Willingness To Pay For Health Insurance Among Informal Sector Practitioners

Project and Seminar Material for Insurance

Abstract

Out-of-pocket payment dominates the bulk of health care financing in Osun State as in other parts of Nigeria. Pre-payment plans which have been identified to turn the unexpected health expenditures into predictable form of payments have not received desirable consideration. Given the importance of such prepayment scheme, the aim of this study is to assess willingness to pay for community based health care financing scheme among rural and urban households in Osun State.

This is a descriptive, cross-sectional comparative study of willingness to pay for community based health care financing schemes among 450 urban and an equal number of rural households in Osun State using multistage sampling method. Research instruments were pre-coded, pre-tested semi structured interviewer administered questionnaire.

Data were analysed using STATA 10 software. The findings from this research showed that rural household heads 373 (82.8%) were more willing to pay for community based health care financing scheme than the urban household heads 232 (51.6%). Premium Urban households were willing to pay ₦1798.90k per year while rural ones were willing to pay ₦ 721.70k.

Major factors identified that contribute to willingness to pay in the households are number in the households, level of education, income, distance to the health centers, marital status, age and Male gender. Women, the poor, and people with low level of education were less willing to pay. Therefore, when establishing community based health scheme there should be selective targeting of the vulnerable groups within the communities due to their inability to finance health care payments.

The results of this research strongly suggest that contingent valuation surveys are feasible methods for estimating households’ willingness to pay for community based health care financing scheme in Osun State.

Chapter One

Introduction

1.1 Background to the Study

Economists often emphasize that demand should not be confused with need, desire or want. The need, want, or desire for a good or service that is backed-up with the willingness and ability to pay is what is termed as demand. Obviously, in a country like Nigeria where poverty is still a major problem and diseases are enormous, the need or want for health care would be high but the demand may not be as high due to the willingness and ability to pay (Vonke and Sunday, 2014).

The success of health insurance depends first and foremost on the effective and sustained demand for the insurance scheme. The growing literature on Willingness to Pay (WTP) for health insurance attempts to address this question. In the absence of real world experience, economists gauge WTP for health insurance by means of the so-called contingent valuation approach. This approach elicits directly what an individual would be willing to pay for a potential non-market or public good (AIID, 2013).

Health shocks have non-trivial negative effects on the financial conditions of uninsured informal sector practitioners and their ability to smoothen consumption (Gertler and Gruber, 2002; Wagstaff, 2007). Yet many poor informal consumers in developing countries lack access to mechanisms for pooling risks and suffer health-related poverty in the wake of adverse health shocks. In the absence of insurance, a high fraction of medical expenses are borne by households in the form of out-of-pocket payments, and financial constraints are significant barriers to access to healthcare in many low-income countries (Xu et al, 2003).

Despite potential out-of- pocket expenditures, many consumers remain uninsured. One possible explanation for the lack of insurance coverage observed in many countries among informal sector practitioners is that information asymmetries result in insurance market failure, while another possible explanation is that insurance is unaffordable given current conditions (Shemeles, 2012 and Mbengue, 2011).

Government and health officials have employed, or are contemplating the employment of numerous policies, such as compulsory insurance for public sector employees and subsidized voluntary insurance cover for the informal sector. These policies are generally meant to ensure formal sector employees, although the inclusion of informal sector employees in these schemes is likely to be an important feature in less developed countries (LDCs), given the size of the informal sector (Nigeria for an example) (Acharya, 2012).

However, the primary benefit of compulsory health insurance is the inclusion of all consumers both from the formal and informal sectors within the same pool, resulting in cross-subsidization. By treating everyone equally, compulsory health insurance reduces the pay-off associated with assortative matching, and, thus, alleviates adverse selection, while simultaneously reducing the cost of insurance for high-risk consumers.

1.2 Statement of the Problem

Majority of Nigerians in the informal sector cannot afford and access health care services because it is beyond their reach (Ataguba, 2007). Statistics reveals that 70.2% of Nigerians are living below the poverty line of USD 1.00 per day which encourages the vicious cycle of poverty, ignorance and disease (Usman, 2013). There is high dependence and pressure on government for funding of health services, a situation which the government has objectively not lived up to in recent years. A brief look at government expenditure of USD 3.40 per capita on health as opposed to the World Developmental Report recommendation of USD 34 per capita reveals the obvious gap (WHO, 2007).

The continued stagnating healthcare system in Nigeria is of great social and economic consequence, as the deregulation of healthcare financing and supply in Nigeria has further shifted the healthcare system towards competitive market ideals (World Development Report, 2005). Thus an urgent need for a sustainable and equitable strategy to eliminate physical and financial barriers to health care is highly desired.

In Nigeria today, old age is not synonymous with disease. The changing lifestyles, high level of competition and environmental pollution have resulted in various health related problems. One of the major concerns facing families drawn from the informal sector thus relates to health care. Health care it is not only expensive but is also time consuming and physically demanding for family care givers (Babatunde, Akande, Salaudeen and Aderibigbe, 2012).

Moreover, Nigeria is faced with continued severe economic and social crises; many poor households in Nigeria can no longer afford the basic necessities of life for their members not to talk more of a health care insurance plan that is largely seen among informal sector practitioners as luxury and waste of money. The ability of households to cope with adverse economic conditions has been strained. Difficult trade-offs continue to be made in an attempt to keep households afloat.

Many of the studies on the willingness to pay for health insurance were done outside Nigeria. These studies particularly focus on workers in the formal sectors. Researches on the willingness to pay for health insurance among informal practitioners are very few. In Nigeria, most of the available studies about consumers’ willingness to pay for health insurance such as Adinna and Adinna (2010), Oriakhi and Onemolease (2010), Saanni (2010) and Usman (2013) were too brief and lacking depths.

Moreover, these researches were also theoretical studies whose findings were subjectively based on researchers’ personal opinions. It is noted that the past studies did not give adequate attention to the willingness to pay for health insurance among informal practitioners, as well as highlighting plausible strategy that can stimulate better patronage of health care insurance in Lagos State. It is against this backdrop that this study seeks to evaluate the willingness to pay for health insurance among informal sector practitioners in Lagos State with a special reference to Cornerstone Insurance Plc.

1.3 Objectives of the Study

The study is being conducted with the following objectives:

To examine the effect of household income on willingness to pay for health insurance among informal practitioners.
To find out the extend at which consumers’ ignorance is influencing the demand for health insurance in the informal sector.
To find out the link between standard of living and willingness to buy health insurance by self employed workers
To identify current challenges confronting the willingness to pay for health insurance among informal practitioners.

1.4 Research Questions

The undertaking of this research project will beam a searchlight on the following research questions;

What is the effect of household income on willingness to pay for health insurance among informal practitioners?
Will consumers’ ignorance influence the demand for health insurance in the informal sector?
What is the link between standard of living and willingness to buy health insurance by self employed workers?

1.5 Research Hypotheses

The following research hypotheses will be tested in the course of the study:

Hypothesis One:

Ho; There is no significant relationship between household income and willingness to pay for health insurance among informal practitioners.
Hi; There is a significant relationship between household income and willingness to pay for health insurance among informal practitioners.

Hypothesis Two:

Ho; Consumers’ ignorance does not have any impact on demand for health insurance in the informal sector.
Hi; Consumers’ ignorance has an impact on demand for health insurance in the informal sector.

1.6 significance of the Study

This study sought to find out the willingness to pay for health insurance among informal sector practitioners the findings could be used to incorporate various groups into the National Health Insurance Fund (NHIF) and other health insurance providers as the country moves towards universal health coverage. Also, to enable the health insurance providers to improve on their services.

1.7 Scope / Limitation of the Study

The main delimitation of the study was that it was only targeting patients and households in Osun state Nigeria, those who were chosen as respondents. The main limitation experienced during the study was poor participation by the respondents because some of them thought that the researcher was out to sell insurance policies. This was dealt with by clear introduction by researcher.

Chapter Five

Conclusion and Recommendations

5.1 Conclusion

Appreciable number of respondents shows positive WTP and this shows that many respondents saw the value of the scheme and recognized that CBHF may increase access to good quality health services for themselves and for members of their family, without having to pay at the point of use and with CBHF spreading payments over time .

The implication of low levels of average WTP amounts is that the amount of money that will be The implication of low levels of average WTP amounts is that the amount of money that will be available for the schemes when established will be low, unless there is external financial support. If, for example, 1,798.90 and 721.70 Naira per urban and rural member is the minimum expected annually, then the elicited mean WTP amounts pose challenges for the viability and sustainability of such schemes.

To design a feasible and attainable community based health care financing scheme for the people of Osun State, quantitative data is needed and required as a guide to aid Osun State government and stakeholders in an optimal decision making path. These data can be obtained through contingent valuation method using the willingness to pay approach.

5.2 Recommendations

Based on the high willingness to participate in Community based health care financing scheme, the community-based health care financing scheme seem to be feasible in the study areas. Pilot schemes could be initiated in the selected areas and lessons learnt from the experience of this pilot can be applied to other localities.
The premium to be charged should be anchored around reported measures of central tendencies gotten from this study (N721.7 and ₦ 1798.9).
There will also be a need for the government to subsidize the programme so that much funds can be pooled for sustainability of the programme.
The scheme can be further intergrated into microfinance schemes such as the case in India and Bangladesh with SEWA and the Grameen banks respectively.
Women and elderly were less willing to pay for this proposed scheme therefore in establishing community based health care financing scheme there should be selective targeting of the vulnerable groups within the communities.

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