Ken, a 30+ year-old in Nakuru invests each month in his family’s health by setting aside Sh3,000 for a modest health insurance cover. He understands the value it has for his family, which is why he makes a sacrifice.
It gives him peace of mind that his wife and two children can walk into a hospital and get treated, no matter what. With the Finance Bill 2025 on the horizon, Ken’s monthly commitment may cost slightly more due to proposed tax changes that increase the cost of health insurance delivery across the board.
The Finance Bill 2025 proposes several changes that carry significant implications for health access and affordability. First, it will be limiting tax loss carry-forwards to five years. This measure will strain insurers that rely on longer-term loss recovery to sustain affordable health plans.
Secondly, it will potentially remove value added tax (VAT) exemptions on medical inputs on items such as diagnostic equipment, hospital software, and medical consumables, which may become more expensive, costs that insurers or hospitals may pass down to consumers.
Thirdly, the tighter rules on employee benefits and digital content delivered through digital channels and employer-sponsored medical schemes may attract new layers of tax scrutiny and compliance overhead.
The cumulative effect of these three proposals means increasing cost pressures for insurers. As a result, they will raise premiums and potentially roll back affordable product design, posing a real risk of clients like Ken downgrading or opting out entirely.
Understanding the bill in its entirety is essential. Amid these gloomy proposals, several aspects of the bill stand to benefit the healthcare and health insurance sector if aligned well with policy implementation.
To begin with, for the first time, the bill recognises digital health platforms, which potentially provide a regulatory foundation for future innovation and formalisation. It offers Advance Pricing Agreements for multinationals and regional health insurers, providing clarity and predictability on transfer pricing, encouraging cross-border healthcare investment, and a conducive environment for the development of tech solutions.
It also provides a thriving environment for local manufacturing, as the Bill exempts inputs for local production of medicines, animal feeds, and electric vehicles (including e-bikes and buses).
Over time, this could reduce the cost of medical transportation, pharmaceutical distribution, and clinic outreach, especially in rural areas.
On system improvement, the bill allows for the commissioner to waive penalties related to iTax or digital platform errors, offering a compliance cushion for health insurers and providers digitising their operations.
Overall, these improvements and the widened tax base will see an increase in revenue collection and an overall increase in public funds available to subsidise indigent populations under Kenya’s new Social Health Insurance (SHI) framework, provided that these funds are transparently and equitably allocated.
Beyond the private market, the Finance Bill also poses critical risks to Kenya’s Social Health Insurance Fund (SHIF) journey under the newly formed Social Health Authority (SHA).
The reduced fiscal space, which will see exemptions shrink and administrative complexity rise, may make it harder for the government to subsidise indigent families. SHA’s vision of universal health care could turn into a contributory-only model, pushing the poor further to the margins.
Additionally, there is a risk for costlier medical inputs. This means the VAT changes on pharmaceuticals, medical devices, or IT systems for hospitals and clinics contracted under SHA will operate at a higher cost. If SHA doesn’t raise reimbursement rates, access and quality will inevitably decline.
Not to overlook the employer contributions, which are under pressure with new tax treatments of employee benefits. Businesses may become less willing to participate in government-linked health schemes, especially if onboarding is perceived as complex or financially unviable.
As a result, this could weaken the private sector’s role in complementing public health schemes SHIF was designed to work alongside private insurers. But if insurers are weighed down by tax-induced costs, reduced loss recovery timelines, and shrinking profitability, they may step back, leaving SHA to carry the burden alone.
All this means that Ken’s Sh3,000 per month health cover is more than a financial line item. It’s a symbol of personal responsibility and belief in health dignity. But as inflation rises, premiums inch upward, and public alternatives remain inconsistent, he may soon face a painful choice: drop cover or gamble with risk. If you multiply Ken’s story by millions, and we see the makings of a health system under quiet but growing strain.
There is need to modernise taxation and broaden the base. However, healthcare is not just another economic sector, it is the foundation of a resilient, equitable, and productive Kenya.
The Finance Bill 2025 offers a chance to strengthen public financing and can be implemented in a way that does not undermine affordability, innovation, or trust in healthcare.
If well aligned with the SHA’s agenda and private sector partnerships, the new tax laws can support a future where Ken and every Kenyan access dignified care, whether through SHIF or complementary insurance. Hence a need for policymakers to consult more closely with health insurers, healthcare providers, and employers to align tax policy with health goals
The writer CEO & Principal Officer, AAR Insurance Kenya Ltd.
