Health Insurance in Nigeria

‘An apple a day keeps the doctor away.’

In the Nigerian context, the doctor is the failing health system and all its woes.

Health financing is one of the components that make up the health system, and how well it
works directly affects the performance of the system as a whole. However, the poor
functioning of the Nigerian health financing building block, characterized by low public
spending, extremely high levels of out-of-pocket spending (among the highest in the world),
a high incidence of catastrophic health spending, and impoverishment due to healthcare
expenditure, is a persistent and significant weakness of the nation's health system. Hence,
the need for health insurance.

Health insurance is a binding agreement that commits an insurer to cover all or a fraction of
a person’s healthcare expenses in return for a premium. Health insurance can either pay the
healthcare provider directly or compensate the insured for costs related to illness or injury.
It is usually included in the employee package as a means to entice quality employees with
premiums partly covered by the company and regularly withdrawn from employees'
paychecks.

In Nigeria, the major health financing mechanisms are:

- Direct out-of-pocket payments (OOPP)

- Government budget
- Donor funding
- Formal sector social health insurance program (FSSHIP)
- Community-based health insurance

1. Direct out-of-pocket payments (OOP)

This is the predominant system of health financing in Nigeria. Healthcare consumers

independently purchase health services and pay at utilization. User fees and direct payment
for healthcare services which are forms of OOP health payments.
That is, they pay for their health care through personal funding. This method has been
unanimously agreed to be the most inefficient form of health financing due to its
catastrophic effects on healthcare spending and exacerbating poverty levels. The quality of
service is determined by the ability to pay; the higher the fees the higher, the quality of
service. People who live below the poverty line often do not use healthcare services
because they can’t afford it. The financial burden of OOP on the standard of living cannot be
overemphasized. The saying, “You are one sickness away from poverty” especially rings
true. It is paramount to revamp other sustainable forms of health financing.

2. Government Budget

The government is required to allocate at least 1% of the Consolidated Revenue Fund (CRF)
to the Basic Healthcare Provision Fund as mandated by the 2014 National Health Act. This is
targeted at the financial management of primary healthcare in Nigeria to give low-income
and vulnerable Nigerians, especially in underserved communities, a bare minimum package
of health services.

The budget allocation for the health sector in the 2023 budget is N1.56 trillion of the total
FGN budget. While this is an increase from the N826.9 billion provided in 2022 and N547
billion in 2021, only 8% of the total budget is allocated to health despite the commitment
made by African leaders under the Abuja Declaration to allocate at least 15% of total
spending to the health sector.

This method of health financing is inefficient due to oversight of priority areas such as
primary and secondary care levels which have the highest disease burden and receive lower
funding compared to tertiary hospitals. The quality of care is typically subpar based on
availability of drugs & skilled health workers, infrastructure, waiting times, and the attitude
of health workers toward clients.

3. Donor Funding

One of the main sources of funding for public health financing and population-based
initiatives in Nigeria is development assistance for health (DAH), which is provided by
bilateral and multilateral organizations and foundations. In this method of financing health
care, NGOs and international organizations like the WHO, the World Bank, UNICEF, Save the
Children, and Global Fund, among others, provide financial aid. It is efficient in its employ of
cost-saving mechanisms and inefficient in its mismanagement due to the government’s lack
of coordination. Monitoring the flow of money is difficult as well. The quality of service is
considered to be high because donors give technical assistance for implementation through
training, supportive monitoring of health workers, and the distribution of service delivery
guidelines. Additionally, good-quality health items are purchased directly from
manufacturers. It has lowered damaging OOP payments for the beneficiaries.

4. Formal sector social health insurance program (FSSHIP)

The Formal Sector Social Health Insurance Programme, which is run and managed by the
NHIS, is a social health security system in which the health care of employees in the formal
sector is paid for from funds created by pooling the contributions of employees and
employers; 10% from employers and 5% from an employee of basic salary.

Although the FSSHIP pool has provided NHIS with efficiency gains totaling several billions of
Naira over the years, the plan is deemed ineffective. This is because only the federal
government, and the employer, are making contributions. Employees who have signed up
haven't yet started making contributions. On a different side, HMOs are faced with a
disincentive to authorize referrals from primary to secondary level care when needed by
subscribers because unspent fee-for-service funds for beneficiaries could be lawfully held by
HMOs.

5. Community-based health insurance

This insurance model offers households, communities, low-income individuals, and the
informal sector the chance to mobilize funds for covering all or a portion of their healthcare
expenses. It is run and maintained by chosen members of the community or non-
governmental groups. It is supported by low-income people's or households' premium
payments, occasionally supplemented by government and donor agency grants. In this
arrangement, subsidies are frequently needed to make premium payments easier for the
underprivileged and other vulnerable populations. Although subsidies are provided, they are
not sustainable thereby excluding the underprivileged who cannot afford the premium.
Consequently, there is a perception of low quality of care; limited financial risk protection of
beneficiaries, limited benefit package, and a tendency to go bankrupt due to adverse risk
selection.

It is glaringly obvious that the worst form of health financing is out-of-pocket payment
(OOP). Nigerians simply cannot afford to continue paying for health services from their
personal income due to its catastrophic effect on standards of living. There is an urgent
need to sensitize people on the different health insurance options available and why
enrolment is important; advocate for innovative and sustainable health financing, and
strengthen current health financing schemes through policy and health system reforms.