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Health Care Financing: a Panaccea for Better Health Outcomes and Economic Growth

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Health care financing requires proper, prudent and effective administration of funds to target situations, in order to achieve desired objectives. And if this is done, there will be favourable health outcomes like increased life expectancy, reduced maternal & infant mortality rates, and better health status for the citizenry. It was also found that proper health care financing can lead to economic growth of a nation due to better health reforms through policy formulation and institutional arrangements, bringing about improvement in the functions and performance of the health sector. Two models were derived for this research. In the first model, life expectancy was correlated with total expenditure on health giving a coefficient of determination r2 = 0.957; empirical evidence further showed that health care financing and health outcomes impacts positively on economic growth with a value of r2 = 0.981 which was found to be significant at the 0.05 level of confidence. Salient recommendations were also made based on findings. Keywords: health care financing, health outcomes, economic growth

Chapter One: Introduction Health they say is wealth (and this statement can never be overemphasized). Empirical evidence has shown that the health of a country significantly impacts on its economic growth and vice versa (Atun, 2005). The Federal Government of Nigeria, the State governments, and the local governments are the three tiers of government whose responsibility it is to provide health care for the populace, but healthcare financing has been achieved through private funding, out-of pocket payments, as well as government funding through tax and health insurance (Olakunde, 2012). The federal government also has the added function of coordinating all of the administrative functions concerning healthcare financing, but healthcare financing has all but faced constraints that threaten to defeat its set objectives (Akinlade, n.y.). This paper critically examines the present situation of health care financing as it exists in Nigeria, and the role these three tiers of government have played to bring about the desired objectives of providing health for all the citizens. It also outlines various other sectors of the society which has contributed to healthcare financing. The underlying question is how well has healthcare financing been done in the overall to achieve better health outcome and economic growth for the nation? To answer the above research questions, two hypotheses were developed namely:

Hypothesis One (H01): There is no significant relationship between healthcare financing and health outcome; Hypothesis Two (H02): Healthcare financing and health outcomes do not impact on economic growth. Research Objectives The main objectives of this paper are outlined as follows: 1. To define healthcare financing and identify its various components as it relates to this study; 2. To analyze and thereby throw more light on the present situation of healthcare financing with special emphasis on the roles played by the present government in coordinating health care financing; 3. To identify what relationships exists, if any, between healthcare financing and better health outcomes; 4. To identify the impact of healthcare financing and health outcomes on the economic growth of the nation;

Organisation This paper consists of five chapters which are organized accordingly: Chapter 1 is the introductory chapter where an overview of the study is documented as well as research objectives, research questions and hypotheses; Chapter 2 examines relevant literatures by other scholars on the subject of healthcare financing as it affects health outcomes and economic growth; Chapter 3 clearly states the research design, appropriate research tools and the determinants for the variables and their measurements, as well as sources of data and data type; Chapter 4 presents data and discusses result findings, after the data have been put through relevant test tools; finally Chapter 5 concludes the work and makes salient recommendations.

Chapter Two: Literature Review What is Healthcare Financing? A healthcare financing system involves the means in which funds are generated, allocated, and utilized for health care. It has three basic functions namely: collecting revenues, pooling resources, and purchasing services. (Carrin, G., et al, 2007; Gottret P., et al, 2006). The health care system consists of all personal medical care services— prevention, diagnosis, treatment, and rehabilitation (services to restore function and independence)—plus the institutions and personnel that provide these services and the government, public, and private organizations and agencies that finance service delivery. Components of Healthcare Financing The health care system may be viewed as a complex made up of three interrelated components: people in need of health care services, called health care consumers; people who deliver health care services—the  professionals and practitioners called health care providers; and the systematic arrangements for delivering health care—the public and private agencies that organize, plan, regulate, finance, and coordinate services—called the institutions or organizations of the health care system.

The institutional component includes hospitals, clinics, and home-health agencies; the insurance companies and programs that pay for services like the national health insurance schemes (NHIS), and entitlement programs like Medicare (federal and state government public assistance programs). Other institutions are the professional schools that train students for careers in medical, public health, dental, and allied health professions, such as nursing. Also included are agencies and associations that research and monitor the quality of health care services; license and accreditation providers and institutions; local, state, and national professional societies; and the companies that produce medical technology, equipment, and pharmaceuticals.

Much of the interaction among the three components of the health care system occurs directly between individual health care consumers and providers. Other interactions are indirect and impersonal such as immunization programs or screening to detect disease, performed by public health agencies for whole populations. All health care delivery does, however, depend on interactions among all three components. The ability to benefit from health care depends on an individual’s or group’s ability to gain entry to the health care system. The process of gaining entry to the health care system is referred to as access, and many factors can affect access to health care. This chapter also provides an overview of how Nigerians access the health care system.

The national healthcare financing system can be regarded from several perspectives with respect to administration and funding. With respect to administration, the Nigerian healthcare financing system can be divided into: Primary, Secondary, and Tertiary healthcare. With respect to funding, healthcare can be divided into government funding, private funding, tax and out-of-pocket funding. National Health Accounts In order to capture expenditure on health, a new concept known as National Health Account (NHA) has evolved. The NHA is an internationally accepted tool for summarizing, describing and analyzing the financing of health systems generally either at local, state and national levels. The overall aim is to improve health system performance. NHA as a tool has a central role to play in supporting stewardship and decision-making by both policy makers and stakeholders (Akinlade, n.y.).

Government Administration and Funding of Healthcare 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 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 centres. The SMOHs provide secondary care through the state-owned general hospitals and comprehensive health centres, and finally, the LGDHs provide primary health care (PHC) services through the primary health centres, with managerial support from the other tiers of government and various agencies because of this, roles can be duplicated or confused. (Olakunde, 2012)

Health Insurance Schemes Historically, health insurance in Nigeria can be applied to a few instances: free health care provided and financed for all citizens, health care provided by government through a special health insurance scheme for government employees and private firms entering contracts with private health care providers. Vogel (1993). In May 1999, the government created the National Health Insurance Scheme (NHIS), the scheme encompasses government employees, the organized private sector and the informal sector. Legislative wise, the scheme also covers children under five, permanently disabled persons and prison inmates. In 2004, the administration of Obasanjo further gave more legislative powers to the scheme with positive amendments to the original 1999 legislative act. (Monye, F. n.y.), but it was not until 2005 that the scheme became fully operational (Olakunde, 2012).

Basically, it makes it mandatory for individuals to contribute to a pool of fund to cover cost of healthcare at the time of need. Unfortunately, coverage for the scheme is still very poor because to some extent it is optional. A World Bank survey in 2008 reported that only about 0.8% of the population was covered by NHIS (World Bank, 2008). This means that majority of Nigerians are left out and not benefitting from the scheme, especially the poor and vulnerable. The NHIS is focused on making the scheme mandatory for every Nigerian and aims to get every Nigerian enlisted by December 2015 (Ogbonnaya, 2010). Other factors such as poor medical facilities, shortages of medical personnel, lack of awareness, and poor funding have been identified as challenges that affect the efficacy of the NHIS (Agba, et al, 2010), (Ibiwoye, et al, 2008), and (Mohammed, et al, 2011).

Private Financing of Healthcare A portion of the health care system is said to be marketbased, that is, paid for by private entities such as employers and individuals. Even in marketbased systems, the government may provide health care to vulnerable people. For instance, federal funds support HIV/AIDS, and Tuberculosis programmes, etc. Funding Healthcare through Tax In Nigeria, and most developing countries, health care is paid for largely by the government using taxes collected from citizens. Out-of Pocket Financing of Healthcare 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. (Lagarde and Palmer, 2006). Out-of-pocket payments are correlated with access to health care and usually decrease health care utilization of lower income groups (Wendt 2009, p.434). According to Soyinbo, A. (2005), out-of-pocket financing accounts for the highest proportion of health expenditure in Nigeria averaging over 64% during the period of 1998 to 2002. It was similarly high for various other periods. This implies that households bear the highest burden of health expenditure in Nigeria. To buttress, this point, this proportion is very high even in the context of other poorer African countries (Aronson, et al, 1994). Measuring Healthcare Financing Healthcare financing is measured with government total expenditure on health.

The Need for Healthcare Financing Expenses are required to be made in order to maintain the various components of a healthcare system. In order words, for healthcare to be provided on a continuous basis, there is the need to pay for medical services and medical supplies, including other expenses, otherwise there will be a collapse of the healthcare system and this will result in outbreak of an epidemic or an unhealthy nation. Beneficial Health Outcomes The term refers to the impact healthcare activities have on people — on their symptoms, ability to do what they want to do, and ultimately on whether they live or die. Health outcomes include whether a given disease process gets better or worse, what the costs of care are, and how satisfied patients are with the care they receive. It focuses not on what is done for patients but what results from what is done. The mission of the Federal Ministry of Health details for each department goals that it must achieve as part of its establishment objectives. These objectives must translate to better health outcomes for it to be significant. Measurement of Health Outcomes Health outcomes can be measured in various ways depending on the outcome. For example, a survey of patient satisfaction; financial data from expenditure reports; life/death results are calculated from death certificates filed at coroners offices; and Functional status (i.e. how well someone can do what they want to do given their symptoms) is measured through health-related quality-of-life measures.

These are special questionnaires which are designed with Health-related qualityof-life (HRQOL) instruments to cover specific domains of patient experience and then are validated against known measures. For example  instruments designed for HIV-positive respondents will be compared with standard conditions achievable with full treatment for a reasonable period, probably using the CD4 count. In this research we use lifeexpectancy as a proxy for health outcomes. Life expectancy measures the average length of life for a future generation, calculated by numbers of deaths per age-group and total population. This is chosen because, it is one of the most widely available measures of health status (Jee & Or 1999, p.14). Economic Growth Economic growth is defined as the mean increase in the real level of net national product. (Pearce, 1992).

Economic growth is the increase in the amount of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP IMF) (2012). Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to obviate the distorting effect of inflation on the price of the goods produced. The concern about economic growth often focuses on the desire to improve a country’s standard of living — the level of goods and services that, on average, individuals purchase or otherwise gain access to. It should be noted that if the population grows along with economic production, increases in GDP do not necessarily result in an improvement in the standard of living. When the focus is on standard of living, economic growth is expressed on a per capita basis. Haidar and Ibrahim (2009). A high savings rate is also linked to the standard of living. Increased saving will in the long run lead to a permanently higher output (income) per capita as capital accumulation per individual also increases.

Measuring Economic Growth Most scholars have used gross domestic product (GDP) to measure economic growth, and therefore the researchers follow in their footstep. Relationship between Healthcare Financing, Health Outcome and Economic Growth Our main argument is that public health care will increase equality of health care utilization. Only when all groups of society, independent of their socio-economic status, have access to universal health care, a nation will perform well on macro-indicators where the health status of every individual is equally weighted. Our assumption is supported by Self and Grabowski who argue that the poor health status of underprivileged groups in society suggest that health inequalities can be a mediating variable between public health expenditure and national health status (Self & Grabowski 2003, p.838). This is because our theoretic considerations suggest that worse health outcomes are caused by inequalities in health care utilization, assumedly related to the health care financing system. This was further buttressed by Adeniyi & Abiodun (2011) who emphasized that life expectancy is expected to have direct relationship with the rate of economic growth in the economy. They added that as the living condition improves, human longevity is expected to be enhanced and vice-versa. This is achieved when there is improvement in health expenditure.

Chapter 3: Methodology Variables used for data analyses in this research necessitated the research design method that was adopted which is the survey method. The following variables were considered: healthcare financing, health outcome and economic growth. It was established theoretically that health outcome is dependent on healthcare financing and economic growth is dependent on healthcare financing and health outcomes. Each of the variables was approximated by one indicator. Healthcare financing was approximated by total expenditure on health data; health outcome was approximated by life-expectancy data; and economic growth was approximated by gross domestic product (GDP). These indicators were chosen according to convenience, data availability, cost of doing research and common sense in the field. Data Collection Procedure Secondary data was used for analyses and these were collected from the Central Bank of Nigeria Statistical Bulletin (various issues), and Nigeria Bureau of Statistics Annual Abstract of Statistics (various issues). Model Specification Based on the research hypotheses, two models have been developed to establish the empirical component of this study and these are: LE = f(TH), this functional expression can be explicitly specified in its linear form as: LE = a + b x TH + u and GDP = f(LE, TH) this functional expression can be explicitly specified in its linear form as: GDP = a + b1 x LE + b2 x TH + u

Where: LE = Life expectancy at birth TH = Total expenditure on health  GDP = Gross Domestic Product u = the error term b, b1, and b2 are coefficients to be determined Regression analyses were carried out using time series data for the period: . The EViews statistical package was the software employed in data analyses.

Chapter 4: Analyses and Discussion of Results Here we present and discuss the results from analyses. Hypotheses Dep. Var. Hyp. 1 Hyp. 2 LE GDP Indep. Type Results of Experiment Inferences 2 Var(s). of R R Ftab Fcal Pvalue Strength of Model Relationship TH Linear .978 .957 4.67 290.10 0.000 Strong TH, LE Linear .990 .981 3.89 317.67 0.000 Strong Remarks Significant Significant

Source: researchers’ result of analyses Relationship between healthcare financing and health outcomes The estimated regression for this relationship is given as ESTIMATED EQUATION: LE = 3.918987457e-06*TH + 45.2253018 This shows that for one percent increment in total expenditure on health, life expectancy gets a mere 3.92E-06 increment in years’ unit. This shows that the impact that health expenditure makes on health outcome is very poor, inspite of a high correlation (r) of 0.978. Healthcare funding however plays a key role in explaining over 95.70% of the changes that takes place life-expectancy as was determined by the coefficient of determination (r2). Impact of healthcare financing and health outcomes on economic growth The estimated regression for this relationship is given as GDP = 13.75045559*TH + 573055.096*LE – 25340487.28

This shows that for one percent increment in total health expenditure, gross domestic product increases by 1375.04%, proving that funding on health has significant positive implications on national growth. Also, for one percent increase in life-expectancy, gross domestic product increases by about 573055 million naira units and this give credence to previous literature proving that health is actually wealth, so to speak, for as life expectancy is enhanced, simply means that healthy people live longer to produce more. From this model, it was found that both healthcare funding and life expectancy combined in explaining over 98.10% of the variance that takes place in gross domestic product. The implication therefore for policy makers is that, both models are good fit and may be used with confidence to predict life expectancy and gross domestic of the nation for the period under study and for the range of data. The relationship in both cases were found to be statistically significant. No variable showed negative correlation. Note that the overall significance indicator Fcal is greater than the tabulated F (Ftab) and the p-value for each model was 0.000, which was less than the level of confidence α ( = 0.05).

Chapter 5: Conclusion & Recommendations Conclusion Healthcare is unique because it is needed most by the people who are unable to pay for it. Care should be based on need not ability to pay. It is therefore the duty of the state to ensure adequate health of its citizenry. Health care therefore is a right and not a privilege to which we are all entitled. This is enunciated in various publications and declarations of the United Nations. The state therefore has a responsibility to ensure  that all citizens have access to health facilities so that they can all enjoy the highest attainable standard of physical and mental well-being. This in effect means that policy formulation at national, state or local government levels in Nigeria on health must not only be of the highest standards but must also be well-funded. Recommendations 1. Putting life into creating public awareness for the national health insurance scheme (NHIS) ; 2. Government should increase funding to include research in healthcare, rather than leaving it only to foreign donor agencies and grants.

3. To achieve universal coverage of health care services for the poor, Nigeria must move from out-of-pocket payments to other mechanisms of financing. While it might be difficult to completely abolish it, interventions for situations that require wide coverage should be reduced or removed to increase access by the poor; 4. The time has come for healthcare financing to be seen by the Nigerian government as an investment, which certainly requires an effective management coupled with a political will, for it to be profitable. 5. Other factors such as lack of awareness, corruption and unstable economy that have undermined healthcare financing in Nigeria need to be addressed as a matter of urgency. 6. Another important challenge in Nigeria’s healthcare system is the lack of use of evidence for planning and policy making. This could be attributed to lack of relevant research evidence. Healthcare financing needs to be informed by research so that planning will be based on evidence.

Collection of reliable, relevant and timely data for planning and evaluating policies should be improved in Nigeria; 7. With the declining financial resources facing the public sector, there is need for the government to improve co-ordination with and provide an enabling environment for alternative health. 8. There is an increased awareness among policy makers that health sector reform pursued without adequate knowledge of spending on health or the financing structure of the health sector will not produce the desired results. Policy makers therefore need to use health care financing information and indicators of costs and effectiveness to achieve better health gains from a given set of resources. Rationing of health spending, better allocation and use of resources, choosing cost effective health intervention should be based on good accounting and routinely updated health care financing data and information. Improved financial planning and management at all levels will contribute to more rational resources use.


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Atun, R.A. (2005) – Advancing Economic Growth: Investing in Health. A Summary of the Issues discussed at a Chatam House Conference held on 22-23 June 2005. Carrin, G., Evans, D, Xu K. (2007) – Designing health financing policy towards universal coverage. Bull World Health Organ 2007;85:652. Gottret P., Schieber G. (2006) – Health Financing Revisited: A Practitioner’s Guide. Washington DC: The International Bank for Reconstruction and Development/The World Bank. Ronald J. Vogel (1993) – Financing Health Care in Sub-Saharan Africa Greenwood Press, 1993. pp 101-102. Felicia Monye; (n.y.) -‘An Appraisal of the National Health Insurance Scheme of Nigeria’, Commonwealth Law Bulletin, 32:3 415-427. Federal Ministry of Health (2009) – . Retrieved 2009-12-22. Lagarde M, Palmer N. (2006) – Evidence from Systematic Reviews to Inform Decision-Making Regarding Financing Mechanisms that Improve Access to Health Services for Poor People: A Policy Brief prepared for the International Dialogue on Evidence-Informed Action to Achieve Health Goals in Developing Countries (IDEAHealth) in Khon Kaen; Thailand. 13 – 16 December, 2006. Geneva Alliance for Health Policy and Systems Research. Soyinbo, A. (2005) – National Health Accounts of Nigeria: 1999 – 2002. Final Report submitted to World Health Organization. University of Ibadan, Ibadan, 2005. Pearce, David W. (1992) – Macmillan Dictionary of Modern Economics. Fourth Edition. Published by Macmillan Press Limited,

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HEALTH-CARE-SYSTEM.html World Bank Report of 2008 http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/ AFRICAEXT/NIGERIAEXTN/ Federal Ministry of Health http://www.fmh.gov.ng/ European Journal of Economics, Finance and Administrative Sciences http://www.eurojournals.com MyHealthOutcomes http://myhealthoutcomes.com/faqs/3000

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