OVERVIEW
Vietnam is a developing country with a population of more than 97 million people and a 2022 GDP growth rate of 8%. The country has made considerable strides in upgrading its health-care system and providing access to health insurance for its inhabitants. According to the Ministry of Health, more than 90% of the population had health insurance by the end of 2019, up from 60% in 2010.
Vietnam now has a national health insurance system that covers an extensive portion of the population. Payments from employees and employers, as well as payments from the state budget, are used to support the health insurance plan. Current contribution rates are 4.5% of the employee’s monthly pay, with employers contributing to 3%.
However, numerous obstacles remain in guaranteeing the quality, accessibility, and sustainability of its health services in Vietnam. The health sector is underfunded, with public health spending accounting for only 2.8% of GDP in 2019, compared to the regional average of 3.6%. Due to increased costs and minimal payments, the health insurance fund is also in deficit.
According to the Vietnam Social Security (VSS), the health insurance fund has a deficit of more than 15 trillion VND (about 650 million USD) in 2020, which has attained around 23 trillion VND (approximately 1 billion USD) in 2023.
To address these concerns, the government has agreed to raise the minimum wage beginning July 1, 2023. In Vietnam’s wage and social insurance system, the base salary is the minimum salary indicator used to compute social insurance contributions. The monthly basic wage would rise by 20.8%, from 1.49 million VND (about 64 USD) to 1.8 million VND (approximately 77 USD). The base pay system has an impact on numerous businesses and fields in Vietnam, including household health insurance contributions.
Deep Dive
Minimum Wage
The rise in health insurance contributions is attributable to the increase in the minimum wage, as both are based on the base salary. The minimum wage is the lowest level of remuneration that companies are required by law to give their employees. Vietnam is divided into four areas, each having its own set of minimum salaries based on the socioeconomic conditions.
Employers’ labor expenses and competitiveness will be affected if the minimum wage rises. According to the Vietnam Institute for Economic and Policy Research (VEPR) poll, labor expenses are the most difficult obstacle for Vietnamese businesses. The increase in the minimum wage will put further strain on these businesses, forcing them to cut expenses by reducing personnel, investing less in technology or innovation, or migrating to countries with cheaper labor costs.
Social Insurance Securities
Social Insurance/Pension Fund, Health Insurance, and Unemployment Insurance are the three key components of Vietnam’s social insurance securities. These programmes serve critical roles in safeguarding Vietnamese residents’ well-being by providing financial protection against risks linked with retirement, healthcare costs, and job loss. They comprise an all-encompassing social safety net that fosters social stability, economic resilience, and fair growth.
- In Vietnam, the Social Insurance/Pension Fund is a mandated programme that provides economic security throughout retirement. It is a pay-as-you-go scheme in which current employees’ contributions fund the benefits earned by current retirees. Employees and self-employed workers who are covered donate a percentage of their monthly salary to the fund. The major goal of the fund is to provide retirees with a steady and consistent income. The Social Insurance/Pension Fund promotes social cohesion, senior welfare, and intergenerational justice by providing a stable pension system.
- Vietnam’s Health Insurance system strives to reduce the financial burden of healthcare for its inhabitants. All Vietnamese citizens are required to participate in the programme, which includes a wide variety of medical services. The health-care system is based on a pooling model in which payments from people, companies, and the government cover overall healthcare expenditures. Health Insurance fosters social solidarity, lowers inequality in healthcare access, and improves the population’s general health and productivity by providing access to inexpensive healthcare services.
- Vietnam’s Unemployment Insurance programme offers qualified persons who have lost their jobs unwillingly with temporary financial support. The concept attempts to relieve the financial difficulties that jobless employees confront throughout their job search and transition periods. Employees who are covered donate a portion of their salary to the fund in exchange for financial aid for a short time, as well as job placement and vocational training assistance. Unemployment insurance is critical for ensuring social stability, and minimising the negative consequences of economic volatility on people and families.
- The Social Insurance/Pension Fund, Health Insurance, and Unemployment Insurance in Vietnam are critical components of the country’s social security system. These programmes offer critical protection against the risks connected with retirement, healthcare costs, and job loss. These insurance programmes help Vietnam’s overall growth and citizens’ well-being by ensuring economic security, equal access to healthcare, and social stability.
Health Insurance Contributions
The pay Cap for Social Insurance and Health Insurance contributions is computed as 20 times the basic pay. As a result, the new wage cap for these contributions would rise from VND29,800,000 to VND36,000,000. This implies that both the company and the employee contribute to Social Insurance and Health Insurance depending on the Salary Cap amount.
Contributions to social insurance are due by both Vietnamese workers with labour contracts and foreign workers in Vietnam who have a work visa and are employed under a Vietnam labour contract. Employers pay 17.5% of Social Security contributions, while workers pay 8%.
Contributions to health insurance are compulsory for Vietnamese and international workers employed under Vietnam labour contracts for at least three months. Health insurance contribution rates are 4.5% of the income subject to payment, with the employer contributing 3% and the employee contributing 1.5%.
This rise in the wage cap will result in an increase in both employers’ and workers’ mandatory insurance contributions. If the minimum wage rises, employers’ labour costs will rise. According to a survey conducted by the Vietnam Institute for Economic and Policy Research (VEPR), labour costs are the most challenging barrier for 70% of Vietnamese enterprises. The hike in the minimum wage will put even more pressure on these firms, compelling them to cut costs by laying off workers, investing less in technology or innovation, or shifting operations to nations with lower labour costs.
It is crucial to remember that the Salary Cap for Social Insurance and Health Insurance contributions has been adjusted to keep up with growing living costs and guarantee that the insurance funds remain financially sustainable. The government hopes to improve the coverage and accessibility of social security and healthcare services for the Vietnamese people by raising the Salary Cap. However, this shift may impose a financial hardship on companies, who will be required to contribute a greater sum to their employees’ insurance accounts. As a result, companies and people must be aware of these developments and adjust their financial planning accordingly.
Goals & Objectives
The adjustments in health insurance contributions align with several objectives and goals:
Sustainable Healthcare Financing: Rising healthcare expenditures demand additional financing in order to sustain and improve the quality of healthcare services. Contribution changes are intended to guarantee the financial viability of the health insurance system while also meeting the expanding population’s demands.
Expanded Coverage: The government intends to provide health insurance coverage to a greater part of the population through raising contributions. This expansion intends to increase access to healthcare services while reducing people’ out-of-pocket payments.
Stakeholders
The increase in health insurance contributions is expected to have both positive and negative impacts on different stakeholders.
Increasing health insurance payments is a vital action for the government to guarantee the financial viability of the health insurance fund and to boost public health spending. Increasing health insurance contributions, according to the VSS Deputy Director General, will assist to lower the fund’s deficit by around 10 trillion VND (about 430 million USD) every year. This will allow the government to invest more in updating health facilities, increasing health services, and improving people’s health care quality.
This increase will result in greater health-care expenses for the general public, particularly for low-income and vulnerable populations. According to a poll conducted by the Vietnam Institute for Economic and Policy Research (VEPR), over 30% of Vietnamese families have difficulty paying health insurance premiums. The changes will place an additional strain on these households, thereby discouraging them from registering in health insurance or seeking health care when necessary. Furthermore, if they do not see an improvement in the quality and accessibility of health care, some consumers may not see the benefits of paying more for health insurance.
Increased contributions are projected to boost financing for healthcare providers, resulting in improved infrastructure, equipment, and services. This move intends to establish a more efficient healthcare system capable of meeting the population’s expanding requirements.
Employers’ labor expenses and competitiveness will be affected when health insurance contributions rise. According to current laws, businesses must pay 3% of each employee’s basic wage for health insurance, while employees pay 1.5%. As a result of the rise in basic income, companies would have to pay an additional 9,300 VND (approximately 0.4 USD) per employee every month for health insurance. This may not sound like much, but for huge corporations with thousands of employees, it may quickly add up. Furthermore, some firms may try to avoid providing health insurance to their employees by employing them on the cheap or lowering their compensation.
The rise in health insurance contributions and minimum wage beginning July 1, 2023 is an important policy reform that will have far-reaching consequences for Vietnam’s economy and society. It represents the government’s efforts to strike a balance between social welfare and economic development. However, it also provides several obstacles and hazards to various stakeholders, particularly in light of the uncertain recovery from the Covid-19 epidemic. As a result, it is critical that the government carefully and openly executes this policy, with enough engagement and communication with all parties affected, and with appropriate support and adjustment mechanisms to avoid negative consequences and maximize positive outcome.
