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Fiscal Space Analysis for Implementation of Lagos State Health Insurance Scheme

LSHS

This study presents an overview of the fiscal space available to Lagos State government with specific regards to the Lagos State Health Scheme (LSHS). The analysis is prompted by the need for increases in public health spending necessitated by the scheme, which forms a crucial demand-side intervention in the context of the Lagos State Health Scheme (LSHS) established recently by the Lagos State Health Scheme Law of 2015. While implementation of the scheme is currently in progress there is an existential need on the part of Lagos State Ministry of Health (LSMoH) to clearly analyze the fiscal implications of the scheme and identify options available to address these implications.

It is in this context that USAID’s Health Financing and Governance (HFG) project in collaboration with Centre for Health Economics and Development (CHECOD) was commissioned to provide support for estimating the fiscal space available to Lagos State, modeling the cost of scaling up LSHS, and relating the two estimates to inform the target setting, advocacy and planning needs of the LSMoH.

This study presents an overview of the fiscal space available to Lagos State with specific regards to the LSHS and analyzes its implications over a five-year period using different financing thresholds and scale-up scenarios. This is to provide decision-makers with options for informed choices.

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Economic Modeling of the Proposed State Health Insurance Schemes (SHIS) in Sokoto and Bauchi States

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Nigeria is characterized by poor health indicators and limited financial accessibility to health care despite considerable investment in the health sector. The health financing system suffers from segmentation, high out-of-pocket expenditures and inefficient use of resources.  The nation’s health care system is plagued by budgetary constraints, persistent underfunding and inadequate financial protection for the poor.  Access to adequate health care is still very unequal, but the government is committed to moving to universal coverage in order to provide adequate quality health care to all Nigerians.  The current macroeconomic reality in Nigeria is that no government with the exception of Lagos State can engage in more expansionary fiscal stance through its budget allocation to health because of limited capacity to increase fiscal space through internally generated revenue.  The other option which is fiscal expansion financed through government borrowing is not recommended given the weak debt situation[1] of most states.

To this end, a Presidential summit on Universal Health Coverage was organized by Federal Government in collaboration with all the 36 states in 2014 to identify the strategic directions for addressing these challenges.   The summit ended with far reaching recommendations that commits all levels of government to place a high priority on establishing mandatory health insurance in Nigeria with special funds to cover the poor, development of alternative, innovative and sustainable financing mechanisms, strengthening and expanding financial risk protection mechanisms for the poor and vulnerable groups.

However, the resource landscape of health financing in Nigeria is likely to undergo a major transformation in the next few months. Firstly, there is a new government in power that is committed to improve the economy and fight corruption.  Secondly, the National Health Act 2014 holds the promise of additional resources for the health sector through allocations to the NHIS and NPHCDA. Thirdly, following the completion of the NHIS/IFC diagnostic report on the state of the NHIS; the NHIS is undergoing major transformative reforms and on the planks of the reform is the assistance to state supported schemes. The NHIS is proposing to provide matching grants for state governments to allow them include the poor in their insurance schemes.  More important to addressing the challenges is the development of a roadmap for establishment of state-based health insurance scheme coordinated by National Health Insurance Scheme (NHIS) – which is a product of joint collaboration of NHIS and 36 states.  Sokoto and Bauchi states subscribed to the national /state collaborative roadmap for State based health insurance Scheme (SBHIS) to guide their pathways in domesticating it.  Also there is the proposed 500M USD credit to the Government of Nigeria for the Saving One Million Lives (SOML) initiative. The credit allows for state government to access the credit on availability of costed demand side financed initiatives including pro poor insurance schemes.   Finally there are several smaller programs planned or already in different stages of implementation which could provide much needed resources to this innovative state supported health insurance schemes a good example is the MDG conditional cash transfer program amongst others.

In order to expand fiscal space for health, these resources needs to be pooled to determine what percentage of the population can be covered, how generous should the benefit package of health care be to ensure equity, how much can government contribute from the total revenue of the state, how many years of payment of subsidy will the resources cover before long-run financial solvency is  jeopardized and what is total amount that can be mobilise from external sources to expand coverage, the years and the benefit package. Response to these questions prior to embarking on establishment of state health insurance structure will ensure that health financing reform through social health insurance is evidence-based and responds to the specific health, demographic and epidemiological challenges faced by these states.   This will require sufficient capacity at the state level to collect and analyse data key macroeconomic and epidemiological variables, current levels of health spending, coverage, and the availability and use of health services.

Sokoto and Bauchi States are required to do this based on the national /state collaborative roadmap for SBHIS. They will need to identify and critically analyze the factors that will determine the extent of fiscal sustainability of SBHIS.  It is on this basis that both states have decided to undertake financial feasibility assessment and analysis of proposed State-Based Health Insurance Scheme[2].  This will generate evidence of the financial implications of moving from UHC commitment to financial protection to implementable actions by state governments.

 

 

 

[1] The solvency ratios of most Nigerian States are poor.  Solvency ratio is one of the various ratios used to measure the ability of a government to service its long term debts.

[2] CHECOD did preliminary work on this for Lagos state in 2014 and more comprehensive modeling is under way once the current conduct of Lagos State Health Account has been completed.

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Health InsuranceOngoing Research Projects

Assessment of Health Financing Pathways and Fiscal Sustainability in Sokoto and Bauchi States

Sokoto State Health Stakeholders

The Nigerian governments at all level are committed to moving to universal coverage in order to provide adequate quality health care for all. Yet, there are considerable challenges to achieving this within the existing health financing system arrangements. With increasing widespread support for universal access to healthcare, the question of how to fund it effectively and sustainably remains unanswered despite the use of conventional ineffective options of taxation, user fees and insurance as well as the models of innovative financing that are offering promising alternatives.

Achieving a more diversified and sustainable financing base for the health sector is a key policy goal for the State Governments of Sokoto and Bauchi (SGSB). Underlying this goal is the view that general taxation alone cannot provide a sustainable revenue base for the health sector. Therefore there is a need to do things differently to achieve new and possible better results.

There are other factors that are likely to put the health financing system under strain in the near future. Demand for health care, particularly for those displaced by the insurgency and conflicts as well as for more complex curative care services is growing rapidly. The growth in demand for services as well as more sophisticated technology in medical care will inevitably push expenditures upwards.  Faced with rising expenditures and concerned about the sustainability of current methods of financing health care, the SGSB urgently requires health financing options.

 

There is no one-size-fits-all health financing solution that these states can adopt. The choice of financing arrangements depend on the amount of revenues that can be raised through the different methods to meet specific health system objectives, and the extent to which they can be raised in an efficient, equitable and sustainable manner. The structure of the economy, as well as the financial, institutional and political capacities specific to these states will determine which financing arrangements best meet these criteria.  It is against this context, that the policymakers in these states are asking which way forward. Are the financing mechanisms feasible and sustainable? Is innovative financing the answer or do tax-based and social health insurance-based (SHI) still relevant in promoting the state healthcare coverage? How does the fiscal and macroeconomic context influence decision-making in this policy area?  Within this context, the policy makers attempts to explore alternative health financing mechanisms.

 

Based on the three basic principles of public finance – collection and pooling of revenues, and purchasing of services – this assignment will conduct comparative assessment of the different available financing scenarios[1].  Doing things differently implies health care financing reform through introduction of changes to one or more of these three key functions.  There are essentially several health financing policy pathways that  will be assessed in Sokoto and Bauchi States: (i) retain the current tax-based[2] system of general revenue financing (ii) continue to finance health care tax-based system of general revenue financing, but generate additional resources through efficiency savings;  (iii) continue to finance health care tax-based system of general revenue financing, but generate additional resources through innovative sources; (iv) continue social health insurance single fund; (v) introduce social health insurance single fund pathway with innovation sources and efficiency savings; (vi) introduce pluralistic health pathways under public and private health insurance arrangements; (vii) various combinations of the identified options (i) – (vii)

[1] Scenarios are different health financing options

[2] In this Pathway, Governments (Federal, States and Local Government) are the principal sources of funding for the healthcare system

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