How will the New Social Health Insurance Scheme Affect the Insurance Industry?

The Ethiopian Health Insurance Agency, a new establishment designed to change the nation’s health insurance platform, is almost ready to launch the first ever health insurance scheme in the country. Its goal is to escalate the health service coverage in order to speed up sustainable health care financing that augments equitable admittance to enhanced health services by means of cross-subsidization. 

The scheme is a walk away from out-of-pocket payments for healthcare. It is an important step towards averting financial hardships associated with paying for health services. Social health insurance is mandated for those employed where wage rates are high. In turn, this service is extended to those unemployed through a subsidy. Since a large proportion of people are employed in the informal sector in counties like Ethiopia, governments are unlikely to manage compulsory insurance in the informal sector. This forces governments to depend on insurance schemes offered on a voluntary basis to the non-formal sector where the bulk of the poor work. Here, premiums would be considerably below the actuarially fair price.

If universal healthcare coverage is to be financed through insurance, the risk pool needs compulsory contributions (otherwise the rich and healthy will opt out); the risk pool has to have large numbers of people since pools with a small number cannot spread risk sufficiently and are too small to handle large health costs; and where there is large number of poor, pooled funds will generally be subsidized from government revenue.

The decree has made health insurance compulsory to employers with more than 10 employees including government workers, pensioners and private employees. The premium for the health service is to be obtained from 3 Pct contributions of employees and employers based on the monthly salary of their workforce, while pensioners contribute one percent from their monthly income. The scheme provides essential health coverage and curative out patient care, inpatient care, delivery services, surgical services and diagnostic tests and generic drugs for the insured population when prescribed by medical practitioners.

Social health insurance (SHI) is not a new phenomenon in the world. In fact Germany has the world’s oldest national social health insurance system, with origins dating back to Otto von Bismarck’s Sickness Insurance Law of 1883. It is a conventional scheme deep-rooted all over the world. SHI has also been mandated for formal-sector workers in a number of developing countries. In order to achieve universal healthcare coverage, the institutional structure that emphasizes payment to providers for services delivered has been offered to those beyond the formal workforce (Vietnam 1993 and 2003, Nigeria 1997, Tanzania 2001, Ghana 2005, India 2008, China 2003) as an alternative to direct tax-based financing of providers and out-of pocket payments. In most other countries national health insurance systems were implemented in the period following World War II as a process of deliberate healthcare reform, intended to make health care affordable to all, in the spirit of Article 25 of the Universal Declaration of Human Rights of 1948 by nations which had adopted the declaration as signatories.

Although, health insurance industry plays a ubiquitous role in the nation’s socio economic development, it has a significant impact and would change the conventional way of providing voluntary commercial health insurance, unless the commercial insurers adjust their scheme to suit the changing needs. Currently, although official statistical data is unavailable, commercial insurers on average generate 25-30 Pct of their life and health premium income from health insurance.

Subsequent to the launching of the new scheme, the commercial insures will only concentrate on risks that fall over and above the benefits granted by social health insurance schemes. This might force them to reside only in areas not covered by social health schemes such as worldwide coverage and provide coverage for the usually “undesirable risks”. Here it has to be noted that insurers regard such segregated risks as “Adverse selection” as the perils naturally create imbalance on the “law of large numbers” which is a pillar to most insurance principles and a source for insurer’s profitability since such perils are nearly certain to happen. In many insurance markets, premiums paid by policyholders are pooled so that the financial impact of a single event doesn’t wipe out a household or organization. Health insurance is an exception where many policyholders use their insurance frequently. Thus, the math of insurance is about basics: pooling of risk from a large number of policyholders to fund a smaller number of unforeseen losses. However, this might not work where there exists adverse selection.

The commercial insurers reside only to niche markets from such adversely selected perils although the tendency requires prudent risk management capacity. Ironically the  uninsured areas that the scheme might exclude encompass treatments outside the country, treatment of injuries resulting from natural disasters, social unrest, epidemics, and high risk sports, treatments related to drug abuse or addiction and periodic medial check-ups unrelated to illness cosmetic surgeries, organ transplants, dialysis except acute renal failure, provision of eyeglass and contact lenses, in vitro fertilization, hip replacement, dentures, crowns, bridges, implants and root canal treatments except those required due to infections, provision of hearing aids and health services provided to any beneficiary free of charge are left for commercial insurers although these are “least preferred” perils for commercial insurers; provided the willingness of employers to buy  such coverage to their employees. However, the challenge posed here is that as health care costs continue to rise, it is possible that employers will decide to drop health coverage as an employee benefit for obvious reasons.

The benefit might have minimal impact on the personal accident insurance policies since it does not cover occupational injuries, traffic accidents and other injuries covered by other laws  since the proclamation considered such matters as inapplicable laws according to article 11 sub article  1 and 2 (a and b). The scheme has excluded additional medical benefits granted under collective agreements concluded in accordance with the Labour Proclamation No. 377/2003

Conversely, for the insured, the scheme would bring numerous advantages since it forces the commercial insurers to widen the scope of cover, loosen stringent policy terms and conditions, and diminish the list of exclusions from their insurance policies so as to stay competitive and win the heart and mind of customers. Moreover, beneficiaries of the social health insurance scheme are insured members and their families which have a wider scope than the commercial benefit coverage.

Challenges that the new scheme might face include:  claim fraud, high patient traffic and exodus to health centers since the majority of health care costs worldwide are the direct result of unhealthy lifestyles and/or failure to adhere to recommended treatment plans. Hospitals may see an influx of claims received for adjudication, benefits that are exhausted, benefits not covered, and resulting denials. At the same time, the non-financial barriers to access to healthcare, such as awareness and distance to healthcare facilities, must be minimized. Further, more rigorous evaluation studies on implementation and the impact of health insurance must be conducted to generate evidence for better-informed policy decisions.

In all likelihood, the commercial insurers may stagger to provide the conventional commercial health insurance, since the new platform might require their enrollment and scope of broader coverage. Although it reduces the mortality rate for other personal or life insurance policies, the practical impact of the new scheme on the commercial insurers and responses to the actions and reactions of affected stakeholders will be clearly noticed after full scale implementation. But obviously, the new health insurance scheme might serve as a major driver of innovation to the commercial and personal health insurance industry in Ethiopia which highly suffers from supply side imperfections and lack of demand. 

To determine the core needs of their customer base, commercial insurers will be forced to benchmark how other countries have managed such issues and adjust themselves. Accordingly, they need to formulate strategies to attract new consumers and to retain the existing ones through value-added and complementary health insurance services so as to better position themselves in the individual insurance market. Apparently, the new individual cohort will likely require a more sophisticated segmentation and analytical approach than in the past.

We wait to see whether employers drop health care benefits as costs become non-sustainable and state-run health exchanges loom as an alternative for employees? Will individuals without employer coverage choose to enter the individual insurance market? If so, what insurance features will they prefer? Will some select minimal coverage? How will doctors and hospitals respond as increased numbers of individual policy holders pressure the system? The journey has just begun and the new social health scheme is anticipated to revolutionize the way commercial insurers think.

2nd Year . February 2014 . No.12

Fikru Tsegaye

Fikru Tsegaye holds MBA in Marketing and MA in Human Resource and Organizational Dev’t. He is currently working at Ethiopian Insurance Corporation as Marketing and Strategic Management Team Leader. He can be reached at


  • RicardoTew

    buy cialis in mexico
    cialis online
    can you buy real cialis online
    cialis online
    cialis mail order pharmacy

    RicardoTew Sunday, 22 October 2017 10:41 Comment Link
  • MatthewBlite

    best place to order cialis online
    buy cialis
    cheapest cialis 20mg
    buy cialis online
    buy cialis canada yahoo answers

    MatthewBlite Wednesday, 18 October 2017 13:07 Comment Link
  • Stevenabelp

    levitra viagra cialis price comparison
    viagra tablets
    best price on real viagra
    viagra for sale uk
    buy viagra in manchester

    Stevenabelp Saturday, 14 October 2017 10:31 Comment Link
  • JosephWedge

    buy real viagra from canada
    viagra from canada
    comprar viagra 100mg
    viagra from canada
    viagra sale boots

    JosephWedge Friday, 13 October 2017 17:15 Comment Link
  • MichaelScexy

    buy sildenafil citrate 100mg
    viagra for men
    tescos viagra online
    viagra pill
    effet viagra 100mg

    MichaelScexy Thursday, 12 October 2017 19:05 Comment Link
  • DanielRoN

    kamagra sildenafil 100mg
    viagra from canada
    viagra for cheap prices
    buy generic viagra
    viagra levitra cialis price comparison

    DanielRoN Wednesday, 11 October 2017 22:42 Comment Link
  • Kerrybem

    viagra sale cape town
    viagra online
    where can i buy viagra over the counter in london
    online viagra
    buy online viagra india

    Kerrybem Tuesday, 10 October 2017 11:17 Comment Link
  • Richarddiowl

    generico de viagra en colombia
    cheap viagra australia
    compare viagra prices at major pharmacies
    viagra sale online uk
    generic cialis and viagra

    Richarddiowl Wednesday, 04 October 2017 20:39 Comment Link
  • Lloydemina

    want buy viagra
    buy cheap viagra uk
    generic viagra online usa
    buy generic viagra online canada
    generic viagra sale online

    Lloydemina Wednesday, 04 October 2017 09:51 Comment Link
  • WalterApelm

    where can i get some viagra
    viagra sale high street
    viagra generico principio ativo
    how to buy viagra in ireland
    viagra online orders no prescription

    WalterApelm Sunday, 01 October 2017 00:30 Comment Link

Leave a comment

Make sure you enter the (*) required information where indicated.Basic HTML code is allowed.

Latest News

Ethiopia to Host the 4th International Coffee Conference

Ethiopia to Host the 4th International Coffee Conference

Ethiopia is set to host the 4th International Coffee Conference from March 6 – 8, 2016 in Addis Ababa at the United Nations Conference Center. Previous conferences were held  in England in 2001, Brazil in 2005 and Guatemala in 2010. Read more


UAE-backed Egyptian forces arrive in Eritrea...

ሰበር ዜና ብሄራዊ ባንክ ከነገ ጀምሮ የብር ምንዛሪ ተመንን በ15% እንዲገሽብ ውሳኔ አስተላለፈ፡፡ በተጨማሪም የገንዘብ ማስቀመጫ ወለድን ከ5% ወደ 7% ከፍ እንዲል ውሳኔ...
Follow EBR News on Twitter

Most Popular

  • 1
  • 2
Prev Next

The White-Box of Ethiopian Agriculture

The agricultural sector remains our Achilles heel, nonetheless, we remain convinced that agricultural-based development remains the only source of hope ...

Read more

For Whoever Has, to Him Shall be Given …

As the Ethiopian government seeks to transform the economy into one that’s rooted in manufacturing, the simplicity for local investors to access finance...

Read more


  • 1
  • 2
  • 3
Prev Next

Shooting in the Dark: The Anomalies of Headhunting

The war for ‘heads’ – also known as talent – has been raging for many years and the manner headhunters ‘poach’ people is getting tougher ...

Read more

Understanding Chinese Investment in Ethiopia A Critical Evaluation of the World Bank’s “Chinese FDI in Ethiopia” Survey

The World Bank country office in Ethiopia, apparently in response to the request by the government of Ethiopia, has conducted a survey of...

Read more

Mitigating Growing Income Inequality: What Needs to Be Done

Rising income and wealth inequality in many countries around the world has been a long-term trend for three decades or more. But the atte...

Read more

View Point

  • 1
  • 2
  • 3
Prev Next

Delivering Life Insurance: The Untapped Market in Ethiopia

Modern insurance transaction in Ethiopia was started by an Egyptian Bank in 1905. According to Ethiopian Chamber of Commerce there were 19, 33 and 40 insuran...

Read more

Cut Throat: The Vicious Cycle of Price Based Competition in Ethiopian Insurance Industry

For most, it was imprecise how Ethiopian insurers would manage their prices devoid of actuaries. As most insurers know, premium has a more significant impact...

Read more

Headache When a Key Personnel leaves a Company in the Financial Sector

The financial sector in Ethiopia has undergone considerable changes in recent decades. The dramatic rise of new market players into the sector has vividly al...

Read more