Towards a More Resilient Society:Lessons from Economic Crises

Report of the Social Resilience Project 2015-17

Coordinated by
Japan National Committee for Pacific Economic Cooperation (JANCPEC)Published in Japan in December 2018 by
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JANCPEC, PECC or their supporters.
ISBN 978-4-8193-0214-2

Contents
Foreword
1. An Assessment of Singapore’s Ageing Policies for Achieving GreaterSocial Resilience
Mukul G. Asher .............................................................................................................1

2. Transformation of Social Security System in Indonesia: Aiming for
Coverage for All
Nurina Merdikawati .....................................................................................................15

Foreword
A series of regional and global financial crises highlighted the need to enhance the resilienceof social infrastructure against sudden shocks, particularly for those categorized as vulnerable
groups. More recently, a persistent and widening social divide that casts a shadow on thestability of national and global systems presents a serious challenge, and more social policies
need to be developed to mitigate this gap.
In response to these challenges within the Asia-Pacific regional context, the Japan National
Committee for Pacific Economic Cooperation (JANCPEC) has been conducting the Social
Resilience Research Project (SR Project) as a Pacific Economic Cooperation Council (PECC)
International Project since 2010. The SR Project aims to shed light on the importance of social
security and to closely examine its role in the domestic economy. In addition, the SR Projectis the first ambitious attempt by the APEC/PECC family to discuss social policy dimensions,as APEC and PECC have traditionally focused on trade and investment liberalization issues.
The first and second SR Projects have a four-fold focus: pensions, health insurance,
unemployment insurance, and macro-analysis. The first final report, entitled “Towards a
More Resilient Society: Lessons from Economic Crises,” was published in October 2010, andthe second final report was published in March 2012. Since 2012, we have attempted to
conduct a case study of each Asia-Pacific economy. As the economic and social
circumstances in each economy of this region are significantly different, a bottom-up
approach is needed to identify the issues and challenges for the future development andreform of social security systems.
In this report, the SR Project 2015-2017 covers Singapore and Indonesia. The studies focus
on specific issues in these economies, such as coverage for informal workers and theevolution of social security systems in an age of slow economic growth.
The views expressed herein are the personal views of the individuals indicated, and do notnecessarily reflect the views of PECC and The Japan Institute of International Affairs (JIIA).
I hope that these inputs will prove useful in showing the way toward resilient societies andsharing best practices among member economies.
December 2018
Yoshiji Nogami
Chair, JANCPEC
Vice-Chairman, The Japan Institute of International Affairs

An Assessment of Singapore’s Ageing Policies for Achieving GreaterSocial Resilience
Mukul G. Asher1,2

ABSTRACTThis paper assesses Singapore’s ageing policies with the objective of examining how
these can be reformed to achieve greater social resilience.
The paper uses a framework developed by the American Association of Retired Persons(AARP) and FP Analytics in their 2017 Report “The Aging Readiness & Competitiveness
Report 2017”3 to assess Singapore’s ageing policies. The framework is structured aroundfour elements: Community Social Infrastructure, Productive Opportunity, TechnologicalEngagement, and Healthcare and Wellness.
The paper finds that Singapore, an affluent and rapidly ageing economy in the IndoPacific region, will need to make major reforms of its ageing policies related to each of theseelements. By 2030, 27 percent of Singapore’s population will be aged over 65 (as compared
to 14 percent in 2017), well above the ‘super-aged’ society level of 20 percent. Both the paceand level of ageing will challenge Singapore’s policymakers.
Reforms in ageing policies to enhance social resilience will need to be undertaken in achallenging context, including significantly lower growth rates than those previously
achieved, reflecting a mature economy; uncertainties about global trade rules and otherarrangements; changing labour market dynamics due to technological change and related
factors; and rising aspirations of the Singapore population concerning available labour market
opportunities vis-à-vis cross-border workers who currently comprise approximately twofifths of the labour force, especially concerning more robust old-age income security andhealthcare protection. Increasing affluence and educational attainment have also raised the
population’s inclination towards greater participation in political, economic, and social
decisions which affect them.
1

I would like to thank Chang Yee Kwan and participants in the Social Resilience Project Meeting organized by theJapan Institute of International Affairs (JIIA) in Tokyo on 1 September, 2017, for their constructive comments.
However, I remain responsible for the contents of the paper. This paper has been prepared for the JIIA Social
Resilience Project.
2 Professorial Fellow, National University of Singapore, E-mail: mukul.asher@gmail.com
3 http://arc.aarpinternational.org/home1

A key finding of the paper is that Singapore will need to substantially improve genderequality implications of its ageing policies if social resilience is to be sustained. Genderinequalities are currently found in the use of commercial insurance methods in structuringcatastrophic health insurance (the Medishield Scheme), in the Eldercare scheme for longterm care, and in annuity schemes for the pay-out phase of the mandatory provident fundadministered by the Central Provident Fund (CPF). Under these principles, premiums are set
by gender and age, with women paying more than men, and premiums increasing with age.
Inadequate community social infrastructure also adversely affects women, whoconstitute an estimated three-fifths of caregivers for the elderly.
The paper argues that a single-tier social protection system based on the use of
mandatory savings is increasingly inadequate and inappropriate for a rapidly ageing, affluent
economy. Suggested reform directions involve a shift from commercial-based principles inthe design of insurance programs to those grounded in social insurance practices designed toaddress longevity, healthcare, and survivor and inflation risks, among other factors; and an
additional budget-financed tier to provide basic income support to the elderly. Some support
for caregivers also merits consideration.
Greater transparency of and accountability for the socio-economic and operational
aspects of the various elements comprising ageing policy, particularly concerning the CPF
and social protection organizations, are increasingly essential for social resilience.
This paper finds that Singapore has the fiscal, institutional, and organizational
capacities to undertake the suggested reforms. The main constraint is the unwillingness ofpolicymakers to move from long-held positions which continue to simplistically assume thatthe suggested reform directions are not required in Singapore. However, the dynamics ofchanges to Singapore’s demographic, social, and economic structures are likely to render ashift in policy position, and the reforms suggested in this paper, essential if social resilienceis to be sustained and enhanced.
Key Words: Singapore social protection, social resilience, Central Provident Fund(CPF), social vs. commercial insurance, ageing policies, gender equality.

21. Introduction
This paper provides an assessment of Singapore’s ageing policies for achieving greatersocial resilience. Singapore’s policymakers have expressed concern about a growing social
divide, which is complicating governance challenges (Ng, J. S., 2018).
There is also a growing recognition that in many economies, including Singapore, that
more robust ageing policies must be put in place to support necessary domestic reforms andopenness to global markets, technology, and skill-sets. As a successful internationalized
global economy, Singapore has particular interest in this aspect of ageing policies.
The paper is organized as follows: Section 2 discusses the changing context in which
Singapore’s ageing policies to enhance social resilience will need to be designed andimplemented. Section 3 provides a brief description of a framework to assess ageing policies
developed by the American Association of Retired Persons (AARP) and FP Analytics in their2017 Report “The Aging Readiness & Competitiveness Report 2017”4.
In Section 4, this framework is used as an underlying context, without analysing eachof the four elements in detail, to provide an assessment of Singapore’s ageing policies,
including suggested reform directions and initiatives which could enhance social resilience.
The final section provides concluding remarks.
2. The Context for Ageing Policies
Ageing policies in Singapore will need to be developed in a challenging context.
Singapore is a high-income, rapidly ageing city-state in the Indo-Pacific region. Its per capita
income in 2017 was SGD 79,697, or about USD 57,720 5 . Between 2001 and 2016,
Singapore’s average GDP growth rate was 5.1 percent, while average real GDP growth during
the 2015-17 period was 2.5 percent. Officials expect growth rates to be in the 2 to 3 percent
range in the medium term, consistent with Singapore’s status as a high-income, rapidly ageing
mature economy.
The rapid ageing projected for Singapore may be illustrated by the following figures.
In 2017, the proportion of Singapore’s elderly population (those aged 65 and older) will
match that of those aged 15 years or younger, at 14 percent of the total population. By 2030,
those aged 65 and older are projected to be around 27 percent of the population, more than
twice the proportion of those aged 15 and younger. This will put Singapore well above the 20
percent level that classifies a society as ‘super-aged.’ Singapore’s total fertility rate (TFR),
was 1.2 in 2017, far below the replacement rate of 2.15 children per woman of reproductive
45

http://aarpinternational.org/arc
Unless otherwise noted, the data in this paragraph are adapted from official data obtained from the Central Provident
Fund Board, Singapore.
https://www.cpf.gov.sg/members/schemes/schemes/healthcare/eldershield3

age. In absolute numbers, Singapore’s population aged over 65 will increase from around 0.5
million in 2017 to 0.9 million in 2030, so nearly double in just 13 years, or an increase of 6.2
percent per year. Thus ageing policies will need to address both the level and pace of ageing.
Singapore is a trade-dependent economy, which has established a globally competitive
position as a transhipment hub. In 2016, its merchandise trade alone was worth SGD 967
billion, 2.2 times its GDP. There are uncertainties about global trade rules and otherarrangements, exemplified by renegotiation of the provisions of well-established tradinggroups such as the North American Free Trade Agreement (NAFTA) involving the UnitedStates, Canada, and Mexico; and Brexit negotiations between Britain and the European Union.
There is less enthusiasm for the kind of multilateralism that has been evident globally for the
past three decades. China’s expressed desire to establish global rules to suit its interests has
also added to global uncertainty. The notion of a global trade regime with the World Trade
Organization (WTO) playing a central role is increasingly being challenged.
Singapore will also need to adjust to labour market dynamics and technologicalchanges. Singapore’s total labour force declined for the first time from 3.673 million in 2016
to 3.657 million in 2017. This trend is expected to accelerate in the coming years (Jamrisko,2017).
Thus Singapore, which has relied relatively more heavily on increasing resource inputs
for growth, will need to pursue policies to enhance total factor productivity (Lim, 2018). This
will require substantive changes in current methods of economic, political, and social
management, as the productivity puzzle is complex, with many subtle interlinkages.
The Singapore population harbours rising aspirations concerning available labour
market opportunities, particularly in comparison to foreign workers, who comprised nearly
two-fifths of the labour force in 2017. This rather high ratio is in spite of a liberal approachto granting permanent resident and citizenship status in the past. As a result, the compositionof Singapore’s population has undergone a subtle change, but with significant implications
for governance and sustaining social resilience.
Singapore’s policymakers will also need to address rising income and wealthinequalities, and constrained opportunities for upward mobility. A column written by two
well-established local economists highlighting constrained opportunities for domestic
academic talent (Fong and Lim, 2017) illustrates the perceived lack of opportunities in thetertiary education sector for Singaporeans.

4Singapore’s unadjusted Gini coefficient for labour income only is around 0.47 (thiscoefficient ranges from 0 to 1, with a higher value implying greater inequality), and 0.46 after
transfers and taxes.6
Singapore’s official Gini coefficient estimates include only wage income and exclude
capital income, which is globally much more unequally distributed than labour income. If
capital income were included, the coefficient would be much higher. In Singapore, labour
income is around 45 percent and capital income around 55 percent of national income,underscoring the importance of including capital income in measuring the Gini coefficient(Asher and Kwan, 2014). The assumptions used in estimating incidence of taxes and otherrevenue sources, government expenditures, and transfers to estimate the Gini coefficient also
needs to be made explicit, so that analysis can be replicated and fine-tuned.
With Singapore’s population becoming accustomed to affluence, the government’s
implicit social compact of meeting the material needs of the population in return for
acceptance of the ruling party’s dominant social, political, and economic control needs to beextended to the growing number of elderly. Their expectations revolve around better old-age
income and health care security, and better support for caregivers, some of whom are inyounger generations. There is also growing aspiration for greater participation in decisions
affecting the population.
The above factors suggest a challenging context for designing and implementing ageing
policies in Singapore.
3. A Framework for Assessing Ageing Policies
This section briefly describes the framework for ageing policies developed by the
AARP and FP Analytics in their 2017 Report “The Aging Readiness & Competitiveness
Report 2017”7. Each of its four elements is briefly summarised below.
Community Social Infrastructure: This element involves the economy and local
communities ensuring that the elderly remain independent, contributing members of thecommunity.
The AARP-FPA report subdivides this element into preventing social isolation,
promoting social engagement, and accessibility for the elderly to public amenities andservices8.
Productive Opportunity: This element is defined to include flexibility in retirement
and pension arrangements, targeted support for those seeking to re-enter the labour force,
6

Key Household Income Trends, 2016. Available at: https://www.singstat.gov.sg/docs/default-source/defaultdocument-library/publications/publications_and_papers/household_income_and_expenditure/pp-s23.pdf
7 http://aarpinternational.org/arc
8 http://aarpinternational.org/arc

5

including as entrepreneurs, and combating negative perceptions about ageing. With rapid
ageing, growth in labour supply falls significantly and may turn negative in some economies.
Thus, providing productive opportunities to the elderly may represent an avenue to support
growth.
Technological Engagement: This element examines the extent to which older adults
adopt technology, and ways of promoting digital literacy and accessibility. It also addresses
technology-driven products and services for the elderly market and data-mining and analytics
to help develop healthcare, wellness, and other products that could assist the aged.
Healthcare and Wellness: This component involves enabling the elderly to extend
their healthy lifespans, improving accessibility, affordability, and quality of healthcare for theelderly and near-elderly, supporting formal and informal caregivers, and utilizing newtechnologies (such as robotics and e-health services that encompass a range of services orsystems combining all aspects of healthcare, including domestic and international researchand information technology). As longevity increases, addressing the healthcare needs of theover-50s has become an important public policy issue. Addressing this challenge requires not
only devising and funding financing instruments such as long-term care insurance, but also
creating facilities for institutional care, both day-care and longer-term care.
4. An Assessment of Singapore’s Ageing Policies
Singapore’s social protection system has traditionally been structured aroundarrangements for financing housing and old-age needs. The importance of broader integrated
ageing policies along the lines discussed in Section 3 has only recently been recognized.
Key Characteristics of Singapore’s Current Social Protection System and
Suggestions for Reform: Several recent studies have examined Singapore’s social protection
system in detail or provided a brief analysis of the system (Asher and Kwan, 2018; Asher andBali, 2014; Ng, K. H., 2015; Lim, 2018; West, 2018). Based on these studies, the key
characteristics of Singapore’s social protection system may be summarized as follows.
Firstly, people rely overwhelmingly on the mandatory savings scheme administered by
the CPF and supervised by the Ministry of Manpower to finance not just old-age needs forregular income and healthcare, but also housing. Established in 1955, the CPF has evolved
into a socio-economic organization which affects the welfare of Singaporean households
throughout life and facilitates government control over household income and expenditure
allocation choices.
The complexity of the CPF, entailing many sub-schemes whose details are regularly
revised, has made it difficult even for policymakers to assess the net impact of the scheme asa whole. For others, the task of assessment is made even more difficult by the tendency of6policymakers to regard even basic economic data (such as cash balances of members and theultimate investment allocation of CPF balances, which accounted for four-fifths ofSingapore’s 2017 GDP of SGD 447 billion) as proprietary rather than a public good to beshared.
In any savings scheme the rate of return on accumulated balances, which harnesses thepower of compound interest, affects final accumulated balances significantly compared tocontributions. CPF balances attract a managed rate of interest, as the ultimate investment
choices made by Singapore’s sovereign wealth fund, the Government of Singapore
Investment Corporation (GIC), are by law undisclosed. This is inconsistent with global
pension management practices.
The low rate of return on mandatory saving is reflected in the following figures for
2009-2016, the most recent period available. During this period the average annual real rateof interest on all CPF balances was 1.68 percent. At this rate it will take over 40 years formember balances to double. This suggests that the power of compound interest is not being
harnessed effectively to provide old-age income security for CPF members. Together withhigh pre-retirement withdrawals for housing and other permitted purposes, this accentuates
the inadequacy of resources for old age (Asher and Bali, 2014; Ng, K. H., 2015).
There is some recognition that the low return on CPF balances needs to be addressed.
However, policymakers have taken a selective, ad-hoc approach to providing higher
administrative returns on small portions of the balances. The above real-rate-of-return
estimate takes into account these measures. As the estimate shows, returns are clearly
inadequate.
A bolder approach may be needed to improve real rates of return. This would
progressively transfer CPF funds from the GIC to the CPF Board, which would manage them(or outsource their management). Such an approach would prioritise fiduciary responsibility
to CPF members, and investment policies and performance would be transparent tostakeholders. Transitioning to such an approach would not be easy, and detailed analysis
would be required to examine the modalities, along with a gradual transition to the newinvestment management arrangements. This would also mean discontinuing current
provisions enabling members to invest part of their CPF balances on their own, which havebeen found to be unsatisfactory (Asher and Bali, 2014).
Secondly, as mandatory savings come from wages, the current method assumes arobust macroeconomic and labour market environment accompanied by a relatively young
population, characteristics which Singapore no longer exhibits. This method misallocatesmacroeconomic and old-age risks, as these are more efficiently managed through societal
risk-sharing than by households.
7

Thirdly, Singapore’s social protection system exhibits pronounced gender inequalities
that disadvantage women. This is particularly relevant given that women in Singapore in 2016
had a life expectancy at age 65 of 22.4 years, as compared to 19.0 years for men. Women
therefore need larger resources to cope with old age, but have lower labour force participation
rates, and as a group earn less than men, leading to lower CPF balances.
These gender inequalities are accentuated by a pronounced aversion to social insurance
principles in the catastrophic health insurance scheme known as Medishield, the long-term
healthcare scheme called Eldershield, and an annuity option available through CPF Life
which facilitates regular drawdown of accumulated member balances through purchase of anannuity9.
Under the commercial insurance principles used in the above schemes, premiums for agiven level of benefit increase with age, and women pay higher premiums than men as they
live longer. Thus, such principles systematically disadvantage women. With the TFR well
below the replacement rate of 2.15 over a prolonged period, gender inequalities under current
arrangements will become markedly more pronounced, with significant economic, social, andpolitical impacts.
Another area of gender inequality concerns the treatment of caregivers for the elderly.
According to Nabilah (2018), around 0.3 million women outside the labour force said theirmain reason for not working was family responsibilities, which include caregiving. As aroundthree-fifths of caregivers to the elderly are women, their economic security is being adversely
affected. People without siblings who are married with families will find it very challenging
to support their elderly parents.
Nabilah (2018) has suggested the following steps to address this issue: initially provide
family caregivers with an allowance to recognize the value of their services, then provide
automatic basic contributions to individual CPF accounts that have low balances.
Fourthly, Singapore has relied on ad-hoc transfers and case-by-case methodology tostructure its very limited social assistance schemes for low-income households. A case-bycase approach, with many fine-print provisions which often severely limit access to benefits
by the elderly and poor, raises transaction costs for society. As the elderly population rapidly
rises, this approach is likely to become increasingly inefficient and inequitable.
The ad-hoc approach of providing selective transfers to groups deemed relevant at aparticular point in time has the advantage of enabling greater control over government
expenditure and enhanced socio-political control and management.

9

https://www.cpf.gov.sg/members/schemes8However, as Ng, K.H. (2018) has noted, this approach has several disadvantages forconstructing a more predictable and adequate social protection system, and for ensuring
requisite accountability for how these ad-hoc expenditure measures are implemented. He
suggested replacing the ad-hoc approach with more permanent social protection programs
which are predictable, adequate, and transparent for beneficiaries, and which are subject toestablished expenditure management and control processes.
Singapore thus needs to shift away from ad-hoc and targeted measures to a more
systematic approach to social assistance. An option worth considering is the introduction ofa social pension which is budget-financed. Singapore’s IMF- compatible budget surpluses
have averaged 6 percent of GDP per year over the past decade. Estimates by Asher and Bali
(2014) indicate that hypothetical social pension costs in Singapore for 2020, assuming abenefit level of 20 percent of median annual wage income, would be about 1.2 percent of
GDP. For a benefit level equivalent to 15 percent of per capita income, the costs would be
1.4 percent of GDP.
Thus there are no fiscal constraints to introducing a budget-financed social pension in
Singapore. In the 2018 budget, Singapore’s policymakers indicated that social sector
expenditure will need to increase in the future. The proposal is to increase the rate of goods
and services tax (GST) to help finance the increased expenditure.
In a well-argued and empirically supported column, Bhaskaran (2018) concludes that“…the better approach to funding rising social spending is to use more of the income frominvestments and to not raise taxes, be it the GST or some other tax.”
His admittedly rough estimates suggest that various taxes and levies paid by thehousehold sector are about 11 percent of GDP, but the equivalent share of the corporate sector
is about 6 percent. In Singapore, the share of capital in national income (55 percent) exceedsthat of labour (45 percent) by a significant margin (Asher and Bali, 2014). Nabilah (2018)
argued that the proposal to raise GST to finance social and other expenditure should bereconsidered, as it will hit low-income families, especially women, the hardest.
Thus, choosing to finance higher social spending through GST would exacerbate
already stark income and wealth inequalities. This in turn would further complicate the taskof sustaining social resilience.
Recent Ageing Policy Initiatives: The government recognizes the need to take a morecomprehensive approach to addressing ageing issues along lines similar to the framework forageing policies discussed in Section 3.

9In 2016, the Ministry of Health published an “Action Plan for Successful Ageing”10.
The plan focuses on employability, lifelong learning, senior volunteerism, health andwellness, social engagement and inclusion, aged-care services to help elderly people at home,housing, transport, public spaces, and research on ageing to understand the needs of theelderly and encourage innovation.
Specific initiatives of the plan include raising the re-employment age, on a voluntarybasis, from 65 to 67; setting up a National Silver Academy for elderly people to pursue
learning; co-locating eldercare and childcare facilities in housing estates; and expanding
community hospital bed numbers and nursing home capacity.
The 2016 report indicates that the plan would be implemented over 10-15 years, with
an official cost estimate of SGD 3 billion. Key requirements for the plan to achieve its goals
are to translate it into actual budgetary allocations and monitor outcomes in a mannertransparent to stakeholders.
The 2018 Singapore Budget proposed consolidating all age-related services under the
Ministry of Health in the Agency for Integrated Care (AIC). This has the potential to provide
better policy coherence and organizational coordination for integrated ageing policies.
The budget also provides financial incentives for people to stay with or near older
parents or siblings with a view to facilitating care of the aged in their homes. This is morefeasible in a city-state.
The recent initiatives, while welcome, do not reduce the need to undertake reforms ofthe traditional social protection system suggested in this paper, particularly to address
inherent gender inequalities and the absence of a budget-financed social pension.
5. Concluding Remarks
The analysis in this paper suggests that while policymakers have taken some steps tobetter integrate ageing policies, more substantive reforms would be needed to substantially
improve gender equality. This would involve a shift from commercial insurance to social
insurance principles for health insurance and annuity schemes. It would also involve
introducing a budget-financed social pension for the elderly.
Additionally, the reforms would entail expanded support for young and old caregivers,
three-fifths of whom are women. Less regressive financing methods, rather thancontemplated increases in GST, would also assist in improving gender equality.
Singapore is in the midst of organizing the succession of the fourth generation ofleadership to undertake governance responsibilities since independence. Some analysts such10

https://www.moh.gov.sg/content/dam/moh_web/SuccessfulAgeing/action-plan.pdf

10as George (2017)11 have argued that while Singapore has taken commendable steps toward
leadership renewal, the need for a change in the governance model has been inadequately
recognized.
An important aspect of the required change in governance model is to address thetendency of policymakers to regard even basic socio-economic data relating to social
protection as a strategic resource, a stance which is used to limit dialogue and channel
research in certain directions. To design and implement complex ageing policies for
Singapore, more robust multi-directional research efforts are essential.
There are two areas concerning demographic data collection merit consideration by
policymakers. First, research mapping biological ageing and chronological ageing could
facilitate more nuanced ageing policies. Chronological age refers to the actual time a person
has been alive, whereas biological age refers to how old that person seems based on medical
tests12. In fact, different parts of the same person’s body may exhibit different biological ages.
If biological age and the ageing process are related, some understanding of this relationshipcould facilitate better ageing policies.
The second area concerns demographic data relating to “prospective age.” Sanderson
and Scherbov (2007) argued that as individuals live longer, both the traditional chronologicalconcept of ageing, which they term “retrospective age,” and a forward-looking concept
termed “prospective age” should be used for policy formulation and analysis. While thetraditional concept measures how many years a person has lived, “prospective age” measures
the number of remaining years he or she is expected to live. With increasing longevity, a fiftyyear-old, who currently has a much longer life expectancy than a person of the same age hadin 1990, may well make different decisions about saving, investment, labour force
participation, and other relevant economic and personal matters. Differing behaviouraldecisions in turn have different implications for public policies and social attitudes towards
ageing.
Singapore exhibits fiscal, institutional, and organizational capacities to undertake therequisite substantive reforms in its ageing policies. The main constraint is policymakers’
unwillingness to reconsider long-held positions, which simply assume that reforms suggested
in this paper are not needed. However, analysis strongly indicates that without moving in the
directions suggested above, Singapore’s ageing policies will have only limited success inmeeting the requirements of citizens of an affluent, soon-to-be “super-aged” society.

1112

http://www.newmandala.org/lky-legacy/
http://www.azinet.com/aging/aging_theory_introduction.pdf

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available at: https://link.springer.com/content/pdf/10.1007%2F978-981-10-7182-9.pdf

13

14

Transformation of Social Security System in Indonesia: Aiming for
Coverage for All
Nurina Merdikawati1
1. Introduction
For a long time, the social security platform in Indonesia only catered to formal sector
workers and those classified as poor and near-poor. The ‘missing-middle’ problem wasprevalent, where enrollment rates were high among low-income and high-income groups.
The former’s coverage was financed by taxation, while premiums for the latter were paid by
their employers and their own contributions. With the economy characterized by highinformality, this left a significant number of people without access to social security schemes.
The majority of them had to resort to informal mutual support arrangements, ranging fromtapping into their family network resources to local community support, when dealing withadverse events affecting their livelihoods. As such, they were at risk of falling into poverty
when faced with unfortunate circumstances in their lives.
Amid a booming economy prior to the 1997 Asian financial crisis, Indonesia tended tosideline the social security protection agenda. While schemes for civil servants, the armed
forces, and police officers had already been formulated in the 1960s, contributory social
security protection programs for formal private sector employees were only started muchlater; in 1977 under Perum. Asuransi Sosial Tenaga Kerja (Social Insurance for Employment,
Astek) and in 1992 under PT. Jaminan Sosial Tenaga Kerja (Social Security for Employment
Pte Ltd, Jamsostek). Even then, coverage was limited, as small enterprises with 10 or fewer
employees were not legally required to enroll their employees in the social insurance
programs. This was a significant shortcoming, as small enterprises dominated Indonesia’s
economy, thus such arrangements left most workers without access to social security schemes.
Indonesia learnt the hard way about the importance of social security when the crisis
struck in 1997. Many people lost their jobs in the formal sector and had to find employment
in the informal sector to survive, making them susceptible to falling into poverty. In fact, thepoverty rate increased from a low point of around 15% at the onset of the crisis in mid-1997
to a high of around 33% towards the end of 1998. This was equivalent to an additional 36

1 PhD Candidate, The Australian National University

15

million people falling into absolute poverty during the crisis (Suryahadi, Sumarto, andPritchett 2003).
Post-crisis, the economy began to lay the groundwork for expanding social security
coverage for all Indonesians. A series of laws have been promulgated, and roadmaps for a
newly-integrated social insurance system have been created. In 2014, a unifying schemebegan under Badan Penyelenggara Jaminan Sosial (Social Security Administrative Bodies,
BPJS). BPJS Kesehatan (BPJS Health) was tasked with administering universal healthcoverage, not only for civil servants, the armed forces, police officers, and formal privatesector employees, but also the poor and near-poor financed by general taxation, and withextending coverage to informal workers. In 2015, BPJS Ketenagakerjaan (BPJS
Employment) became the sole body administering four social security schemes comprising
workplace accident benefits, death benefits, pensions, and old-age savings. Such reforms had
the ambitious target of achieving universal health coverage by 2019, while the employment
social security schemes are expected to cover all formal-sector employees by 2019, with amodest target of increasing enrollment by informal workers.
This report aims to shed light on Indonesia’s journey in expanding social protection.
While the economy has formed a framework to extend coverage to informal workers,
implementation proves to be challenging, especially with the high degree of informality,
where informal workers constitute around 60-70% of Indonesia’s labor force. Given this, thereport seeks to address the following research questions:
1. How is Indonesia’s social security system evolving with regard to providing
coverage to the informal sector?
2. What are the challenges that Indonesia is facing and the shortcomings of the current
system?
3. What can be done to improve the current system in order to strengthen social
protection for informal workers?
To address these questions, the report is structured as follows. Section 2 explains how
the social security system has evolved in Indonesia, providing a continuum for a social
security framework being implemented in the past and present. Section 3 discusses thelandscape of the informal sector in Indonesia and provides greater details of initiatives taken
to extend social security coverage to informal workers. Section 4 concludes and outlines somepolicy implications.
2. Social Security System in Indonesia: Past and Present
Social security schemes in Indonesia were already available long before independence
in 1945, mostly provided to civil servants during Dutch colonialization. As early as the 1970s,
16sub-national health insurance schemes began to flourish, paving the way for many small
community-based insurance schemes supported by the Dana Sehat (health funds) program(Dunlop 2015). In general, there were two types of public intervention for social protectionin Indonesia. The first type consisted of targeted efforts to provide social support to the poorand near-poor, such as an ad-hoc social safety net introduced after the crisis and cash transfer
schemes. Central and local governments also provided healthcare coverage for the poor andnear-poor through the Jaminan Kesehatan Masyarakat (People’s health security, Jamkesmas)
and Jaminan Kesehatan Daerah (Sub-national health security, Jamkesda) programs,
respectively.
The second intervention was through contributory social insurance and mandatorysavings for formal-sector employees and civil servants. Under Law No. 3/1992 on Social
Security Law, PT Jamsostek was tasked with managing worker injuries, death, retirement,
and health benefits for formal private-sector employees. Before Jamsostek was created,starting in 1977 such programs were administered by Astek, a government-owned insurancecompany operated under the Department of Labor and Workforce. The schemes largely
omitted informal workers and formal-sector workers in small businesses with 10 or fewer
employees. Additionally, critics pointed out a lack of transparency, relatively low returns on
investment, and low levels of benefits received by workers covered under Jamsostek schemes.
For instance, at the stipulated Jamsostek contribution rate, retirement benefits received by aJamsostek recipient at retirement were exceptionally small, being valued at around 7% of theperson’s final basic salary after working for 35 years (Leechor 1996). Moreover, Jamsostek
had limited capacity to enforce compliance, as it relied solely on labor inspectors being
deployed by local government, with an estimated compliance rate of only 40%. In 2001, theestimated active membership of Jamsostek was around 9.3 million, and this declined to 7
million in 2004, mostly due to a shift towards the informal economy or non-complying small
enterprises (ILO 2006). By 2013, there were 12 million Jamsostek members in worker injury,
death, and retirement benefit schemes (Coordinating Ministry of Social Welfare et al. 2014).
For civil servants, old-age benefits and pension funds were administered by PT.
Tabungan dan Asuransi Pensiun (Old-age savings insurance and pension Pte Ltd, Taspen),managed by the State Treasury. This was set up early on, backed by Law No. 11/1969.
Membership was compulsory, and in 1995 the schemes covered about 4 million active
members and 1.5 million retirees. In 1997, there were 1.65 million retirees and 743,000
people receiving survivors’ pensions (ILO 2006). Meanwhile, PT. Asuransi Sosial Angkatan
Bersenjata Republik Indonesia (Social insurance for Indonesia’s armed forces Pte Ltd,
Asabri), managed by the Ministry of Defense, administered old-age benefits and pension
funds for police and military officials. The arrangement started as early as the 1960s,
17supported by Law No. 6/1966. By 2012, there were 4.55 million contributing members and2.36 million recipients of Taspen pension funds, and 839,000 contributing members and
318,000 recipients of Asabri pension funds (Coordinating Ministry of Social Welfare et al.
2014). The provision of social security for police, armed forces and civil servants was thenstandardized by Presidential Decree (Kepres) No. 8/1977.
PT. Asuransi Kesehatan (Health insurance Pte Ltd, Askes) provided compulsory healthinsurance coverage for active and retired workers in the civil services as well as army andpolice officials, including covered family members as well as veterans and pioneers/fightersof national independence. For police and the armed forces, provision of health care was also
supported by their internal police and military hospitals. In 1991, voluntary membership was
also offered to employees of state and private companies (Askes commercial).
The law on the National Social Security System (SJSN) was drafted by a task force
appointed through the Vice President’s Office, created by Kepres No. 22/2002.
Representatives from various sectoral ministries involved in social security provision inIndonesia, including the Ministries of Manpower, Health, Social Affairs, Finance, andDevelopment Planning (Bappenas), as well as Coordinating Ministries of Social Welfare andEconomic Affairs, were enrolled as members of the task force, while other stakeholders suchas employers’ associations and labor unions were not included in the drafting team (Arifianto2006). A key tenet of the draft law was that social security schemes should cover all people
in Indonesia, irrespective of their background; rich or poor, formal- or informal-sector
workers. Five national social security programs would be created – a health program and four
employment programs (workplace accident, old-age savings, pension, and death benefits). In
September 2004, parliament approved the drafted SJSN law, giving birth to Law No. 40/2004
signed by then President Megawati Soekarnoputri in October 2004. The newly created SJSN
would be overseen by a National Social Security Council (DJSN) consisting of 15 members,
who would be directly appointed and responsible to the president. The council members
would consist of representatives from the government, business associations, and labor
unions, whose responsibilities include formulating general policies for the system.
In November 2011, Law No. 24/2011 on BPJS was passed. The law shed light on theadministration of SJSN programs, and mandated the establishment of BPJS Health toadminister the SJSN health program and BPJS Employment to administer the SJSN
employment programs. Their responsibilities include management of trust funds, enrollment,collection of contributions, provision of benefits to members, and issuance of social security
identification numbers. Unlike their predecessors, which operated for profit, BPJS operates
on a non-profit basis, returning gains generated by capital investments back into the systems
to enhance the welfare of members. A road map for implementation of the SJSN health18

program was issued in December 2012, and by May 2014 a roadmap for SJSN employment
programs was also issued. BPJS Health started offering the SJSN health program on January
1st, 2014, while the kick-off date for BPJS Employment’s operations was July 1st, 2015.
Figures 1 and 2 delineate the targets to be accomplished based on the roadmaps for
BPJS Health and BPJS Employment. In early 2014 BPJS Health would start administering aunified health insurance program for three categories of people: (i) poor and near-poor whose
fixed contributions would be paid by the government; (ii) those employed in both the public
and private formal sectors whose salary-based contributions would be paid by employers andemployees; and (iii) those who are non-poor and work in the informal sector, who would pay
their own contributions upon enrollment. No later than the end of 2016, all members of
Jamkesda schemes individually operated by various sub-national governments would betransferred to BPJS Health. From 2014 to 2019, employers would register their workers andfamilies as members of the BPJS Health program, and informal workers would also register.
This also includes foreign residents after six months of work. By 2019, all workers would becovered under BPJS Health, and universal health coverage would be achieved.

Figure 1. Roadmap for universal health coverage

2014
BPJS Health to start
managing health insurance
for Askes, Jamkesmas,
Jamsostek and some
Jamkesda members

2016
All members of
Jamkesda schemes to betransferred to BPJS
Health2019
Universal healthcoverage to be achieved

Source: Adapted from TNP2K (2015).

For BPJS Employment, the initial target was to ensure SJSN employment program
coverage for all formal-sector employees, to be achieved by 2019. Memberships in the oldage savings and pension funds initially operated by Taspen and Asabri should be transferred
to BPJS Employment by 2029 at the latest.

19

Figure 2. Roadmap for universal SJSN employment programs

2014

2015

PT Jamsostek
transformed into
BPJS
Employment

BPJS Employment
starts operations
offering workplace
accident, old-age
savings, pension,and death benefit
schemes

2019

2029

All employees to beregistered as
members of BPJS
Employment(formal sector set
as priority)

All Taspen andAsabri members to
be registered as
BPJS Employment
members

Source: Adapted from Coordinating Ministry of Social Welfare et al. (2014).

The following sections, 2.1 and 2.2, explain in greater detail wide-ranging social
security programs in Indonesia, before and after the implementation of SJSN. Moreinformation is also provided on contribution rates and particular intricacies.
2.1 Overview of past social security system
2.1.1. Social health insurance schemes
Before BPJS Health was created and tasked with the implementation of the National
Health Insurance Program (JKN) in 2014, social health insurance schemes in Indonesia were
fragmented, mostly according to types of occupation. Table 1 tabulates the different social
health insurance schemes pre-JKN.

20

Table 1. Social health insurance schemes before JKN
Poor/Near-poor

Jamkesmas

Funding

Benefits

Fixed premiumsof RP 6,500 per
member per
monthcontributed by
the central
government
from generaltaxationComprehen-sive;
drugs within
formulary
covered, no costsharing

Civil servants/retired
civil servants,
police/military officials,
veterans
Askes

Funding

Employees paid
2% of basic pay,government paid
1% of basic pay

Benefits

Comprehensive; drugs
withinformulary
covered; costsharing
available whenservices falloutside basic
benefits

Formal private-sector
employees

Informalsectorworkers/selfemployed

Jamsostek

Funding

Employers paid
3-6% of salarydepending on
employee’s
marital status;
ceiling of Rp
1mn/monthBenefits

Comprehensive; drugs
withinformulary
covered; costsharing
available whenservices falloutside basic
benefits

No specificschemeJamkesda
Provincial/district-level government units from provincial/district-level budgets
Typically provided supplementary and complementary coverage
Benefits** Benefits vary by province/district
Funding

Source: Adapted from The Economist Intelligence Unit (2015).

The poor and near-poor were covered under Jamkesmas, with the government paying
the monthly premiums financed by general taxation. Under this scheme and also its
predecessor program, Askes for the poor (Askeskin), the coverage increased from 8% in 2001
to nearly one-third by 2011 (Bappenas 2014). Nevertheless, a substantial proportion of thepoor and near-poor remained uninsured. In 2011, Jaminan Persalinan (Maternity insurance
scheme, Jampersal) was introduced as a nationwide program to accelerate reduction ofmaternal and newborn deaths. The scheme provided free and comprehensive maternal andneonatal care, regardless of income. Providers of pro-poor public insurance programs weregenerally public, and enlisted private facilities at the primary and secondary levels.
For non-poor, the administrators of social health insurance schemes were state-owned
profit-making limited companies. These were Askes for active and retired civil servants,
police/military officials, and veterans, and Jamsostek for formal private sector employees.
21Benefits for the two schemes were mostly similar, while funding came from mixed
contributions shared by employees and the government for Askes, and employers’
contributions in the case of Jamsostek. The program offered benefits for a variety of healthexpenses such as medical, hospitalization, maternity care, and the use of medical equipment.
Private companies could opt out of Jamsostek’s health scheme in favor of morecomprehensive private insurance schemes. There were no specific social health insurance
schemes targeted at informal-sector workers or the self-employed.
Jamkesda was mostly run by local governments, and was in place in at least 460
districts in early 2015, an increase from 367 districts in 2010. In 2013, most of the financing
for this scheme, around 79%, was contributed by provincial health funding, while theremaining 21% was taken from district health funding (Dunlop 2015). Jamkesda
implementation varied considerably across provinces and districts. Such variations could befound in terms of management approach, payment methods, size of contributions, benefits,
and participants. In some instances, Jamkesda insured participants who were not covered by
Jamkesmas, while in others the entire population was covered in the relevant administrative
area. As of May 2014, only 5.9 million of the 31.87 million people participating in the
Jamkesda scheme had been listed as participants targeted by the Ministry of Health’s Centerfor Health Insurance Payments for enrollment in the subsequent BPJS Health scheme.
Table 2 shows an estimate of health insurance participation in 2012. Based on a
population of 248 million, health insurance coverage was only available to 59.1% ofIndonesia’s population in 2012, leaving 101.5 million people uninsured. A significant portionof the coverage was paid by the state budget (52% through Jamkesmas) and local government
budgets (22% through Jamskesda).

Table 2. Health insurance participation in 2012
Type of health cover
Askes
Armed forces/police
Jamkesmas
Jamsostek
Jamkesda
Self-insured
Askes commercial
Total

Total Participants
12,274,520
2,200,000
76,400,000
5,600,000
31,866,390
15,351,532
2,856,539
146,548,981

Source: Figures withdrawn from TNP2K (2015).

22

Percentage (%)
8.38
1.50
52.13
3.82
21.74
10.48
1.95
100%

2.1.2. Workplace accident benefits, death benefits, pension and old-age savings schemes
The schemes were offered by three providers: Jamsostek for formal private-sector
employees, Taspen for civil servants, and Asabri for the police and armed forces. Table 3
presents a list of insurance schemes offered by the three providers, including the premium
rate as a percentage of monthly salary.

Table 3. Contributions for Jamsostek, Taspen, and Asabri
ProgramJamsostek
Workplace accident benefits
Death benefits
Old-age savings

Employers

Taspen and Asabri
Old-age savings
Pension(as % of monthly salary)
Workers0.24-1.74
0.3
3.7

2

-

3.25
4.75

Source: Figures drawn from ILO (2006).

Under Jamsostek, formal private-sector employees were eligible for workplace
accident benefits, old-age savings, and death benefits schemes. Only the retirement benefits
program required contributions from employees, at around 2%, while employers paid
contributions to the workplace accident and death benefits programs. The benefits offered
were: (i) workplace accident scheme: transportation, medical service expenses, medication,and disability; (ii) life insurance: death benefits and funeral costs; (iii) old-age savings: lumpsum payment according to the employee’s total contributions plus interest.
Jamsostek also extended its old-age savings program to informal-sector workers, witha contribution rate of 2% of income, set at a minimum wage level of Rp. 1 million per month.
However, enrollment was merely voluntary and uptake was low. Death and workplace
accident benefit schemes were also extended to informal workers, with contribution rates ofaround 0.3% and 1% of monthly salary, respectively. Jamsostek programs were mandatory
for companies with over 10 employees or a monthly payroll of Rp. 1 million or more. Privatesector employees were also eligible for severance payments in the case of work termination.
Taspen and Asabri provided lump-sum retirement benefits and pensions with
employees’ contributions of 3.25% and 4.75% of their salaries, respectively, for civil servantsand police/armed forces. Both Taspen and Asabri were designated to pay all of the lump-sum

23benefits and 25% of the pension benefits. The remaining 75% of pension costs were paid by
the state budget. On death before or after retirement, the monthly pension was paid to eligible
survivors.

2.2 Overview of current social security system
2.2.1 Social health insurance scheme
After the implementation of JKN, the schemes previously offered by different
organizations were merged into BPJS Health. This national health insurance scheme provides
a comprehensive package to all Indonesians, with the only difference being in quality of
hospital ward category. Table 4 provides a breakdown of premiums payable by each categoryof member.

Table 4. Social health insurance scheme after the implementation of JKN
Poor/Near-poor

Funding

Fixed premiums(Rp. 23,000 per
member per
month)
contributed by
the central
government fromgeneral taxation

Civil servants,
Formal privatepolice/military
sector employees
officials
BPJS Health
Salary-based
Salary-based
contributions ofcontributions of
5% of monthly
5% of monthly
salary to be paid bysalary to be paid
employers (3%)
by employers (4%)
and employees
and employees
(2%)
(1%)

Informal-sector
workers/selfemployed
Fixed monthly
premium
contributions of Rp.
25,500/Rp.
51,000/Rp. 80,000

Source: Based on Presidential Regulation (Perpres) No. 19/2016 as amendment of Perpres
No. 12/2013 concerning healthcare benefits.

The premiums for poor and near-poor are paid by the central government from generaltaxation, amounting to Rp. 23,000 per person per month, an increase of close to 20% fromthe previous amount of Rp. 19,225 before 2016. Members are entitled to class III hospitalbeds in public hospitals and selected private hospitals on the BPJS list. According toBappenas (2014), the central government’s financing to cover health insurance for 86.4
million poor and near-poor in 2014 was expected to reach Rp. 19.9 trillion (around 0.2% ofGDP), an increase from Rp. 6 trillion allocated for financing Jamkesmas in 2011 (around
0.1% of GDP).

24

Salary-based contributions are applicable for salaried employees, including (i) civil
servants and police/military officials, and (ii) formal private-sector employees. Contributions
are fixed at 5% of monthly salary, of which 3% is paid by employers and 2% by employees
for the former, and 4% is paid by employers and 1% by employees for the latter. The upper
limit for monthly salary used for calculating health contributions is Rp. 8 million. Suchcontributions also cover members’ dependents, which include spouse and up to three children.
The criteria for children listed as dependents are: (i) not yet married or earning income, and(ii) aged under 21, or 25 if still enrolled in formal education. If employees would like to enroll
other family members, including fourth or subsequent children, parents, and in-laws,
additional contributions are set at 1% of salary.
Unlike the previous pre-JKN schemes, which had no specific reference to coverage fornon-salaried workers who typically work in the informal sector, under the JKN scheme, such
workers are eligible to receive health insurance benefits with fixed monthly premium
contributions of either Rp. 25,500, Rp. 51,000, or Rp. 80,000. These three amounts are tied
to provision of class III, II, and I hospital beds, respectively. The proposed amount for class
III services was initially set at Rp. 30,000, but revised by President Joko Widodo and returned
to its initial premium level of Rp. 25,500 per month. The amount is still below therecommended revision to Rp. 36,000 proposed by DJSN. The central government therefore
allocates additional budget to cover the differences. Meanwhile, amounts for class I and II
services were set after premium adjustment from Rp. 59,500 and Rp. 42,500, respectively.
Monthly contributions for informal workers’ dependents range from Rp. 25,500 to Rp.
80,000, depending on which class of hospital bed (III, II, or I) members opt for. All BPJS
members are able to access a wide range of health services provided by public facilities and,to some extent, private facilities that have registered as JKN providers.
Monthly contributions must be received by BPJS Health no later than the 10th of eachmonth. BPJS Health will further develop effective and efficient mechanisms for collecting
dues, particularly from those who work in the informal sector.
The total number of health facilities which have registered as providers of BPJS Healthservices (as of May 1, 2016) is as follows: 9,812 community health centers (puskesmas); 713
armed forces clinics; 569 police forces clinics; 3,434 primary clinics; 4,437 generalpractitioners’ clinics; 1,140 dental clinics; 12 primary hospitals D class; 1,762 hospitals; 106
main/specialist clinics; 1,868 pharmacies; and 925 optical clinics (BPJS Health 2016b).

25

2.2.2 Workplace accident benefits, death benefits, pension and old-age savings schemes
During the SJSN implementation period, all employment programs are administeredby BPJS Employment, covering both private- and public-sector employees, as well as nonsalaried workers, often categorized as self-employed or informal workers. Table 5 tabulates
contribution rates as a percentage of monthly salary. Based on Perpres No. 109/2013 onphases of membership for social security programs, compulsory enrollment in all four
employment programs is stipulated for workers in medium and large enterprises. Small
enterprise workers are only mandated to enroll in workplace accident, death, and old-age
saving benefits programs. Meanwhile, workers in micro enterprises are only mandated toenroll in workplace accident and death benefit programs.
In all four employment programs, premium rates are similar for public- and privatesector employees. Those requiring contributions from employees are old-age savings (2%)
and pension funds (1%). The combined contribution rate (employer and employee) for
pension benefits is reviewed and adjusted at least every three years, with the expectation ofreaching 8% of monthly pay in total. Based on Perpres No. 45/2015 on administration ofpension programs, the normal retirement age is initially set at 56, but will increase to 57 in
2019, and by an additional one year every three years thereafter, until reaching 65 (in 2043).
For claimants with at least 15 years of contributions at retirement age, the minimum andmaximum monthly pension amounts are initially set at Rp. 300,000 and Rp. 3,600,000,
respectively, to be adjusted by inflation in future. For those with fewer than 15 years ofcontributions, payment is a lump sum.
Self-employed and informal workers have to pay their own premiums, set at 1% ofsalary for workplace accident benefits, 2% for old-age savings, and Rp. 6,800 for death
benefits. For the first two programs, benefits vary according to the absolute amount ofpremiums paid (which depend on declared monthly earnings).

26

Table 5. Monthly contributions for BPJS Employment(as % of monthly salary unless otherwise specified)
Program
Workplace accident
benefits
Death benefits
Old-age savings
PensionPublic- and private-sector employees
Employers

Workers

Self-employed/
informal workers

0.24-1.74

-

1

0.3
3.7
2

2
1

Rp. 6,800
2-

Source: BPJS Employment (2016).

3. Extending the Social Security System to Informal Workers
3.1 Defining and identifying the informal sector
The informal sector is largely defined as all economic activities that are not formallyregistered with the government and do not pay taxes (Rothenberg 2016). Employment in theinformal sector is often characterized by poor working conditions, absence of social benefits
such as sick pay, irregular working hours, unstable and unpredictable earnings, and relatively
low labor productivity, and is associated with increasing poverty. GIZ et al. (2013) estimatedthat the average income of households in the informal sector, consisting of 4-5 people, is Rp.
1,508,724 per month. Almost 80% of such households reported a monthly income below theaverage. Around 13% of informal workers were poor, and as such many were already targetedby the national Jamkesmas health insurance program and the supplemental local government
Jamkesda insurance schemes (Monfert, Martin, and Langenbrunner 2013).
Indonesia’s National Statistics Office (BPS) defines informal and formal employment
by a matrix of employment statuses and main occupations (Table 6). This differs from theconceptual framework of informal employment endorsed by the 17th international conferenceof labor statisticians in 2003, which uses production unit and job types to distinguish informal
and formal employment. The BPS definition will be used primarily throughout this section,
unless a different approach is clearly stipulated.

27

Table 6. Definition of formal (F) and informal (INF) employment according to BPS
Main occupationMain
employment
statusOwn-accountworker
Self-employedassisted byfamily or
temporaryworker
Employer
Employee
Agricultural
casual worker
Nonagricultural
casual worker
Unpaid worker

Professional,
technical& relatedworkerAdministrative &managerial
workerClerical&relatedworkerSales
workerServices
workerAgricultural
workerProduction
workerOperator

Laborer

Other

F

F

F

INF

INF

INF

INF

INF

INF

INF

F

F

F

F

F

INF

F

F

F

INF

F
F

F
F

F
F

F
F

F
F

F
F

F
F

F
F

F
F

F
F

F

F

F

INF

INF

INF

INF

INF

INF

INF

F

F

F

INF

INF

INF

INF

INF

INF

INF

INF

INF

INF

INF

INF

INF

INF

INF

INF

INF

Source: ILO (2010).

Based on the definition from Table 6, the data from BPS showed that the number offormal workers has increased from 29.4 million in 2001 to 49.7 million in 2015, an increaseof more than 70%, as also illustrated in Figure 3. This positive trend is also reflected in thenumber of informal workers, albeit by a smaller increment. In 2001, there were 61.4 million
informal workers, and in 2010 the number peaked at 73 million, an increase of 20%. After
that, the number declined gradually to 68.2 million in 2015. This decline was not surprising
given that most of the jobs created have been in the formal sector. For instance, it was reported
that of the total 22 million jobs added to the labor market between 2001 and 2013, more than
80% were considered formal (ILO 2014). As a result, the proportion of informal workers in
the total employment has declined from 68% in 2001 to 58% in 2015. The proportion of
informal workers in the labor market in Indonesia is lower than in India (68%) and thePhilippines (73%), but much higher than in China (33%) and Vietnam (44%) (OECD 2015).
Rigidity in the labor market is often cited as a factor contributing to the persistent dominanceof the informal sector in Indonesia’s economy. Stringent hiring and firing rules as well aslarge increases in the minimum wage may hurt competitiveness in general, further
exacerbating labor market informality and encouraging unregistered micro-enterprises byraising the cost of employing formal workers. Thus, many Indonesians remain in unstable
and highly vulnerable working conditions. Without adequate social protection, they aresusceptible to impoverishment from catastrophic health expenditures which may lead to anincreasing number of poor households.
28

Figure 3. Number of formal and informal workers in Indonesia (2001-2015)
80,000,000
70,000,000
60,000,000
50,000,000
40,000,000
30,000,000
20,000,000
10,000,000-

Formal workers

Informal workers

Source: Author’s calculation based on data from BPS.

More than 90% of formal workers are employees, while the remainder consists of selfemployed people assisted by full-time and paid workers.

Figure 4 provides more

information on the types of informal workers. Among the self-employed, the percentage of
those who work on their own (not employing any workers) increased from 28% in 2001 to
30% in 2015. Over the same period, those assisted by family or temporary workers declined
from 33% to 27%. Both types contributed to the mass of informal workers in Indonesia,
reflecting the large extent of microbusinesses in Indonesia, amounting to 55.9 million
microbusiness units in 2012, equivalent to 98.8% of total business units in Indonesia. The
sector itself employed 99.9 million workers in 2012 (Coordinating Ministry of Social Welfare
et al. 2014). The share of casual workers in the agricultural sector did not change significantly,
edging up from 6% in 2001 to 7% in 2015. Meanwhile, the share of casual workers in the
non-agricultural sector increased from 4% in 2001 to 10% in 2015. Cuevas et al. (2009)
estimated that average monthly incomes for casual workers in the agricultural and nonagricultural sectors were around Rp. 400,781 and Rp. 614,794, respectively. The remaining
share of informal workers was absorbed as family or unpaid workers, around 25 % in 2015,
or approximately 16.9 million people.

29

Figure 4. Types of informal workers (2001-2015)
100%

Unpaid workers

90%80%
Non-agricultural
casual workers

70%
60%

Agricultural casual
workers

50%
40%
30%

Self-employedassisted by family or
temporary workers

20%
10%

Self-employed0%

Source: Author’s calculation based on data from BPS.

As shown in Figure 5, informal working arrangements were more prevalent in the
agricultural sector (51.8%), followed by the trade (25.4%), manufacturing (6.5%),
construction (5.8%), and service sectors (4.8%). TNP2K (2015) found that around 31.5% of
informal workers worked fewer than 35 hours per week or were nearly jobless and 49.2% did
not complete elementary school. Regarding differences across genders, the ILO (2014) foundthat 57.9% of employed women worked in the informal economy, compared to 50.9% of theirmale counterparts. Cuevas et al. (2009) further highlighted that women generally received
lower pay and were mostly unpaid family workers. Informal employment was also morewidespread in rural areas (80%) than in urban settings (23%).

30

Figure 5. Percentage of informal workers by sector (2013)
Electricity, gas, water

0.03%

Finance

0.61%

Mining and quarrying

0.80%

Transportation

4.24%

Services

4.80%

Construction

5.80%

Manufacturing

6.52%

Trade

25.36%

Agriculture

51.80%
0%

10%

20%

30%

40%

50%

60%

Source: Figures drawn from Coordinating Ministry of Social Welfare et al. (2014).

Informal employment is more prevalent in certain provinces, such as the lessindustrialized province of Yogyakarta (81.9%), as compared to Banten (75.9%) (ADB and
BPS 2011). A 2009 informal sector survey conducted in the two provinces showed that formal
enterprises also created informal employment, totaling more than 30% of jobs. It also foundthat those who were informally employed tended to have a lower level of education andreceive lower wages than those with formal jobs. Despite absorbing a large number ofworkers, the contribution of the informal sector to economic output was much lower, around
34.1% in Yogyakarta and 20.2% in Banten. In the case of Yogyakarta, the informal sector
contributed more to agricultural production, whereas its contribution was much higher in the
non-agricultural sector in Banten. Hence, characteristics of the informal sector and the degreeof informal employment vary across Indonesia’s provinces, depending on their economic
drivers.

3.2 Efforts to provide coverage for informal workers
As mentioned in Section 3.1, the large size of the informal sector poses a greatchallenge in achieving universal coverage for both health and employment programs
administered by BPJS. Bappenas (2014) reported that around 32.5 million informal workers
would not be covered by any health insurance schemes in 2014 (not including family
members). In order to reach the universal coverage target, especially for the health program
under BPJS Health with 2019 as the deadline, the government needs to develop a31

comprehensive strategic plan to extend coverage to the sizeable number of informal workers.
The subsequent sections will describe in greater detail efforts to reach out to informal workers,
before and after the implementation of SJSN.

3.2.1 Initiatives before SJSN implementation
Bappenas conducted a study on the informal economy in 2011-2012 to explore thepossibility of extending social security coverage to informal workers. The study was
conducted by the University of Indonesia’s Demographic Institute, which administered thesurvey to 1,533 randomly selected respondents from five provinces in Indonesia (GIZ et al.
2013).
GIZ et al. (2013) found that around a quarter of informal workers were unaware of thehealth protection program. As many as 38% of them did not know how to enroll in such a
program. Even for those who were already enrolled, there were significant knowledge gaps
in terms of benefit package entitlements. A similar situation was also identified in ILO (2010),
where only 60% of surveyed informal workers knew about the Jamsostek program. Suchknowledge of the Jamsostek program was higher among respondents residing on the islandof Java, as compared to those in the eastern region. Additionally, the results showed that thehigher the level of education, the more often respondents knew about Jamsostek. Nevertheless,uninsured respondents from the informal sector conveyed their willingness to enroll in thehealth insurance program, provided they had more access to information and were convincedof the benefits of the program. When questioned about payment options, more than 55% of
respondents preferred direct payments to the administrator (either BPJS Health branches orfield officers), of which 67% favored monthly payments while the remainder opted for otherfrequencies (e.g. quarterly, semi-annually, etc.) which suited their income patterns. ILO(2010) asked respondents about their willingness to pay monthly premiums and found that aquarter of them indicated that they could not pay, while 40% preferred a payment below Rp.
10,000. Another 23.5% were willing to pay between Rp. 10,000 and Rp. 20,000 and around
11% could pay as high as Rp. 20,000 or more per month.
All of these insights from the study were very helpful in launching the new Askesos
initiative in 2012, providing work accident and death benefits to approximately 750,000
informal workers (GIZ et al. 2013). To help administer memberships and act as social
marketers, intermediary organizations (Lembaga Pengelola Askesos, LPA) were engaged,
consisting of charity foundations, religious institutions, and other social organizations. In
return, LPAs received 12.5% of total premiums collected from Jamsostek. The study also
highlighted other potential collaborations with professional associations to act as32intermediaries for premium collection. Additionally, it emphasized providing flexible
payment options suited to individual income patterns; for instance, per-harvest payments inthe case of farmers.
Before the 2011-2012 informal economy study conducted by Bappenas, Angelini andHiroshi (2004) conducted a study assessing informal-sector working conditions in several
counties in Indonesia and needs for social protection. Following that, the Ministry of
Manpower and Transmigration issued Ministerial Regulation No. 24 concerning “theimplementation guidance of social security programs for workers outside working
relationships” in 2006, which gave Jamsostek leeway to create tailor-made programs for
informal workers, as briefly explained in Section 2.1.2. Contribution and benefit amounts
were set according to the regional minimum wage, which varied across provinces and districts.
Prior to that, the Ministry of Social Affairs had already launched a pilot program fordeveloping a community-based micro-insurance program for informal workers, called
Askesos, in 1996. The program was suspended in 1998 during the nation’s political andeconomic crises and reinstated in 2003. In its implementation, Askesos relied on establishedcommunity-based organizations (CBOs), making Askesos not a stand-alone program, but acomplementary and supporting program to the existing community-based antipoverty
initiatives run by the respective CBOs (Suharto 2007). According to the guidelines assummed up by Sirojudin (2013), each CBO was expected to enroll around 200 to 300 informal
workers within a three-year period. To be eligible as an applicant, the informal worker shouldhave monthly earnings of no more than Rp. 300,000 and reside within the jurisdiction of thelocal CBO. The monthly fee was set at Rp. 5,000, and would be stored in a type of savings
account and returned to the participant after the three-year period. The benefits offered would
be in the form of a temporary set of unemployment benefits that pay a certain amount ofmoney for emergency hospitalization up to 20 days, coverage for work-related injury for agiven period of time, or death. Monetary support of Rp. 100,000 would also be provided in
the case of illness or work-related injury, available to a member once a year for a total ofthree times during the three-year implementation period. For death benefits, the pay-out tothe surviving family would depend on the length of membership; Rp. 200,000, Rp. 400,000,
and Rp. 600,000 after the first, second, and third year of membership, respectively. By 2011,
around 1,798 CBOs were participating in the program, providing micro-insurance services toaround 350,000 informal workers (Sukoco 2011). According to Sukoco (2011), from 2003 to
2011, total government funding for this program amounted to US$6 million, with two
methods of transfer: (i) direct transfer from central government to CBOs, and (ii) indirecttransfer through the provincial office of social affairs, then to CBOs.

33

3.2.2. Initiatives after SJSN implementation in 2014
The existing framework under BPJS Health and Employment that stipulates
compulsory membership for informal workers, as explained in Sections 2.2.1 and 2.2.2, isconsidered as progress. Relying on contribution-based schemes, however, creates anothercomplexity in ensuring the collection of regular contributions, which may result in high dropout rates. Unlike formal workers, informal workers’ income is not stable or regular, as in thecase of farmers who have to wait until harvest season to earn their income. Additionally,collecting dues may increase the cost of administration, as informal workers tend to live faraway from urban centers that have abundant facilities to access payment channels. The costof payment collection may even be close to, or higher than, the actual income generated fromthe contributions paid.
Other economies which have implemented a defined contribution approach, such as thePhilippines and Vietnam, have introduced various measures to collect contributions frominformal workers that have achieved only partial success. They have tried to improvesocialization efforts by providing information about the scheme, including how to registerand benefits of participation. They have also increased accessibility by allowing payment
through banks, convenience stores, and cell phones, as well as offering flexible timeframes
for dues payment. Vietnam also provides subsidies for near-poor informal workers (Aparnaa
et al. 2014). South Korea is often cited as a successful example among economies adopting
defined contribution schemes. Its centralized governance structure and unified dues collection
mechanism that relies on the existing tax system allows South Korea to avoid theadministrative burden of collecting contributions from informal workers.
China and Thailand are examples of economies which opt to fund expansion of
insurance coverage from taxation. China has sufficient fiscal capacity to rely on taxation tofund expansion of social security coverage due to decades of strong economic growth. Sucha policy also aligns with the government’s aspiration to induce greater household
consumption. On the other hand, Thailand’s achievement in attaining universal coverage ismore politically motivated, relying on a more pragmatic approach of tax-based contributions,since, in reality, distinguishing poor from non-poor in the informal sector is a very
cumbersome process.
Indonesia decided to opt for contribution-based schemes to extend coverage to informal
workers, as stipulated in Perpres No. 12/2013, which states that “dues from informal sector
workers are not covered by the government.” Other available options include expanding noncontributory financing from general taxation to the informal sector and a mixed method
combining tax-based subsidies with dues. However, these two options for supporting
informal workers’ dues may create incentives for informalization where it is more cost34

effective for firms to hire their workers under informal arrangements to avoid paying for theirhealth insurance. Moreover, they may undermine the contribution-based system for formal
workers. Other issues concern fairness and equity, such as in the case of high-earning
informal workers who ultimately receive government subsidies. Furthermore, if government
subsidies depend upon a certain income level among informal workers, some groups ofpeople who earn just above the cut-off point will be vulnerable to paying the full fee while
concurrently struggling with volatile earnings.
The recently-enacted Perpres No. 19/2016 mentioned that further informal worker
enrollment mechanisms would be developed by BPJS Health. This is crucial to answer
questions concerning what will happen if they miss monthly payments given their irregularincome, and how contributions can be effectively and efficiently collected. At the time ofwriting, the provisions in Perpres No. 19/2016 and information available on BPJS Health’s
website13 do not delineate different strategies to target informal workers. For instance, there
is a fixed clause that contributions should be paid on a monthly basis (received by BPJS
Health by the 10th of each month at the latest), which may not be suitable for fluctuating
income earned by informal workers. Starting from 1st July 2016, unpaid contributions formore than one month result in temporary cessation of membership. Membership is reactivated
if the member resumes contribution payments, including the previous overdue months (for12 months at most). If a member undergoes in-patient hospital treatment within 45 days ofmembership being reactivated, he or she is liable for a fine of 2.5% of the total expenses
involved multiplied by the number of overdue months, with additional conditions that theoverdue period does not exceed 12 months and the maximum fine is capped at Rp. 30 million.
While the provision for imposing fines may reduce instances of moral hazard, such rigid
arrangements for accommodating only monthly payments – and subsequent consequences ofnot making such payments – may deter informal workers from enrolling in the program.
Acknowledging the challenges in enrolling informal workers, the Law on SJSN
explicitly stated that the universal coverage target would first apply to all formal-sector
workers in small, medium, and large enterprises in programs under BPJS Employment.
Meanwhile, participation of informal workers will be gradually increased, by adding aminimum of 1.3 million new members by 2015 and 3.6 million new members by 2019, as
illustrated in Table 7. According to this projection, by 2019 at least 6% of informal workers
will be enrolled as members of BPJS Employment programs.

13

http://bpjs-kesehatan.go.id/bpjs/

35

Table 7. Projected new memberships in BPJS employment for informal workers from2014-2019
Type of Workers
Receiving earnings –Informal
As % of total
informal workers
Not receiving
earnings – Informal
As % of total
informal workers
Total informal
workers
Total formal andinformal workers
Minimum target for
informal workers
enrolled in BPJS
Employment
Minimum target for
new members in
BPJS Employment
from informal sector
with compulsory
programs ofworkplace accident
and death benefits

2014

2015

2016

2017

2018

2019

29,767,823

29,604,187

29,441,557

29,279,288

29,116,871

28,953,933

44.35%

45.02%

45.71%

46.42%

47.16%

47.93%

37,347,836

36,155,558

34,969,431

33,790,496

32,619,988

31,459,303

55.65%

54.98%

54.29%

53.58%

52.84%

52.07%

67,115,658

65,759,745

64,410,988

63,069,784

61,736,859

60,413,236

115,471,189

116,971,189

118,596,189

120,346,189

122,221,189

124,221,189

2%

3%

4%

5%

6%

1,300,000

1,900,000

2,500,000

3,000,000

3,600,000

Source: Coordinating Ministry of Social Welfare et al. (2014).

To increase enrollment from both formal and informal sectors, BPJS offers online
services for registering new subscribers and paying out claims. Additionally, they work withretail outlets, state post offices, and banks as payment channels for monthly contributions
from members. BPJS Employment routinely releases membership numbers on its website14.
As of April 2016, there were 334,638 firms enrolled in the program, with membershipcovering 13,892,318 salaried workers, 359,785 non-salaried workers (from the informal
sector), and 5,006,029 workers in the construction sector.15
Similarly, BPJS Health’s website also provides real-time statistics on its total
membership, which reached 166,738,432 as of May 27, 2016 (roughly 65% of Indonesia’s
population). Unfortunately, there is no further breakdown that reveals the extent of coverageamong informal workers. Such a breakdown is only available in its 2014 financial report, as
14
15

http://www.bpjsketenagakerjaan.go.id/
All employers employing construction workers on various schemes (which tend to be short-term contracts) aremandated to enroll their workers in BPJS Employment’s workplace accident and death benefits programs.

36

illustrated in Figure 6. The reported statistics created five categories: (i) poor and near-poor
with contributions paid by the government; (ii) salaried workers, mostly categorized as formal
sector employees, comprising private sector employees, civil servants, police, and armed
forces; (iii) non-salaried workers, mostly categorized as informal workers; (iv) non-workers,
which include investors, employers, pensioners, veterans, fighters of national independence,and others who can afford to pay the premium, but not previously listed; (v) Jamkesda (intransition). Total membership in 2014 reached 133,423,653, but still fell short in extending
coverage to informal workers, capturing only 13.5% of total workers in the informal sector.

Figure 6. BPJS Health membership as of 2014
8,767,229
4,876,416
9,052,859
Poor/near poor
Formal sector employees
Informal workers

24,327,149

Non-workers

86,400,000

Jamkesda (in transition)

Source: BPJS Health (2016a).

The relatively small proportion of members who are informal workers was also
reflected in their contributions paid, which amounted to only Rp. 1.89 trillion in 2014. Table
8 sheds light on total contributions received by BPJS Health and the corresponding
compensation paid for health expenses. In 2014, BPJS Health reported a deficit of Rp. 1.94
trillion, as it only generated revenues of Rp. 40.72 trillion from premiums while paying out atotal of Rp. 42.66 trillion in claims for health services. In 2015, the estimated deficit reached
Rp. 5.85 trillion, causing the government to earmark at least Rp. 5 trillion to cover the deficit.
Even after the premium increase announced in early 2016, BPJS Health is expected tocontinue running a deficit of Rp. 6 trillion by the end of 2016. Such sustained losses year after
year raise concerns over the financial sustainability of the universal health coverage program.

37

Table 8. Contributions received and compensation paid by BPJS Healthin 2014
Contribution
Premiums received
Poor/near-poor
Civil servants, police/armed
forces, pensioners, andveterans
Formal sector employees

Compensation
Amount(in million
Rupiah)19,932,480

Capitation

Amount(in million
Rupiah)8,347,850

14,004,670

Advanced outpatient treatment

6,912,247

3,545,229

Advanced inpatient treatment
Non-capitation, non-case basegroups (CBG's)
Promotion and prevention
efforts
TOTAL

23,527,325

Informal workers

1,885,436

Jamkesda (in transition)

1,352,047

TOTAL

40,719,862

Expenses paid

3,724,375
146,904
42,658,701

Source: BPJS Health (2016a).

Undersupply of health infrastructure can also pose just as great a barrier to provisionof truly comprehensive services. Moreover, poor access and quality of healthcare services
can discourage people from complying with mandatory membership and contribution
payments, including those informal workers who do not feel they receive value for money(Mathauer, Schmidt, and Wenyaa 2008). In fact, in Cambodia, low perception of healthcare
quality in government health facilities has been linked to low enrollment rates of non-poor
informal workers in voluntary community-based health insurance schemes, estimated to only
cover 2% of the population (Bitran 2013). Similar circumstances were also observed in
Vietnam, where informal workers did not perceive that the value of health insurance wascommensurate with the cost of enrolment, resulting in low coverage (Wagstaff et al. 2016).
Despite a staggering increase in the number of hospital beds from 159,144 in 2010 to269,743 in 2014 (Ministry of Health 2015), the number of hospital beds per 1,000 Indonesians
was still low at 0.95 in 2012, a rate below the economy’s ASEAN peers, such as Malaysia,
Philippines, Singapore, Thailand, and Vietnam (Figure 7). By 2014, the ratio had increased
to 1.07 hospital beds per 1,000 people. Nevertheless, large variation was observed at theprovincial level, where more developed provinces such as DI Yogyakarta, Jakarta, and North
Sulawesi enjoyed a high ratio of more than 2 hospital beds per 1,000 people while a relatively
poorer province, West Nusa Tenggara, only had 0.64 hospital beds per 1,000 people (Ministryof Health 2015).

38

Indonesia’s healthcare expenditure, at 2.8% of GDP and $99.4 per capita in 2014, wasstill one of the lowest in the region, as illustrated in Figure 7. The recent 2016 state budget
increased the healthcare budget from Rp. 74.3 trillion in the previous year to Rp. 106.1 trillion,
or around 5% of the total budget. More growth is expected in subsequent years due to thecurrent low base of spending, as well as the target of achieving universal healthcare coverage.

Figure 7. Regional comparisons for healthcare infrastructure and healthcare expenditure

3,000

2.5

2,500

2

2,000

1.5

1,500
1

1,000

0.5

500
0

per 1,000 people

current US$

per capita

0Indonesia Malaysia Philippines Singapore Thailand

Vietnam

Physicians (per 1,000 people)
Hospital beds (per 1,000 people)
Health expenditure per capita (current US$)

Note: Health expenditure per capita is based on 2014 data, while physician and hospital bed
data are based on the latest year available.
Source: World Bank, World Development Indicators.

The ambitious target of providing healthcare coverage to all Indonesians will inevitably
place enormous strain on the healthcare service provision infrastructure. The lack of readinessof local infrastructure to handle large patient volumes may result in long waiting times andpoor quality of care for patients. Hence, ensuring a functioning health service infrastructure
and improving the quality of care are keys to expanding membership and fulfilling thepromised benefits to all Indonesians.
All in all, the government has acted upon the SJSN Law to provide mechanisms toextend social security coverage for informal workers. Unlike the previous initiatives which
ran on a small scale, for short-term periods and/or on a voluntary basis, Perpres No. 19/2016
stipulated compulsory enrollment for informal workers. The contributions and benefits are39already formulated and widely publicized. What is still lacking is a strategy to entice
participation by non-poor informal workers. Assuming that informal workers will react
positively to an arrangement mostly suited to formal workers may not succeed in meeting theambitious target of achieving universal coverage. It remains to be seen whether there will becreative initiatives down the road to ensure increased participation by informal workers.
Additionally, the government has to ensure the financial sustainability of social security
programs and continuously address the existing chronic undersupply of healthcare
infrastructure while aiming to also deliver quality healthcare services.

4. Conclusion and Policy Implications
Progress is being made toward inclusivity in social security coverage in Indonesia. In
the past, the social security system was fragmented, aggravating the ‘missing middle’
problem and leaving a significant proportion of the population unprotected. Starting in 2014,
Indonesia began to unify its social security system and set an explicit target of extending
coverage to the economy’s sizeable population of informal workers. Unlike the previous
attempt, the new SJSN Law enforces mandatory enrollment on not only formal workers, butalso informal workers. However, challenges remain in its implementation, given the extensive
proportion of informal workers in Indonesia (hovering around 60% of total workforce), who
are scattered around the vast territory of Indonesia’s archipelago.
For Indonesia to stay on track in its journey to expand the coverage of its social security
system, efforts should be made to devise effective mechanisms to reach out to informal
workers. It is essential to increase awareness of social protection options by deploying
comprehensive social marketing strategies and making continuous efforts to develop
communication tools that match preferred information channels for non-members. BPJS
should also utilize existing local and community organizations as well as workers’
associations, not only to disseminate information, but also to establish joint partnerships toassist in premium collection. Mechanisms for payment should also consider the irregularityof earnings among informal workers.
Local governments can also be involved in increasing the enrollment of informal
workers, as seen in Solo’s innovative policy (ILO 2010). The city is committed to integrating
the activities of thousands of street vendors into city management, thereby formalizing thestatus of these informal businesses. The local government also facilitated access to social
security, then under Jamsostek, and provided subsidies to workers to cover the first fivemonths’ premiums. The local government also assisted in the establishment of informal
worker associations to facilitate premium collection. Given Indonesia’s decentralized40

government structure, active involvement of local government can do more to accelerate
uptake among informal workers, making universal access to social security programs inIndonesia an achievable task.
Further improvement in ensuring supply-side readiness is crucial, in order to convince
existing and potential members of the benefits of enrolling in the system. Quality of care andservices is as important as ensuring the availability of hard infrastructure to accommodate theincreased number of people accessing health services, given that Indonesia is vying foruniversal health coverage by 2019.
Going forward, the current system has to be financially sustainable. As mentioned
previously, BPJS Health has suffered financial losses since its establishment and required
injections from central government coffers. More effective and efficient administration ofenrollment, premium collection, and management of registered health facilities under the
BPJS program should be in place, along with extensive public awareness and outreach topromote healthy lifestyles. This is relevant as the percentage of deaths from noncommunicable diseases has increased in Indonesia, from 50.7% of total deaths in 2004 to
71% in 2014 (Bloom et al. 2015). The leading causes of deaths include cardiovascular disease,cancer, chronic respiratory disease, and diabetes, which undoubtedly require longer and more
expensive treatments, putting further financial strain on BPJS Health schemes.
The success of recent social security reform in Indonesia hinges upon the government’s
ability to address the challenges faced by the current system. Making the final stride to extend
protection to informal workers remains the most challenging part of the journey towardachieving universal coverage, as also experienced by other economies. Indonesia can tap into
other economies’ experiences of managing their social security programs, and learn fromtheir innovative approaches to identify what works and does not work. It is also an area whereinternational cooperation can play a part in providing technical assistance, for instance, or
sharing best practices that reflect experiences. This will provide significant stimulus forIndonesia as it pursues the audacious launch of much-needed reform and sets ambitious
targets aiming for coverage for all.

41

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