From Targeted to Universal Social Protection: Vietnam’s Reality
Gita Sabharwal1, January 2008
1.
Vietnam is aiming high as it is set to enter the ranks of middle
income countries. Over the past decades it has seen rapid and
comprehensive change with consistent high rates of economic growth and
poverty reduction. It has joined the world economy and is aiming to be a
middle income country by 2010.
2.
During the last ten years Vietnam has accelerated the pace of
economic and structural reforms. These reforms have improved the
efficiency of the economy and set in place a market orientated model of
development. It has culminated in Vietnam joining the World Trade
Organisation in 2007. It’s worth noting that despite the focus on economic
growth Vietnam retains a socialist orientation with a high degree of political
commitment to reduce poverty and promote inclusion.
3.
Reforms have enabled Vietnam to generate jobs across all sectors
and support a shared process of growth. This has benefited both the
majority Kinh community and the ethnic minorities. The economy is
characterised by low levels of income inequality. Gini coefficient is pegged at
0.36 for 20062 which is low in comparison to other emerging economies of
Asia.
4.
People are moving out of poverty at a rapid pace. Over the past
twelve years 42% of the people have moved out of poverty – one of the
fastest rates of poverty reduction across Asia. Analysis suggests that by 2010,
fewer than 10% of the population will be poor, leaving under 8 million poor
people.
5.
This paper examines the policy move from a targeted to a unified
social insurance programme in Vietnam. It describes the three critical
features of social insurance that promote inclusiveness. It then highlights the
key institutional challenges for successful implementation and delivery of
social insurance programmes. It concludes by drawing policy implications for
other low income countries seeking to develop a universal programme with
specific focus on the poor and vulnerable.
Framework for Universal Social Protection
6.
Vietnam’s development success story can be attributed to sound
social policy aligned to economic and structural reforms. Social
protection is one strand of social policy which this paper will focus on.
Vietnam conceptualises social protection as constituting social transfers which
take the form of targeted poverty reduction programmes and social insurance
including health and old age insurance. Based on this conceptualisation, the
Government of Vietnam in the five year Socio-Economic Development Plan
1
2
The views expressed in this paper are those of the author and not of the organisation that she works for.
Vietnam Development Report: Social Protection, 2008.
1
(2006-2010), Vietnam’s second Poverty Reduction Strategy, has sought to
reposition its targeted poverty reduction programmes into a comprehensive
and universal social protection system. The underlying vision of the social
protection agenda is one of shared growth and inclusion – for all.
7.
Traditionally, Vietnam has relied on social transfers to poor
households. These aimed at helping the neediest to cope with costs of social
services and to gain access to credit3. They also support the most
disadvantaged communes to integrate into the market economy4. Over the
past decade social transfers along side investments in primary education and
delivery of basic health services has formed the building block for poverty
reduction. Social insurance has been limited to public sector employees and
war veterans. It has typically been regressive as it benefited the richest
quintiles of the population.
8.
The vision for social protection is backed by an enabling legal
framework which institutionalises a universal and comprehensive social
insurance mechanism. The overarching law on social insurance was
approved by the National Assembly in 2006. The law for Health Insurance will
be approved later in 2008. The legal framework provides for a universal
package and a differentiated approach for reaching the poor, near poor and
the well off. It priorities the poor and provides a benefit package which is fair
and equitable to all.
9.
For the formal sector, insurance has been made compulsory
through a contributory mechanism5. This includes public sector employees
(who are already covered), domestic and foreign private sector firms. They
constitute 20% of the labour market and is set to grow as the economy grows.
For those working in the informal sector social insurance is voluntary6. This
means that they can choose to buy health and old age insurance package.
They constitute over 75% of the labour force. For the poor, social insurance is
an entitlement that is subsidised by the government and delivered through a
non-contributory mechanism7. This serves to put some element of
predictability into the lives of poor people, in place of risk and uncertainty.
10.
To promote inclusion the social insurance programme is
designed to be (a) comprehensive (b) with a portable insurance package and
(c) financially affordable.
11.
The package of social insurance services is comprehensive and
equitable across the three categories of compulsory, voluntary and noncontributory. For example, health insurance covers outpatient and inpatient
services at all levels of health care, laboratory examinations, X-rays, as well
as drugs listed as reimbursable. Insured patients are also eligible for health
3
Hunger Eradication and Poverty Reduction programme.
Programme 135.
5
The contribution rate towards compulsory old age insurance is currently 16% of the salary. Formally 11% is paid for
by the employer and 5% by the employee. The premium for compulsory health insurance amounts to 3% of the
salary, 2% being paid by the employers and 1% by the worker.
6
The contribution rate is 16% of minimum wage for voluntary old age insurance. For voluntary health insurance the
monthly contribution rate is 5% of minimum wage i.e. $1.66.
7
The government pays the health insurance premium for the poor.
4
2
care at private hospitals that have contracts with the health insurance agency.
For old age insurance participants have to contribute 16% of the salary or the
minimum wage for 20 years. The pension benefit is computed on the basis of
an average salary. On retirement, old age insurance will ensure a maximum
monthly salary of 75% of their average monthly income. The minimum
pension is set equal to the minimum wage.
12.
The social insurance package is portable. Portability will allow
people to “carry” their social insurance contributions with them as and when
they move into formal sector employment or from rural to urban areas. With
Vietnam’s rapid pace of growth, occupational and geographical mobility is
bound to increase further. We will see more and more people moving out of
agriculture into self employment or salaried jobs in the informal sector. Data
also suggests rapid labour turnover with nearly every other person moving to
better paying jobs between the formal and informal sector8. Portability also
becomes essential as people rapidly graduate out of poverty and thereby from
subsidised to voluntary social insurance.
13.
The social protection programme is financially affordable and
sustainable. The compulsory social insurance for formal sector workers and
subsidised health insurance for the poor and vulnerable is financed
completely through state budgets. In fact, recent financial analysis suggests
that extending subsidised old age insurance to the poor and near poor would
cost the government about 0.2% and 0.1% of GDP9 respectively. This is
currently being debated with a high probability of the government moving
towards subsidising old age insurance for the poor.
14.
By 2010 every citizen in Vietnam including the poor and
vulnerable will be health insured. Similarly, workers in the formal and
informal sector will have access to old age insurance.
Institutional Challenges to Deliver Universal Social Protection
15.
Vietnam is quite far from anything resembling universal coverage
for its social insurance programme. The three key institutional challenges
that need to be addressed to deliver an equitable and inclusive social
insurance programme are:
(a) Extending coverage for universal access;
(b) Transparent and accountable system for efficient service delivery; and
(c) Policy convergence at the ministerial level.
16.
Though Vietnam has an enabling legal framework for universal
coverage of social insurance, implementing this vision will require bold
steps. Currently nearly every other person in Vietnam is health insured and
one in five households have old age insurance. The poor and the near poor
cannot afford to pay the premiums for social insurance. Majoring into full
subsidisation of the poor and partial subsidisation for the near poor through
non-contributory mechanisms will be critical. Subsidisation of the poor and
8
9
Vietnam Development Report: Social Protection, 2008.
P. Castel, Old Age Security Medium and Short-Term Policies, 2007.
3
near poor is already being implemented for health insurance. This has
resulted in all poor and vulnerable having access to free in patient and out
patient care. The government now needs to rapidly move towards subsidising
elderly poor to access old age insurance.
17.
Achieving universal coverage will also require extending
coverage to the people working in the informal economy. They will need
to voluntarily pick up health and old age insurance. Mass organisations10,
specifically the women’s and the farmer’s unions need to be used effectively
to extend coverage to this group. In the past mass organisations have been
effective vehicles to raise awareness which studies suggest contributes to
people enrolling for insurance programmes. Analysis11 suggest that nearly
every other self employed person in Vietnam is ready to buy insurance if the
benefits are comprehensive and transaction costs are low. Extending
coverage is not only an entitlement issue but also critical for financial
sustainability of the social insurance programme.
Transparent and accountable systems for efficient service delivery
18.
Move from a fragmented to an integrated social protection
programme will require institutionalisation of unified information
management system premised on principles of transparency. Administration
of social protection in Vietnam is far from efficient and has several inherent
weaknesses. Vietnam Social Security (VSS) as an independent agency of
the government is administering the social insurance programme. It manually
collects premiums and pays out benefits on a monthly basis. Analysis
suggests that 99% of payment is made in cash, and 1% transferred to
individual accounts. There is no one information system that link contributions
and benefits of individuals. Application of information technology is very
limited and is not linked between central, province and district levels.
19.
To address some of these constraints the government is piloting
e- cards (smart cards) and the One-Stop-Shop (OSS) models. Studies
suggest that e-cards embed a transparent information system to access
benefits and make payments. It has also proved very efficient in minimising
fraud. Anecdotal evidence suggests that it has reduced fraud at the hospital
level by 20 times in the province of Lang Son12. Similarly, the OSS pilot has
reduced the time for benefit payments by one third - from one month to ten
days in Ha Tinh province.
20.
Addressing the supply side constraints by scaling up OSS and
introducing e-cards across the country is essential for efficient delivery
of social insurance programmes. They will also improve the customer
orientation of VSS and lower the administrative cost13 which is incurred in
collecting premiums, keeping records and communicating with participants.
10
Mass organisations have proved to be effective vehicles in reaching services down to the communes. They are
largely funded by the Party.
11
S Bales and Castle P, Survey on Voluntary Social Insurance for Informal Sector in Vietnam: Policy Implications,
2006 .
12
Than Thi Thien Huong, Challenges to Universal Social Security Coverage in Vietnam, 2007 (not published).
13
The administrative cost is pegged at 4% for 2005.
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21.
Implementing these reforms is investment heavy and costly
especially for a low income country with competing development
priorities. The cost can be brought down by coordinating and converging
reforms. This will ensure that e-cards service social protection programmes
comprehensively and OSSs cut across all service delivery ministries.
Policy convergence for effective delivery
22.
Institutional arrangements for social protection programmes tend
to be complex. In Vietnam there are multiple ministries responsible for policy
setting, implementation and monitoring of different elements of social
protection. For example, the Ministry of Health is the key policy making body
for health insurance. The Ministry of Labor Invalids and Social Affairs sets
policy for old age insurance and is directly implementing and monitoring some
of the social transfer programmes. These programmes are not coordinated
sufficiently across ministries, resulting in frequent overlap and inadequate
coverage.
23.
Institutional fragmentation does not augur well for implementing
an integrated social protection programme. With the move to deliver
universal social insurance VSS has been mandated to deliver and manage
health and old age insurance. With the implementation of the e-cards, it’s
essential for the government to also consider bringing social transfers
targeted at poor households within the fold of VSS. This will ensure better
coordination across ministries and provide the platform for converging OSS
and e-cards for all service delivery departments. In addition, a comprehensive
monitoring and evaluation of social protection programmes needs to be
implemented. This will serve to generate quantitative evidence on their
poverty reducing impact.
Conclusion
24.
Several policy implications can be drawn from Vietnam’s move
from targeted to universal system of social protection. Firstly, Vietnam’s
experience proves that it’s possible for low income countries to afford
universal social insurance and ensure they are financially sustainable. It has
relied on budgetary allocations to subsidise health insurance for the poor and
near poor and provide compulsory social insurance for government
employees. The financial sustainability debate is delaying the implementation
of subsidised old age insurance for the poor. This is a sign of great prudence
as Vietnam wants to avoid donor dependence to subsidise social insurance
for the poor. Secondly, for low income countries it is critical to priorities and
sequence in universal social insurance instruments. The Vietnam
governments’ prioritisation of health and old age insurance as the first building
block for universal coverage is worth commending. Lastly, for social insurance
to be progressive it is essential to subsidise the poor and near poor while
building in an equitable benefit package. This needs to be backed by a
rigorous monitoring and evaluation system that generates evidence of the
poverty reducing effects of subsidised social insurance.
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25.
There is no magic bullet to secure the lives of the poor and
vulnerable. However in Vietnam, the move towards universal social
insurance combined with social transfer to poor households serves as an
effective framework to protect the poor and vulnerable. It contributes to
Vietnam’s development success as a country in transition towards middle
income status.
Reference:
Bob Baulch, Wood J and Weber A, 2006. Developing a Social Protection
Index for Asia, Development Policy Review.
Government of Vietnam, 2007. Inter-Ministerial Circular: Guidelines for
Voluntary Health Insurance, March.
Government of Vietnam, 2006. Social Insurance Law.
Martin Evans, Gough I, Harkness S, McKay A, Nguyen H and Ngoc Do Lo
The, 2007. How Progressive is Social Security in Vietnam, UNDP.
Martin Evans, Gough I, Harkness S, McKay A, Nguyen H and Ngoc Do Lo
The, 2007. Old Age in Vietnam, UNDP.
Paulette Castel, 2007. Old Age Security Medium and Short-Term Policies.
Sarah Bales and Castle P, 2006. Survey on Voluntary Social Insurance for
Informal Sector in Vietnam: Policy Implications.
Than Thi Thien Huong, 2007. Challenges to Universal Social Security
Coverage in Vietnam, (not published).
Vietnam Development Report, 2008. Social Protection.
World Bank, 2006. Social Protection in Vietnam.
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