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Indonesia is weeks away from implementing the first stage in its long awaited overhaul of the social security system. Following a landmark amendment to the constitution in 2004 stipulating that all workers and their dependents are entitled to health and employment benefits, the government is on the precipice of enacting changes to the organisational structure of state owned enterprises currently responsible for overseeing the allocation of insurance. With this transformation comes new regulations that have a significant bearing upon the business climate, including changes to the premium paid to the insurer, newly imposed cost structures that determine which party bears the burden of financing as well as mandatory registration for all companies in Indonesia, amongst others. With implementation fast approaching and in anticipation of presidential decrees that elucidate upon specific details yet to be announced to the public, businesses face the crucial challenge of making the necessary preparations for their employees despite the ongoing uncertainty.
Indonesia’s reform process centres on the consolidation of the four existing state owned companies into two non-profit public entities, BPJS I and BPJS II – as is detailed in the 2011 Law on Social Security Providers (BPJS). PT Askes, previously tasked with providing health care for civil servants and supervised by three different ministries, will become BPJS Kesehatan (otherwise known as BPJS I). This organisation will report directly to the president and as of 1st January 2014, is responsible for managing health insurance for existing participants currently covered by a healthcare program from Askes, Jamsostek or Jamkesmas. As of 1st January 2019, BPJS Kesehatan is to manage health insurance for all workers including those currently covered by a private health insurance company.
PT Jamsostek, previously in charge of providing both healthcare and employment benefits to private sector employees, will transform into BPJS Ketenagakerjaan (BPJS II). Also reporting directly to the president, this organisation is to manage workplace accident insurance, old age benefits and death insurance for individuals currently participating in a Jamsostek scheme starting on 1st January 2014.
The most significant change involving BPJS II comes into effect on 1st July 2015, when the public entity is projected to manage its existing programs for all citizens as well as introduce a mandatory pension system whereby contributions are likely to be paid by employer to BPJS Ketenagakerjaan. Further information on the size of these contributions is to be disseminated upon the implementation of regulations scheduled to take place prior to the end of this year. Publications released by Jamsostek, however, have speculated that the government is targeting a contribution rate of 8% of payroll.
Companies in Indonesia must be aware that the new social security regulations driving this reform process necessitate several significant changes to the obligations of an employer in obtaining coverage for their employees. Based upon one of the few regulations already put in place, Presidential Decree No.12/ 2013 Concerning Health Care Benefits, companies are now required by law to register their employees for BPJS I’s healthcare program. Companies currently participating in Jamsostek’s healthcare program must carry out this course of action in the immediate aftermath of BPJS I’s first transformation phase on 1st January 2014. The specific nuances of the BPJS I registration process have not yet been released to the public, though it is expected that it will not differ dramatically from the existing process used by Jamsostek; which makes available an online registration portal for employers and employees alike.
Under the previous law, companies could opt out of Jamsostek’s healthcare program in favour of more comprehensive private insurance schemes. This will no longer be the case. As of 1st January 2019, companies covering employees via private healthcare programs will also need to register for BPJS I.
This however, does not entail employers having to completely cancel their participation in private insurance schemes; Presidential Decree No.12/2013 also stipulates that employers can seek out an additional health insurance program if it is deemed necessary for them to obtain medical benefits not offered by BPJS I such as access to healthcare facilities not affiliated with BPJS. In theory, BPJS I is supposed to coordinate with private insurance providers to prevent overlapping healthcare costs but employers are advised to take a proactive approach in making sure that their private insurance program and the soon to be mandatory BPJS I program do not charge for identical services (PricewaterhouseCoopers).
In short, starting from 1st January 2019 all companies based in Indonesia will be required to pay into basic healthcare provision from BPJS I and are allowed to sign up for more comprehensive private insurance schemes. Because many companies already choose to provide employees with benefits above and beyond the basic services to be covered by BPJS I and are expected to continue to do so, the reform will bring about additional costs to employers in the form of a newly imposed premium paid to BPJS I to finance their universal healthcare program.
The precise size of the employer contribution to the premium is yet to be firmly established, but latest reports from the local media indicate that companies should expect to pay 4% of a worker’s monthly income. Moreover, companies should take steps to inform employees that they are required to contribute 0.5% of their monthly income; given that the current Jamsostek healthcare scheme only requires contributions from employers. It is also necessary to prepare for the likelihood that this premium contribution rate will increase with the introduction of the BPJS II pension scheme in mid-2015. Once again, further information on the specific size of this increase will be released in impending regulations detailing the precise BPJS II implementation process.
Beyond costs brought about by the premium, companies should also expect to incur additional costs if their existing private insurance plan does not extend to include employees’ family members. The introduction of BPJS I mandates that all employees’ legal spouses and children (biological, step or adopted) must receive health insurance via BPJS I, and employers are required to make a yet to be specified contribution. Furthermore, companies need to be conscious of the fact that expatriate employees, including those from the ASEAN region, here for longer than six months will also be required to register for BPJS I’s healthcare program. Previous regulation allowed these individuals to opt out of Jamsostek’s scheme if they were covered by an insurer abroad.
There is no way around the fact that Indonesia’s social security reform will increase costs associated with providing healthcare and employment benefits to workers. However, it is important to be mindful that the rise in costs does not eliminate Indonesia’s competitive advantage in inexpensive labour. As put forth by the president director of Jamsostek, the increase when considered in dollar terms is not steep enough to warrant hesitancy in approaching the country’s many investment opportunities (See Interview with Mr Elvyn G. Masassya of Jamsostek). It is also worth noting that the proposed contribution as a percentage of payroll is relatively low compared to other countries with recently implemented social security systems such as the Philippines, which mandates an employer contribution rate of 7.07%. Moreover, the decision to implement sweeping changes to a currently inadequate social security system builds towards a healthier workforce, which will have a multiplier effect on worker productivity.
With the vast majority of Indonesia’s population under the age of 35, there has never been a more advantageous time to introduce a social security system that now stands to benefit from a consolidating period during which most of the population will be paying into programs but not making claims. This will put the country in good stead for a stable long term future. The new social security system also marks the country’s commitment to becoming a modern economy by providing a social safety net for its citizens as well as taking on responsibility for foreign workers from ASEAN member countries as Indonesia becomes more integrated with its regional neighbours.
With the deadline for companies to register their employees with BPJS Kesehatan (BPJS I) fast approaching, Indonesia’s new government has yet to show any signs of deviating from the ongoing plan to overhaul the social security system. In keeping with the previously described mandate requiring companies to register their employees for BPJS I’s healthcare program soon after its launch on 1st January 2014, businesses in Indonesia have been told to complete the registration process by 1st January 2015. Moreover, this is to include the registration of foreign employees who have resided in the country for more than six months.
Employer contribution for healthcare coverage is as of yet still expected to range between 4-4.5%, while employee contribution is to be set at 0.5% of monthly salary, up to a cap of 4.725 million IDR per month (KPMG). Reports released in light of the government’s current initiatives to better disseminate information regarding the new social security system suggest that contributions to pension are to be set at 8% of salary. 5% of this is to be accounted for by the employer and the remaining 3% by the employee, up to a cap of 16 million IDR per month.
Unlike the previous system wherein companies could opt out of Jamsostek healthcare coverage in favour of private insurance, businesses that cover their staff through private insurance will still need to register for BPJS I coverage. Provisions are in place to allow for them to also offer private insurance as a top up to the services provided by BPJS I. To ensure close coordination with BPJS I, several private insurance companies have taken to collaborating with the state-run organisation in an effort to provide policyholders with a clear understanding of the upgraded services for which they would be eligible for on top of BPJS’ basic coverage. In practice, however, it is expected that small and medium companies whose staff are covered by private insurance will not need to pay for both schemes.
Finally, workers from the informal sector and those that are self-employed can register for healthcare coverage insofar as they are able to present a valid local ID card (Kartu Tanda Penduduk, or KTP).
Global Business Guide Indonesia - 6th December 2013
Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)
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