuring the social security scheme in Indonesia found that the average value of a Jamsostek pension only amounts to 5.5 months of the recipients' basic salary or 8.5 months of the current minimum wage.

These workers would earn a better rate of return on their investment if they put their retirement savings into a bank account rather than putting it into the Jamsostek scheme.

Besides there have been numerous allegations about corruption in Jamsostek. The Confederation of All-Indonesian Workers Union lashed out at political parties and accused them of looting Jamsostek. They charged that during its 26 years of operation Jamsostek has been "repeatedly used as a cash cow by certain groups."

After the new manpower law, companies already have a total payroll deduction of around 12 percent to fund Jamsostek and retirement provisions. With another 6 percent for this scheme and, potentially, an additional as-yet unspecified amount for the new social security bill, the labor cost to employers is becoming unrealistic.

So far it isn't entirely clear who would benefit for AKSN besides possibly the people who are going to manage these billions of dollars. It is obvious that Indonesia needs to improve health care for the poor and unemployed. This could be achieved by prioritizing the improvement of the many thousands of community health centers all over the country, that now often have no medicine and no doctors. This is likely to be more effective than trying to build another Tower of Babel.

PT APCO Indonesia is a wholly-owned subsidiary of APCO Worldwide, a Washington-based firm specializing in government relations and communications.