Situation Analysis: Key Development Challenges Facing Egypt

Situation Analysis: Key Development Challenges Facing Egypt

Lead Author Professor Heba Handoussa, Coordinator, Situation Analysis Taskforce

2010

This Situation Analysis is a multi-stakeholder document prepared by a Taskforce, led by Heba Handoussa, which consulted with sector-specific experts, independent advisors to government, UN Agencies and other national and international development partners in Egypt.

The Taskforce also reviewed a wide array of official documents and recent development literature on Egypt.

The Taskforce has gratefully received and accommodated as much as possible numerous comments on the various drafts of the report.

Preface Fayza Aboulnaga, Minister of International Cooperation

أبواب

II.1 Egypt’s Integrated Social Policy: Changes and Challenges 45

II.1.a Safety Nets and the Welfare State 45
II.1.b Intended and Effected Changes in Social Policy 47
II.1.c MOSS Reforms and Capacity Building 50

II.2 Poverty Reduction 50

II.2.a Food Security, Consumer Price Index and the Poor 51
II.2.b Removing Energy Subsidies and Targeting the Poor 53

II.3 Gender and Youth 54

II.3.a Women: A Special Concern 54
II.3.b Youth Building the Future 58
II.4 Family, Child and Population 60
II.4.a Results of the Child Multidimensional Poverty Study 60
II.4.b The Issue of Fertility and Population 61

II.5 Education 64

II.5.a Literacy and Adult Education 64
II.1.b Education Reform at Pre-University Level 66
II.5.c Sector Analysis of Higher Education in Egypt 

Health and Nutrition 73

II.6.a The Health Sector Reform Program 74
II.6.b Impact of Environmental Degradation 74
II.6.c Disease Burden in Egypt 

أبواب أخرى

II.7.d Human Rights 83
II.7.e Access to Justice 85
II.8 Social Protection 86
II.8.a New Pension Law 86
II.8.b A New and Universal Social Health Insurance (SHI) System 87

من النص Executive Summary

Social Protection

The New Pension Law: Egypt is introducing and enforcing a new fully funded pension system based on defined contributions and a unified law that targets all segments of the population. To encourage compliance, the new pension system reduces the contribution rates to 11% for the insured individual and 19.5% for the employer. It provides protection against old age, disability, work injury, unemployment and death at a lower cost than the current pension system, especially for low and medium wages, including casual and informal workers. The retirement age will gradually rise to 65 years to face the increase in life expectancy and hence the financial commitments of the system. An individual’s pension benefit replacement rate will represent 75% to 88% of the value of his/her last net wage before retirement, disability or death. The gradual implementation of the new pension system will help reduce the financial burdens incurred by the public treasury; enhance the system’s fiscal sustainability; maintain the role of the state in income redistribution; improve economic efficiency; and develop the capital market. To successfully implement the system it is essential to enhance public trust in the government’s ability to honor its long-term commitments at retirement and not to excessively use pension funds in financing the budget deficit.

A New and Universal Social Health Insurance (SHI) System. Egypt’s proposed new health insurance system is to provide financial protection through risk pooling and protection from catastrophic illness that can push people into poverty. Current political thinking proposes to cover the whole population (up from the current 50%) under a unified law aiming at achieving equity in access and quality services. The government is currently working to implement a plan that will offer a baseline minimum of healthcare for all Egyptians and underwrite a long list of basic health procedures. Pilot programs are now underway in the governorates of Suez, Sohag and Alexandria. A 10-year phased plan will roll out a partnership between the public and private sectors in which the insurance industry plays an important supporting role. Financing the SHI system relies on the principle of solidarity that will require income-related contributions which apply to those with a regular or assessable income.

من نص التقرير

II.8 Social Protection

11.8.a New Pension Law

Based on country experiences worldwide, Egypt is introducing and enforcing a new fully funded pension system based on defined contributions. Tying pension benefits closely to contributions stimulates individuals to comply and continue to work for the longest period possible. To encourage compliance, the new pension system reduces the contribution rates to 11% for the insured individual and 19.5% for the employer. The new pension system is based on a unified law that targets all segments of the population. Additionally, the new system provides protection against several risks, most importantly old age, disability, work injury, unemployment and death at a lower cost than the current pension system, especially for low and medium wage earners. This is achieved by introducing professional and innovative methods of management and establishing solidarity accounts to fund these risks through a portion of the contributions collected from the insured individuals and their employers. Casual and informal workers are encouraged to contribute to the system and benefit from its pension benefits. The new system covers:

• Old Age Pension Benefits: The system aims at increasing the retirement age gradually to 65 years to accommodate the increase in life expectancy and hence the financial commitments of the system. Based on the defined-contribution principle, an individual’s pension benefit replacement rate will represent 75% to 88% of the value of his/her last net wage before retirement, disability or death. رفع سن المعاش وخفض مساهمة الحكومة عن طريق الحساب على أساس المرتب.

• Unemployment Insurance: In the event of unemployment for a period of six months through no fault of the individual, he/she will be compensated monthly by 60% of his/her last total covered wage (that is, 75% of the net wage). This compensation will be decreased by 4% of this wage monthly.

• Casual and Informal Workers Pension Benefits: With a 25% partial matching contribution before the age of 65, the new system provides protection to casual and informal workers and their families from the risks of old age, disability and death. رفع سن العمالة المؤقت والقطاع الخاص ل65 سنة

• Basic Pension Benefits: For social solidarity purposes the new system provides a minimum pension for every 65 year-old resident citizen in Egypt that does not receive a pension from the state. لا معاش لمن لا يعيش في مصر؟

• Inheritance of Pension Benefits: The new pension law clearly specifies the pension benefits’ eligibility criteria for widowers, sons, daughters, parents, sisters and brothers.

• Maintaining the Real Value of Pensions: The new system allows for the indexation of pension benefits to the annual inflation rate. This will automatically help maintain the real value of pensions

The system is expected to help improve economic efficiency. Setting pension benefits based on the defined contributions method establishes a closer link between individual’s contributions throughout his/her years of service and the individual’s pension benefits. Thus, participants will be encouraged to work and save more.

When an individual regards his/her contributions as savings to be recouped in the future in addition to the market rate of return on their accounts, rather than a tax, he/she will be induced to pay the due contributions based on his/her real salary; continue to work for the longest period possible in order to get a higher pension; and search for the most efficient means of investing such savings.

The gradual implementation of the new pension system will help reduce the financial burdens incurred by the public treasury; enhance the system’s fiscal sustainability; maintain the role of the state in income redistribution; improve economic efficiency; and develop the capital market. However, the new system transfers the burden of risk management from the government to individuals. To successfully implement the new system, it is essential to enhance public trust in the government’s ability to honor its long-term commitments at retirement and not to excessively use pension funds in financing the budget deficit.

11.8.b A New and Universal Social Health Insurance (SHI) System

Currently, Egypt’s public health system uses a combined strategy of providing free services and targeted insurance schemes.

Primary health care services are offered free of charge including the medications at primary health care facilities. In addition, hospital services in public hospitals are free for the non-insured. Changing this established expectation as a ‘right’ will be met with resistance from both providers and beneficiaries. The fact that a large proportion of people seek care at private facilities and that both poor and rich pay significant amounts out of pocket for health services does not automatically mean that they would be willing to pay for public facilities. There is a need to change the public’s attitude towards free public health services if these are to continue. This can only come about if the services themselves are upgraded and brought up to a standard that cancels the necessity of using private services.

Egypt’s health insurance system is meant to provide financial protection through risk pooling and protection from catastrophic illness that can push people into poverty. The many regulations for health insurance include five laws and one ministerial decree. Further, insurance does not cover the whole population and leaves out the most vulnerable. Insufficient revenues for the HIO, the main body responsible for insurance, constrain it from providing adequate services to its members, and these deficiencies in service provision push the insured to pay out-of pocket for private services.91 The annual health insurance budget deficit is estimated at LE 200 million. Budget deficits are likely to increase with Egypt’s changing demographic profile and the expected increase in the elderly population. The HIO acts both as a financier and provider of services. This dual responsibility increases managerial costs and does not allow for proper monitoring, with consequent administrative loopholes and petty corruption as a result of poor supervision.

Current political thinking proposes to cover the whole population with a social health insurance system, under a unified law aimed at achieving equity in access to and financing of health care through the elimination of existing disparities in health outcomes and the provision of quality services to the whole population, especially disadvantaged groups. The ruling National Democratic Party (NDP) proposed as early as 2004 universal health insurance for those not covered by HIO or any other system at an estimated cost of LE 23.3 billion.92 This would cover about 50% of the population, create 23,000 jobs of which 50% would be for women, according to a proposed vision for health by the EHDR 2005. Serious reform ambition was articulated in the Presidential Program and the government is therefore working to implement a plan that will offer a baseline minimum of health care for all Egyptians and underwrite a long list of basic health procedures. Citizens are expected to contribute to costs (annual subscriptions or tax contributions) against receiving the service. All or some medication is sometimes subsidized for target social groups.

A 10-year phased plan will roll out a partnership between the public and private sectors to provide more universal healthcare. Introducing the poorest citizens into an SHI system via government subsidy is undoubtedly a step toward greater equity by which all citizens are treated fairly according to their needs, not their income level. The insurance industry as a whole would play an important supporting role in this systemic transition.

Even though 84 private companies currently offer health insurance in Egypt, according to the Health Mainte- nance Organization’s Union, only about 1.2 million people subscribe. The industry will be on uncertain ground for the coming years as it tries to walk through the challenges of the new healthcare system, but industry executives are confident in their ability to grow, as reported in a 2009 Egypt Insurance Conference.

A key dimension of the new SHI system is the separation of the payor function from the provider function within management structures for SHI. Others dimensions include performance-based contracting of both public and private health providers; case management approach; and a shift to electronic case-management and claims management systems that should reduce the incidence of medical errors, fraud, etc. The World Bank has recently approved a project (also ratified by Parliament) to establish the electronic business and information systems to manage and operate the payor function in SHI. With regards piloting of SHI, it would seem that only the Suez governorate pilot is so far advanced, whereas only preparatory activities are underway in Sohag and Alexandria.

Health insurance is seen as an essential financing mechanism that uses public-private partnerships for funding and service delivery. Financing for the new universal insurance system is from three main sustainable sources: • Contributions from Employers and Employees: The principle of solidarity requires income-related contribution rates. This is an important difference from private health insurance, which sets premium rates according to health risks. The principle of income-related contribution would apply to the population with a regular and/or assessable income. Contributions are usually shared by employers and employees on the principle of shared responsibility, with employers generally paying a higher share. The rationale is that employers have a greater economic capacity than individual employees.

• Co-payments: The primary objective of co-payments is to reduce moral hazard among the beneficiaries (i.e. reduce the likelihood of unnecessary or excessive use of health services or products) and cost containment, rather than as an instrument for raising revenues. Co-payments are usually applied as a percentage on outpatient drugs and selected diagnostics and consultations with specialists.

• Dedicated Tax: In addition to the direct contributions made by the participants of the labor market, some countries have introduced dedicated taxes to finance health. These are often earmarked taxes on types of products that are seen as harmful to individual and population health; hence they are sometimes referred to as ‘sin taxes’. For example, a dedicated tax on a product like tobacco is two-fold: to raise additional revenues for health promotion or other public health activities and to deter the use of the particular products that have harmful public health effects. In the long run a tobacco tax and the anti-smoking activities funded may lead to reduced revenues from this particular source as less people smoke, but the loss of revenues from tobacco industry is expected to be recouped through lower health care costs and a healthier and productive population, and also growth of other industries where people would use the disposable income saved from tobacco use.

Pilot programs are now underway in the governorates of Suez, Sohag and Alexandria. n

رابط

• http://www.un.org.eg/docs/101100%20SA%20Report%20final%20pdf%20version.pdf