ADB BRIEFS
NO. 46
NOVEMBER
2015
KEY POINTS
• The right to social security
for all is enshrined in the
Constitution since 2002.
However, the social security
system has had limited
coverage, especially of the poor
and the informal sector.
• In 2004, the SJSN Law
mandated the extension
of social security coverage
to the entire population. In
2011, the BPJS Law stipulated
two administrative bodies
to implement social security
programs. BPJS Health became
effective in 2014, and BPJS
Employment in July 2015.
• Over the last decade, ADB has
facilitated social security reform
through support for developing
laws and regulations, design of the health and pension, old-age savings, and death
benefit programs, and
analysis for improving fiscal
sustainability of the reform.
• Social security reform is a
long-term and ongoing process.
The government has made
significant progress, but there
are several challenges to be
addressed—e.g., increasing
informal sector participation;
improved fiscal and financial
management; and integrated
M&E systems.
SOCIAL PROTECTION BRIEF
Social Security Reform
and Economic Modeling
Capacity Building in Indonesia
Poverty and Vulnerability in Indonesia
Since 1999, economic growth and the rise of the services sector in urban areas have
contributed to reducing poverty in Indonesia.1 While official poverty is relatively low at
12% (30 million persons), an additional 27% of the population (65 million persons) live
just above the poverty line and small shocks can drive them back into poverty.2 These
poor and vulnerable people face high food price risks (especially for rice); are highly
exposed to health shocks; and are either unemployed or employed in low-skilled, lowproductivity sectors.3 However, many individuals, mostly in the vulnerable category, have
inadequate or no access to social protection services.
Social Security Reform in Indonesia
Since its amendment in 2002, the Indonesian Constitution has recognized the right
to social security for all, and the responsibility of the state in the development of social
security. However, the social security system has had limited coverage, covering only
12% of the total workforce. In particular, coverage for the poor and the informal sector
has been limited. In the last decade, progress towards a more comprehensive provision
of social security coverage has been taking place. An important milestone was the
introduction of Law No. 40 on National Social Security System (SJSN Law) in 2004.
The law mandated the extension of social security coverage to the entire population
in the categories of health, work injury, old age, and death of the breadwinner. Building
on the SJSN Law, Law No. 24 regarding Social Security Administrators (BPJS Law)
was introduced in 2011. Law No. 24 is crucial as it provides a regulatory foundation for
the establishment of two new national social security agencies on health and pension,
whereby BPJS Health will administer health care benefits; BPJS Employment will
administer employment benefits, including old-age, pension, workplace accident, and
Between 1999 and 2012, poverty in Indonesia was halved from 24% to 12%.
Over half of the poor each year are not poor the year before, and one-fourth of all Indonesians are in
poverty at least once in a 3-year period.
3
The vulnerable are those individuals with consumption expenditure 1.0 to 1.5 times the poverty line.
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2
ISBN 978-92-9257-216-7 (Print)
ISBN 978-92-9257-217-4 (e-ISBN)
ISSN 2071-7202 (Print)
ISSN 2218-2675 (e-ISSN)
Publication Stock No. ABF157744
ADB BRIEFS NO. 46
death benefits. The BPJS Law also improves the legal and financial
structure of the social security system by legally separating the
assets of the administrators from the assets of the social security
funds that they manage. BPJS Health became effective in 2014,
while BPJS Employment started in July 2015.
The Project
Since 2002, the Asian Development Bank (ADB) has supported
social security reform in Indonesia through technical assistance
(TA) and program support.4 In December 2008, ADB approved
a TA to enhance government’s implementation of social security
reform and macroeconomic monitoring capacity.5 The key
expected outputs are: (i) final design of the social security system,
including contribution and benefit structure, and support for
key implementation aspects of the system; (ii) capacity building
support to the Risk Management Unit (RMU) to enhance
capacity in analyzing fiscal implications and economy-wide
effects of alternative social security reform options; and (iii)
support for the government’s initiative to enhance its economic
monitoring system to anticipate shocks that could have significant
poverty, macroeconomic, and fiscal implications.6 The executing
agency is the Fiscal Policy Office of the Ministry of Finance. The
Directorate of Social Protection and Welfare of the Ministry of
National Development Planning (BAPPENAS) was added as the
implementing agency in 2013. All TA activities were completed by
April 2014.
Key Achievements
The TA provided support in designing the universal basic coverage
for health and pension, old age saving, and death benefit programs;
as well as in developing the implementation plans. A white paper
on social security reform was produced under the TA, which helped
the government in developing the BPJS Law. A modified macrofiscal economic model was produced, which is being used by the
Fiscal Policy Office in the national budget process and to produce
macroeconomic forecasts. The TA also produced an actuarial
model that helped the Ministry of Finance in calculating premium
benefits for national health insurance (NHI) and produced an
analysis on monitoring the sustainability of NHI’s finances. Other
notable models included a regional economic model that is being
used to examine the linkages between local economies to the
national economy; and a microsimulation model on the impact
of NHI on poverty, which is useful in assisting government in
discussions with stakeholders. In addition to modeling and policy
assistance, the TA financed nine capacity building workshops and
trainings.
Recommendations and Follow-on
Actions
Social security reform in Indonesia is a long-term and ongoing
process. The government has made significant progress in
implementing ambitious reforms, but there are several challenges
to be addressed. First, transformation of PT Jamsostek and PT
Askes into BPJS Employment and BPJS Health requires significant
changes in legal, governance, organizational structure, human
resources and skills, business processes, and information and
technology systems. Second, fiscal sustainability of reforms requires
setting appropriate benefit levels; sound fiscal risk analysis and
management; as well as better collection mechanisms, especially
from workers in the informal sector. Third, strong supervision and
control of BPJS operations is needed to prevent corruption and
fraud, ensure sound financial management, and control operational
expenses. Fourth, integrated systems and operations for the
two BPJS are also needed. For example, it will be very inefficient
and costly if the two BPJS were to separately issue identification
numbers and collect contributions from the same participants.
ADB is responding to some of the aforementioned challenges
through another ongoing TA that is helping government assess
the financial viability of the two BPJS bodies, prepare actuarial
projections, and improve the scope of coverage and fiscal
sustainability of the reforms.7 The TA is also supporting the
development of new business processes and procedures for the two
BPJS.
Given the scale of social security reforms, further technical
assistance is needed, especially for fiscal and financial sustainability
analysis of the National Pension Fund. Also, support is needed to
develop an integrated and comprehensive national monitoring and
evaluation system for NHI.8
ADB. 2005. Report and Recommendation of the President to the Board of Directors: Proposed Loans and Technical Assistance Grant to the Republic of Indonesia
for Local Government Finance and Governance Reform Sector Development Program. Manila; ADB. 2008. Report and Recommendation of the President: Proposed
Program Cluster and Loan for Subprogram I to the Republic of Indonesia for the Second Local Government Finance and Governance Reform Program. Manila.
5
ADB. 2008. Technical Assistance to Indonesia for Social Security Reform and Economic Modeling Capacity Building. Manila (TA 7204-INO).
6
A brief on the project was released in April 2011 (ADB. 2011. Reforming the Social Security System in Indonesia. http://www.adb.org/sites/default/files/
publication/28596/ino-social-security-reform.pdf
7
ADB. 2012. Technical Assistance to Indonesia for Fiscal Aspect of Social Security Reform. Manila (TA 8202-INO).
8
The initial monitoring and evaluation workshop for NHI was conducted in March 2014 under TA 7204.
4
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About the Asian Development Bank
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Brief prepared by ADB Social Protection Team
Andaleeb Alam
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