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  • Name: THE IMPACT OF HEALTH CARE FINANCING ON NIGERIAN ECONOMIC GROWTH
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ABSTRACT

The way a country finances its health care system is a key determinant of the health of its citizenry. Selection of an adequate and efficient method(s) of financing in addition to organizational delivery structure for health services is essential if a country is set to achieve its national health objective of providing health for all. Health care in Nigeria is financed by tax revenue, out-of-pocket payments, donor funding, and health insurance (social and community). However, achieving successful health care financing system continues to be a challenge in Nigeria. This article examines the different financing mechanisms that have been used in Nigeria, including the National Primary Health Care Development Fund proposed for increasing the resource allocation to primary health care. It draws on available and relevant literature to provide an overview and the state of public health care financing in Nigeria. This article concludes by recommending the need for Nigeria to explore and strengthen other mechanisms of health system and shift focus from out-of-pocket payments, address the issues that have undermined public health care financing in Nigeria, improve on evidence-based planning, and prompt implementation of the National Health Bill when signed into law.

Keywords: Health care financing, Nigeria, Economic growth

 

CHAPTER ONE

INTRODUCTION

 

The first wealth of a nation is its health. There is empirical evidence that the health of a nation significantly enhances its economic development, and vice versa. HIV/AIDS, maternal mortality, under-5 mortality, malaria, and tuberculosis have undermined development and impoverished many developing nations such as Nigeria. Nonetheless, it has been enunciated that the pursuit of better health should not await an improved economy; rather measures to improve health will themselves contribute to economic growth. The way a country finances its health care system is a key determinant of the health of its citizenry. Selection of an adequate and efficient method(s) of financing in addition to organizational delivery structure for health services is essential if a country is set to achieve its national health objective of providing health for all.

A health care financing system involves the means in which funds are generated, allocated, and utilized for health care. It has three basic functions of collecting revenues, pooling resources, and purchasing services. The commonly used mechanisms for implementing these functions include tax-based financing, out-of-pocket payments, donor funding, and health insurance (social and private). These methods are not mutually exclusive. In fact, most health systems adopt a mixture of various methods. The success of the different health financing methods can be measured by the overall effect on equity of access and health outcomes, revenue generation and efficiency, and the effects on user behavior and provider.

The Nigerian Health Care Financing System  

 

The organization of health services in Nigeria is complex. It includes a wide range of providers in both the public and private sectors (private for profit providers, non-governmental organizations, community-based organizations, religious and traditional care providers). In the public sectors, Nigeria operates a decentralized health system run by the Federal Ministry of Health (FMOH), State Ministry of Health (SMOH), and Local Government Health Department (LGHD). The FMOH is the overall health policy formulating body. It coordinates and supervises the activities of the other levels. In addition, it provides tertiary care through teaching hospitals and federal medical centers. The SMOHs provide secondary care through the state hospitals and comprehensive health centers while LGHDs provide primary health care (PHC) services through the primary health centres. Although the local governments have the main responsibility of managing the PHC, all the three tiers of government and various agencies participate in the management of the PHC. This at times results in duplication, overlap, and confusion of roles and responsibilities.

Health care in Nigeria is financed by a combination of tax revenue, out-of-pocket payments, donor funding, and health insurance (social and community). Nigeria’s health expenditure is relatively low, even when compared with other African countries. The total health expenditure (THE) as percentage of the gross domestic product (GDP) from 1998 to 2000 was less than 5%, falling behind THE/GDP ratio in other developing countries such as Kenya (5.3%), Zambia (6.2%), Tanzania (6.8%), Malawi (7.2%), and South Africa (7.5%).

Achieving a successful health care financing system continues to be a challenge in Nigeria. Limited institutional capacity, corruption, unstable economic, and political context have been identified as factors why some mechanisms of financing health care have not worked effectively.

A.      Tax Revenue

Health financing systems where government revenues are the main source of health care expenditure are referred to as tax-based systems. Funds are usually generated through taxation or other government revenues. Although the Nigerian government generates revenue through taxation, the bulk of the revenue is derived from the sale of oil and gas. Revenues are raised at the federal, state, or local government levels. However, the federally generated revenue which is shared according to a formula forms the majority of the funds for the other tiers of government. The states and local governments being closer to PHC are expected to provide adequate funding for PHC, but owing to their low internal revenue generation capacities, most of them still largely depend on the allocation from the federal government.
The total government health expenditure as a proportion was estimated as 18.69% in 2003, 26.40% in 2004, and 26.02% in 2005. Remarkably, the federal budgetary component of health expenditure has increased over the years. It increased from 1.7% in 1991 to 7.2% in 2007.

 

  1. Out-of-Pocket Payments

    This involves payment for health care at the point of service. The charges levied for health care services are referred to as user fees. The scope of user fees is quite variable and can include any combination of drug costs, medical material costs, entrance fees, and consultation fees. Out-of-pockets account for the highest proportion of health expenditure in Nigeria. Out-of-pocket expenditure as a proportion of an averaged 64.59% total health expenditure (THE) from 1998 to 2002. In 2003, it accounted for 74% total health expenditure (THE). It decreased to 66% in 2004 and later increased to 68% in 2005. This implies that households bear the highest burden of health expenditure in Nigeria.

    User fee was introduced by the Nigerian government in 1998 under the Bamako Initiative which advocated for cost sharing and community participation to increase the sustainability and quality of health care. It was proposed that user fee will increase the resources available for health care and improve efficiency as well as equity to health care. The available evidence on the impact of user fees is equivocal. Hitherto, the bone of contention is to retain or remove user fee?

    The issue of user fee in Nigeria has attracted scholars; however, there is dearth of information on the effect of user fee on revenue generation, health care seeking behaviour, access to care, efficiency, and utilization of services in Nigeria. Ogunbekun et al. reported that without accompanying visible quality improvement, user fees will result in lower utilization of health care services. A study that evaluated the effect of user fee on availability of drugs reported that user fee has not lead to increased drug availability. However, another study reported a better availability of drugs with the rider that it had given rise to excessive drug prescription. Negative effects have also been reported on the impact of user fees on health seeking behavior and equity. In a study by Uneke et al., it was reported that majority of study participants would prefer paying user fees if they are affordable and would guarantee efficient and quality service. However, it should be noted that the willingness to pay does not translate to ability to pay. The ability to pay might require poor household sacrificing their longer term economic well-being. This is referred to as catastrophic health expenditure and this has been shown to be high in Nigeria. The use of waivers and/or exemptions in Nigeria has also been suggested, but the implementation of waiver and exemption is fraught with challenges that have made it ineffective in many settings. Such difficulties include identification of eligible poor, limited administrative capacity, willingness of the health workers in enforcement of the guidelines, and inconsistencies in granting of exemptions.

    James et al. concluded that abolishing user fees may not be appropriate in all contexts, nonetheless, in settings where it has been shown to have had limited benefits, removal should undoubtedly be a favorable policy options. User fees have been removed by the federal government and some states for the treatment of malaria in the under-5s and pregnant women.

    C. Social Health Insurance

    Social Health Insurance (SHI) is a system of financing health care through contributions to an insurance fund that operates within a tight framework of government regulations. It is a form of mandatory insurance scheme (normally on a national scale). It provides a pool of funds to cover the cost of health care and it also has a social equity function which eliminates barriers to obtaining health care services at the time of need especially for the vulnerable groups. In SHI, every citizen is required to make contributions. Governments may contribute on behalf of the poorest and the unemployed; employers also usually contribute on behalf of their employees. The Nigerian government established the National Health Insurance Scheme (NHIS) under Act 35 of 1999 with the aim of improving access to health care and reducing the financial burden of out-of-pocket payment for health care services. The NHIS became fully operational in 2005.

    The NHIS is organized into the following social health insurance programme (SHIPs): Formal Sector; Urban Self-employed; Rural Community; Children Under-Five; Permanently Disabled Persons; Prison Inmates; Tertiary Institutions and Voluntary Participants; and Armed Forces, Police and other Uniformed Services. It is only the formal sector SHIP that is currently operational. Membership with the formal sector SHIP is mandatory for federal government employees and about 90% coverage has been achieved. The formal sector SHIP is presently extending to include all state and local government employees with Bauchi and Cross River having achieved full coverage.

    There has been a lag in the expansion of NHIS to achieve a considerable coverage since it became operational. A World Bank survey in 2008 reported that about 0.8% of the population was covered by NHIS. This has attracted a lot of censure since many people are left out and not benefiting from it. The act that set up the NHIS makes it optional, and this has been pointed out to be one of the reasons many Nigerians are not benefiting from it. The NHIS is focused on making the scheme mandatory for every Nigerian and aims to get every Nigerian enlisted by December 2015. Other factors such as poor medical facilities, shortage of medical personal, lack of awareness, and poor funding have been identified as challenges that affect the efficacy of NHIS in Nigeria. Various stakeholders have also raised issues about the potential mismanagement and bureaucracy that may affect the scheme.

  2. Community-Based Health Insurance

    Community-Based Health Insurance (CBHI) is a form of private health insurance whereby individuals, families, or community groups finance or co-finance costs of health services. Other forms of private health insurance include non-profit and for-profit plans. Usually, private health insurance is voluntary compared with SHI schemes which tend to be mandatory.

    CBHI is designed for people living in the rural area and people in the informal sector who cannot get adequate public, private, or employer-sponsored insurance. It usually involves some form of community involvement in their management. The effects of CBHI on equity, the quality, and efficiency health services are still ambiguous. It has been shown that even when charges are small, the very poor are unable to enrol. Thus, the existing inequalities may be worsened, since the less poor people are more likely to enrol and have improved access to care and financial protection.

    The Nigerian government intends to use CBHI to cover people employed in the informal sector and in the rural area. CBHI was piloted and introduced in Anambra State in 2003. However, since the change in government in 2005, the scheme has been dormant owing to the diminished support and interest by the new government. A study that evaluated the impact of the Anambra community health care financing scheme in one of the communities on maternal health services reported that the scheme was highly accepted and it provided adequate funds for maternal health services for a great proportion of the rural communities. CBHI has also been introduced in Lagos and Kwara state.

    Designing, implementing, managing, and especially sustaining CBHI are complex. It requires a strong intuitional capacity, technical expertise, and management skills. These challenges could limit the success of the scheme in Nigeria. Low enrolment rates greatly undermine the sustainability of CBHI. It is an important limiting factor and it has been reported in studies that evaluated willingness to pay for CBHI. Enrolment is affected by factors such as trust by the community in the organizer or manager of the scheme, attractiveness of the benefit package, affordability of the premium, and the quality of the health care. To improve enrolment in Nigeria, the adoption of a sliding scale of premiums, such that financial contributions are set according to ability to pay has been suggested. Atugbe et al. also reported that if varied forms of payment are allowed, such that households can choose to make contributions in whatever forms of payment they could afford, enrolment rate will be increased. There is also need for awareness-raising, essentially in the rural areas and finally, government funding support has also been advocated to ensure the financial viability of CBHI in Nigeria.

    E. Donor Funding

    This refers to financial assistance given to developing countries to support socioeconomic and health development. Financial assistance to Nigeria has not been tremendous. De facto, it witnessed a declining trend before the return of the democratic governance in 1999.

    The annual average official development assistance inflow from 1999 to 2007 was estimated at US$ 2.335 and US$4.674 per capita, respectively. These figures are way below the Sub-Saharan African average of US$28 per capita (7.57). The contribution of development aid to health care financing in Nigeria was estimated as N27.87 billion (4% of THE) in 2003. This increased by 29% to N36.04 billion (4.6% of THE) in 2004 and by just 1% to N36.30 billion (4% of THE) in 2005. Although the international assistance to the Nigerian health sector is increasing, it still accounts for a small proportion of public health expenditures.

    The major challenges in Nigeria with donor funding are effective coordination of the funds and tracking donor resource flow. The National Planning Commission coordinates the use of financial assistance to Nigeria. At the state and local government levels, the State Planning Commission or State Ministry of Finance coordinates the use of financial assistance and provides a link between the LGAs and the federal government. The states vary in their capacities to effectively coordinate development aid. Other challenges with donor funding in Nigeria include the following:

  • High cost of technical assistance,
  • Donor-driven approach to aid delivery,
  • Proliferation of aid agencies,
  • Uneven spread of donors’ activities,
  • Institutional weaknesses, and
  • Problem of counterpart funding.

    The subject of aid effectiveness has largely been debated and its macroeconomic impact has also raised concerns, nonetheless, it still remains an important health financing mechanisms for developing countries such as Nigeria.

F.National PHC Development Fund  

PHC is the cornerstone of the Nigerian health system. However, in the last decades it has been in shambles, with its dismal state having a direct consequence on the overall performance of the health system. Poor financing has been highly labeled has one of the problems on PHC in Nigeria. Thus, addressing the perennial underfunding that has stifled PHC is high on the policy agenda as evident by the NPHCDF proposed in the recently passed national health bill.

NPHCDF is a pool of fund set aside for primary health care, with guidelines on how the funds should be allocated. The fund aims to pool resources from the government, international donor, and private sectors. The fund will be allotted for provision of basic minimum package of health services through the NHIS (50%); provision of essential drugs for primary health care (25%); the provision and maintenance of facilities, equipment, and transport (15%); and development of Human Resources for Primary Health Care (10%). It will be disbursed by the NPHCDA through state primary health care boards for distribution to local government health authorities on the basis of commitment and adherence to the provision of the act that set up the development fund.

NPHCDF if established would liberate PHC from the recurrent problem of underfunding and consolidate the efforts toward improving health care services in Nigeria. This fund should also improve the public-private partnerships to mobilize funds for health care in Nigeria. With the establishment of the fund, foreign aids could be paid into this fund and disbursed centrally thus addressing issue of national priority in contrast to the current situation where the three tiers of government get grants independently from foreign donor for different priorities that do not align with national priorities.

The Nigerian Health Sector

The Nigerian health sector operates as a decentralised healthcare system. It is structured along the political tiers of governance each of which is semi-autonomous. It includes the Federal Ministry of Health (FMOH), States’ Ministries of Health (SMOH) and Local Governments’ Health Departments (LGHD). At present there are 36 SMOHs and 774 LGHDs. The FMOH is supposed to formulate national healthcare policies and co-ordinate the healthcare activities of the other tiers of government, and manage specialised tertiary healthcare institutions. Unfortunately, the co-ordinating role of the FMOH is hardly ever played in reality because the different SMOHs claim autonomy and formulate their own policies and execute their own programmes. Roles are also often confused because the FMOH gets involved in roles that are strictly the responsibilities of the SMOHs and the LGHDs. For example, the FMOH is involved in Primary Healthcare which is constitutionally the role of LGHDs. The SMOHs also get involved in running and managing tertiary healthcare institutions in addition to curative and preventive healthcare. The inevitable consequence is a healthcare system that fails to care for the health of the population.

Decentralisation efforts in the 1970s led to the creation of ‘health management boards (HMBs)’ in each state to oversee the management of state hospitals. Attempts were made to create district health boards (DHBs) but they had little impact. This was perhaps, as Ogunbekun notes, due to the fact that the DHBs control meagre resources. The SMOHs also provide technical assistance to the LGHDs. From the point of view of public healthcare delivery, the organisational structure largely conforms to the constitutional principles of autonomy of federating units. It enables each level of government to identify its health priorities and pursue them with minimal intervention from the other levels and it defeats the very purpose of co-ordination.

Alongside the public healthcare system is a free private healthcare market. This is a very important aspect of the national healthcare system organised around the private medical market or for-profit healthcare providers. Most of these are curative-based. They range from drug retail outlets and drugstores to private clinics, maternity homes and specialist hospitals. The ease of access to these private healthcare providers has created a booming private healthcare market that accounts for about 70 to 80 per cent of healthcare options/facilities in the country. But it also creates the problem of quality control and, with the information asymmetries that characterise the healthcare market, a powerful retailer market.

The funding of social services, particularly since the 1980s, has been very low. For example, healthcare spending averaged a mere 1.9 per cent of the total federal government expenditure in the 1980s (Ogunbekun 1991). Government healthcare funding is only about 0.2 per cent of GDP (UNDP 2000). This amounts to $ 2 per capita as healthcare subsidy whereas healthcare expenditure per capita is $ 15. In other words, the government is responsible for only about 13 per cent of the entire healthcare expenditure in the economy. This implies that social safety nets for the less advantaged members of the society are virtually non-existent.

Following the Bamako Initiative of 1986 and since the Structural Adjustment Programme (SAP) of the same year, the policy of user charges and cost recovery guided the operations of the public healthcare sector. Other forms of healthcare financing and third-party intervention such as social and private healthcare insurances are virtually non-existent. Thus, in spite of the generally accepted fact of market failure in this sector, the healthcare market in Nigeria is determined more by the price system than any other consideration.

The failure to coordinate among the tiers of the public healthcare sector is a characteristic of the private sector. As Lambo (2003) notes, the Nigerian healthcare system is fragmented and uncoordinated. There is an apparent disconnect between the federal, state and private sector healthcare efforts and there is no effective framework for public-private partnership, Information from the private sector is ignored by the system, thus making comprehensive planning difficult. The referral system is also poor.

The picture that emerges from this characterisation of the Nigerian socioeconomic environment is the failure of the existing policy framework to guarantee improvement in social welfare. Poverty is increasing and the health of the population is failing. Available health indicators show that child mortality is about 140 per 1000. Maternal mortality is 800/100,000 and life expectancy is about 51. Income-related barriers make access to healthcare services difficult for most households. All these shortcomings have coalesced into a system of healthcare financing that demands more from the average household than it can afford.

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