Poverty, user charges and health care demand in Nigeria

Abstract

Healthcare in Nigeria is paid for on a cash and carry basis while out-of-pocket expenses dominate in households’ payment for health care services as a result of user charges that were introduced in the early 1980s. This coupled with the persistent poverty level in Nigeria raises the question of consumers’ ability and willingness to pay these user charges. Accordingly, using primary data, this study examined the possible trade-off between user charges and demand for Public Health Care Services in Nigeria. The analysis showed that increasing user fees substantially reduced the use of government health facility by low-income earners. Thus, it was recommended, among others, that government should introduce price discrimination into user fees, to be set at marginal cost. This would help avoid the adverse distribution effects of user-fees, especially, on the lower income group. Introduction Modern health care services in Nigeria are provided by the Federal, State and Local Government Areas (LGAs) as well as private non-governmental (profit and non-profit) organizations. The three-tiers of government operates through a network of primary, secondary and tertiary level facilities. The primary health care is largely the responsibility of the LGAs with the support of state ministries of health. Secondary health care is available and provided at the State levels while the Federal Government is responsible for providing tertiary care. The referral system is to help ensure that the primary health care services are appropriately supported. The state and federal ministries of health review the resources allocated to, and the facilities available at the secondary and tertiary levels. The major aim of the referral system is to enable all Nigerians have easy access not only to primary health care but also to both secondary and tertiary health care. Healthcare in Nigeria is paid for on a cash and carry basis while out-of-pocket expenses dominate in households‟ payment for health care services. For instance, Ogunbekun et al (1999) indicated that 85 percent of the respondents in their survey sample reported paying for healthcare directly out-of-pocket, this was also supported by estimates from the Federal Ministry of Health (FMoH) (2003) which shows that over 70 percent of healthcare payments in Nigeria are made out-ofpocket. It is worthy to note that prior to this period, (that is, the 1980s) public sector health care services were virtually provided free of charge in Nigeria. With the introduction of user charges, there was an increase in the cost of care being incurred by the consumers and consequently, huge out-of-pocket payments. But given that consumer may have the willingness but not the ability to pay for these services and with huge out-of-pocket payments, there possibly will be a shift or a change in their demand for public health care services. One vital question in this regard is that of consumers‟ ability and willingness to pay these user charges, especially given the level of poverty that exists in the Nigerian economy. For instance, according to the World Bank, (1996), the severity of poverty as well as the incidence of extreme poverty increased significantly between 1985 and 1992. While, the National Bureau of Statistics (NBS) (2010) reported that the proportion of the core poor increased from 6.2% in 1980 to 29.3% in 1996 and then came down to 21.8% in 2004. The NBS report further shows that the proportion of Nigerians living in poverty is increasing every year as the incidence of poverty increased from 27.2% in 1980 to 46.3%, 42.7%, 65.6%, 54.4% and 69.0% in 1985, 1992, 1996, 2004 and 2010 respectively. This The Business and Management Review, Volume 9 Number 3 April 2018 7th International Conference on Business and Economic Development (ICBED), 9-10 April 2018, NY, USA 368 consistent increase in the poverty rate does have an effect on the ability and willingness to pay these charges when consuming health care services in Nigeria The ability and willingness to pay (which may not directly covary), therefore determines the quantum and quality of the medical care obtainable by the populace. Households may both have the willingness to pay but the ability to pay will be lacking, especially, in the poor. Yoder (1989) who tried to distinguish between the willingness to pay and the ability to pay maintained that although they may not directly covary, they are both influenced by some factors of which income and the quality of health care are very important. This was referred to as distributional effect by some studies like Gertler and Van dar Gaag (1988), because the imposition of user charges increases the welfare and medical care utilization of individuals in the top half of the income ladder while reducing those of the individual in the bottom half of the income ladder. It is as a result of this that the study examines whether or not the imposition user charges in public sector healthcare facilities can lead to large reductions in the usage of the services of the sector or can cause shifts across types of care used. The rest of the paper is structured as follows. Closely following this introductory section is a brief review of the literature which is contained in section two. Section three outlines the methodology and data analysis while the study‟s findings are discussed in section four. Section five concludes the study. 2.1: Brief Review of the Literature The introduction of user charges as a strategy for easing the health care financing crisis has been questioned, among others, on the basis of its implications for health care utilization. Dor, Gertler and Van der Gaag (1987) and Gertler and Van Der Gaag (1990) showed that the poor are two-to-three times more price responsive than the non-poor in the consumption of medical care. Thus, if prices were significantly raised in the public sector medical facilities, a large proportion of poor households would "migrate" out of this subsector. Their studies were conducted for Cote d'Ivoire and Peru respectively. Other studies that support this notion includes Litvack and Bodart (1993) for Cameroon; Lavy and Germain (1994) for Ghana; Ngugi (1999) for Kenya and Amaghionyeodiwe (2007) for Nigeria. These studies found that the introduction of user fees affected health care utilization of the consumers by reducing the usage of public health services, particularly for the poor. Deininger and Mpuga (2003) also found user fees to be particularly important in determining access to health services, particularly for the poor, The conclusions above were confirmed by the studies of Alderman and Gertler (1989) which focused on the substitutability of public and private healthcare for the treatment of children in Pakistan, and Ching (1995) whose study examined the potential effects of user charges on the demand for children's health care across income groups in the Philippines. Moses et al (1992) and World Bank (1994b) pointed out that the number of women attending a public outpatient clinic for STDs in Nairobi, Kenya fell by 65 percent following the introduction of user charges, while male attendance decreased by 40 percent. In this regard, World Bank (1993) submitted that except for the rich, out-of-pocket financing couldn‟t cover expensive care. On the contrary, Lacroix and Alilhonou (1982) study of Benin; Akin et al. (1998) study on Sri Lanka and the World Bank (1987) study on the Philippines, showed that price had a relatively little impact on health care demand. Nwabu and Nwangi (1986) asserted that the net welfare effect of improved health services in public clinics depends on how these services are financed. One way to raise revenue to finance these services is to charge for their use. Ching (1995), using a mixed/conditional logit parameterization of the health care demand model to study user charges, demand for children's health care and access across income groups in the Philippines confirmed that the poor are more sensitive to price changes than the rich. This has implications for the willingness to pay. Thus, user fees are regressive as was asserted by Mbanefoh, Soyibo and Anyanwu (1996) in their study of estimating Nigeria's health care demand, though, they did not empirically investigate this issue. Nwabu and Nwangi (1986) simulated the welfare effects of user charges for Kenya. Their study was based on the alternative assumption that user The Business and Management Review, Volume 9 Number 3 April 2018 7th International Conference on Business and Economic Development (ICBED), 9-10 April 2018, NY, USA 369 charges are a "pure tax" on government health services and that the revenue generated is used to improve the quality of services in government clinics. They showed that welfare loss from user charges could be reversed by a simultaneous quality improvement, which raised quality in government clinics to the same levels as that of the mission clinics. Revenue, they claimed was enough to enable the achievement of this feat. However, the welfare gains of introducing user charges in all government health facilities are likely to be offset by the attendant equity trade-off (McPake, 1993). This equity trade-off, which was referred to as distributional effect by some studies like Gertler and Van dar Gaag (1988), is mostly between the poor and the rich. They may both have the willingness to pay but the ability to pay will be lacking in the poor. The equity trade-off was referred to as distributional effect because the imposition of user charges increases the welfare and medical care utilization of individuals in the top half of the income ladder while reducing those of the individual in the bottom half of the income ladder. Li (1996) collaborated this argument when in a study of the demand for medical care in Bolivia, he cautioned that though uniform user fees can generate substantial revenue, it is likely to reduce the utilization of medical care by the poor. As a result of this, the