A funding gap for healthcare services offered by low-level health facilities is forcing Kenyans to pay out-of-pocket or seek services at big hospitals, a new study has shown.
The study by Nairobi-based think-tank, Institute of Economic Affairs (IEA), shows that shortfalls in State funding of level two and three hospitals have left patients seeking treatment at high-level facilities and private hospitals.
IEA also says some private hospitals are demanding cash payments from patients due to cases of delayed reimbursement of previous bills, leaving Kenyans either paying out-of-pocket or seeking minor treatment at huge public hospitals.
‘Given the difficulty or challenges in claim reimbursement, people who are seeking services from private health facilities are being asked to pay. There are cases where people have no choice. Those who have money have to go back into their pocket,’ IEA’s Programmes Coordinator John Mutua said.
IEA assessed the Social Health Authority’s (SHA) design and implementation gaps, revealing frequent financing shortfalls where the government is expected to fund health facilities or finance subsidies for poor Kenyans to access health services.
SHA manages three distinct funds: the Primary Healthcare Fund (PHC), Social Health Insurance Fund (SHIF), and Emergency, Chronic, and Critical Illness Fund (ECCIF), each addressing different health needs.
The IEA, however, faults the government for funding shortfalls in PHF and ECCIF, which cover health services for poor households and chronic illnesses.
In the latest budget documents, the Ministry of Health projects a Sh14.3 billion shortfall in allocation to cover the health needs of more than a million people, a Sh35 billion shortfall for the government-funded PHC, and only Sh8 billion out of a requirement of Sh15.8 billion budget for the ECCIF allocated.
The Ministry reported that over the three years to June 2025, a million Kenyans accessed government health insurance subsidies out of the targeted 1.5 million Kenyans, with the shortfall attributed to underfunding by the State.
This has been witnessed even as pending bills related to the SHA hit Sh35 billion as of June 2025, with 90 percent of the debt linked to failure by the government to release the funds.
In the current fiscal year and the year starting July 2026, the Ministry of Health says the government has not allocated funds to support health insurance for nearly 90 percent of poor persons targeted under the program.
Out of a budget requirement of Sh14.7 billion in the 2025/26 and 2026/27 fiscal years, the government has allocated Sh1.7 billion, budget documents show.
The IEA Study proposes that the government should ring-fence funding to the PHC to go only to public hospitals, observing that the majority of Kenyans in rural areas use the facilities to get health services.
The think-tank is also pushing for the government to onboard high contribution groups, such as disciplined forces to SHA, to boost its gross premiums, while coming up with a working strategy to get more Kenyans in the informal sector contributing.
‘We have 80 percent of the population working in the informal sector, and you designed a system that is very analogous to Obamacare, the Swiss system, which relies heavily on people with regular incomes. That balance is not available, and there’s a risk, but this system might collapse unless some significant adjustments are made,’ said Kwame Owino, the IEA Chief Executive Officer.
The Institute reckons that packages offered by the State under the SHA remain largely ambitious and expensive, and has called for a review to rationalise them to a level the government can afford.