Published On: Fri, Oct 10th, 2014

Leadership of health care systems: Understanding health insurance

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An Overview of Health Financing by Dr. ChidiUkandu

(By Dr Chidi Ukandu)

Leadership and management of health care systems are increasingly receiving attention from countries and international organisations. In 2007, while acknowledging that the achievement of the Millennium Development Goals would generally require additional international resources, the Secretary General of the United Nations stressed that leadership and management were key to using these resources effectively to achieve measurable results.

Good leaders set the strategic vision and mobilise efforts towards its realisation; good managers ensure effective organisation and utilisation of resources to achieve results and meet aims. However, the challenge for many countries (both developed and developing) is how to provide this much needed leadership and management within resource constraints and peculiar country contexts.

In 2003, Kane and Turnbull proposed a framework for managing health systems which argued that most health systems were managed care entities and, thus, could be successfully managed by employing managed care tools such as:

  • Managing cost (managing insurance risk, provider and supplier prices and utilisation of services)
  • Managing care (developing and managing community-wide practice guidelines, care pathways, case management processes, and disease management across the continuum of care)
  • Managing health (development and management of population-based interventions and pooling/shifting resources among health and other sectors).

They, however, emphasised that the success of these tools depend on some features of a country’s health system which include:

  1. Level of system funding
  2. Structure of provider market
  3. Proportion of population covered by health insurance
  4. Information and communication system infrastructure
  5. Consumer expectations
  6. Socio-political values

While all of the managed care tools may not apply in all the systems in the overall health system of a country like Nigeria, they do provide a useful basis for analysing the leadership and management of health systems generally.

Overview of health insurance

Health insurance is insurance against the risk of incurring medical expenses among individuals. According to the Health Insurance Association of America, health insurance is defined as “coverage that provides for the payments of benefits as a result of sickness or injury. It includes insurance for losses from accident, medical expense, disability, or accidental death and dismemberment”

By estimating the overall risk of health care and health system expenses, among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is available to pay for the health care benefits specified in the insurance agreement.

In Nigeria, subscribers to health insurance mostly pay a premium, whereas in the UK and in many other European countries, funding is from payroll tax.The benefit is administered by a central organisation such as a government agency, private business, or not-for-profit entity.

NHIS Pie Chart

 Types of health insurance

1)  Social Health Insurance

2)  Community-Based Health Insurance

3)  Private Health Insurance

Social Health Insurance (SHI)

SHI is a method of health financing where contributions for health services are collected from workers, self-employed people, enterprises and the government. Collections through SHI are often mandatory and backed by a legal act.

Contributions under SHI are usually based on the average expected cost of health service use by the entire insured group and not by that of an individual or sub-group; in other words, it is community rated. Here, the nation decides on what to collect based on what it would need to provide care for her citizens. The NHS in the United Kingdom is a good example.

Studies indicate that about 60 countries all over the world are using SHI as the predominant method for raising money for health services.27 countries have achieved universal coverage for their populations through this method.

In recent times, multilateral and bilateral organisations, such as the WHO, World Bank, and the German Agency for Technical Cooperation, have been promoting social health insurance as an alternative way to mobilise additional funds for the health system especially in developing countries. They suggest that SHI is a suitable alternative when low-income countries do not have adequate tax revenues to fund health care of reasonable quality for everybody.

Here, the target is to utilise public funds to subsidise premiums for health services,thereby shifting public subsidies from supply side to the demand side to improve efficiency and quality of health services. In fact, the World Health Assembly adopted a resolution recommending SHI as an effective strategy for financing health systems. In SHI, the premiums of the poorest can be cross subsidised by government or the local community.

The problem of adverse selection – where low risk people drop out – can be countered by trying to make insurance cover universal. However, some of the other problems of private insurance, notably moral hazard (explained below), will remain.

 Community-Based Health Insurance (CBHI)

CBHI is a non-profit health insurance programme for a cohesive group of households/individuals or occupation-based groups, formed on the basis of the ethics of mutual aid and collective pooling of health risks, in which members take part in its management

CBHI has, in recent times, been advocated as a complementary method for mobilising funds for the health system especially in low-income countries. However, evaluations by the World Bank, the International Labour Organisation and others conclude that in low-income settings, CBHI schemes make only modest contributions to overall coverage and only as a complement to other formal schemes.

Studies indicate that coverage with CBHI rarely exceeds 10 per cent of the population because voluntary contributions of poor people are usually insufficient to make it viable.

Some experts, however, argue that in situations where government taxation is weak, formal mechanisms for social protection for vulnerable populations absent, and government oversight of the informal sector lacking, community health financing provides the first step towards improved financial protection against the cost of illness and improved access to priority health services.


Private Health Insurance

This is health Insurance cover provided to individuals or groups based on an assessment of the risks they carry.It differs from social health insurance because it is usually voluntary, can be very expensive and is usually not equitable. Private health care insurance confronts various problems, notably moral hazard and adverse selection.

Moral hazard is a change in behaviour towards an insurable event as a consequence of being insured. Here, the insured could become more careless or visit the clinic more often because he has been insured.

Adverse selection, on the other hand, occurs when a potential subscriber decides he is healthy enough, hence, needs not pay the amount of premium the insurer believes he should pay. Both scenarios would result in market failure.

 Overview of health financing in Nigeria

Health care sector funding in Nigeria is primarily sourced from government (federal, stateand local) revenues, private sources (households and firms), and donoragencies.

Between 1998 and 2002, total health expenditure in Nigeria was US$2121 million. This corresponds to a Total Health Expenditure (THE) per capita of US$17 and 4.9 per cent of GDP. Disaggregation of this data indicates that government sources accounted for 20.6 per cent of THE, with the federal government, state governments and local governments expending 12.4 per cent, 6.2 per cent, and 2 per cent respectively.

 Private sources accounted for an average of 69.1 per cent of THE; with households accounting for 64.2 per cent; firms,

4.9 per cent, and donor agencies, 10.3 per cent.

Comparatively, the total government expenditure on health as proportion of GDP is lower than that of some poorer African countries such as Rwanda, Kenya, Zambia (6.2 per cent), Tanzania and Malawi. Without considering the efficiency of fund deployment, the average THE per capita of US$ 17 is far lower than the $34 per capita that is estimated to be the cost for providing a minimum package of health intervention by the WHO commission on macroeconomics and health. This suggests that the Nigeria health sector is underfunded.

The National Health Insurance Scheme (NHIS)

The Nigerian NHIS was established in 1999 by Act 35 of the Federal Republic of Nigeria with the overall goal of enhancing access to quality and affordable health care to all Nigerian citizens. It became operational in 2005 and targets universal coverage of all Nigerians by 2015. The Scheme comprises schemes that cover formal sector workers, the urban self-employed, families and individuals in rural areas; children under five years of age, disabled persons and prison inmates.

 Formal sector programme

The formal sector programme is expected to be mandatory for firms employing ten or more workers and covers workers of the federal, state and local governments; organised private sector; and military personnel.

Employees are required to contribute 5 per cent of their basic salary, which is matched by 10 per cent by the employer. Membership covers the contributor, spouse and a maximum of four biological dependants. The benefit package for the scheme is enshrined in the NHIS Act and covers basic out and in-patient care, including maternity care and basic surgery.

Basic eye and dental care are covered while expensive and complex medical and surgical care is excluded. Cover for HIV/AIDS is limited to treatment for opportunistic infections.Contributors may enjoy more benefits on payment of an additional premium.


  • Service provision

Services are provided through a network of registered private and public health providers.Providers are paid fixed monthly capitations for primary care services, fee-for-service for secondary care and per diem for in-patient care. Beneficiaries are expected to choose one health care provider who provides primary care services and coordinates health care across the secondary and tertiary levels


  • Administration

Administration of the NHIS is effected through the National Health Insurance Scheme, Health Maintenance Organisations (HMO) and Health Care Providers (HCP).

NHIS is the regulator for the Scheme (private sector programme) and is responsible for registering HMOs and HCPs; issuing appropriate guidelines for the scheme; approving format of contracts proposed by the health maintenance organisations for all health care providers; determining, after negotiation, capitation and other payments due to HCPs, by the HMOs.

 HMOs and HCPs

The HMOs are private or public limited liability companies established solely for the Scheme. They are responsible for the collection of contributions from eligible employers and voluntary contributors; payment of HCPs; and establishing quality assurance systems for the HCPs. The relationship between HMOs, the scheme and HCPs is formalised through contracts. Each HMO is expected to market itself to registered subscribers in competition with other HMOs.

HCPS are public and private providers of health care services and include primary, secondary and tertiary care providers, pharmacies, laboratories and diagnostic centres.

Primary Care Providers (PCPs) serve as gatekeepers to the scheme and coordinate access to the secondary and tertiary levels of care on behalf of the beneficiary.

PCPs are paid a fixed capitation fee per beneficiary per month for primary care services. Secondary and tertiary care providers are paid on a fee-for-services basis based on NHIS approved tariffs for drugs, diagnostic investigations and specific procedures. In-patient stay is covered under the capitation up to a maximum of 15 cumulative days in a year and thereafter the beneficiary pays.

 Progress so far

The Scheme commenced on 6 June, 2005 and services started in September 2005. 77 HMOs, 5949 HCPs, 24 banks, 5 insurance companies and 3 insurance brokers have been registered.

Four schemes have been launched, namely – Formal Sector Social Health Insurance Programme; Tertiary Institutions Social Health Insurance Programme; Community-Based Social Health Insurance Programme; and the Voluntary Contributors Social Health Insurance Programme.

About five million persons are reported to have been registered in the Scheme representing just about three per cent of the population.


Nigeria has a large population of over 160 million people with a growing economy at over 6per cent GDP and a relatively stable democracy. There is a strong political will especially at the federal level and a very huge out-of-pocket expenditure. These present a good environment for health facility growth and expansion for managed care provision.


Nigeria has a very large informal sector – over 70per cent of the population; hence these are not covered in the formal sector scheme which accounts for the majority of subscribers.

Poverty also poses a serious challenge as over 60per centof Nigerians live on less than one dollar/day; though the relatively large out-of-pocket expenditure by individuals would also have contributed to these poverty rates.

There is a relatively low awareness of the operations of the Scheme even among care givers, coupled with a perceived poor quality of care.

The prevailing weak provider network has also posed limitations on access to care.

More importantly, the voluntary nature of the Scheme has limited access to a larger resource pool which could lead to increased efficiency. Also, weak support from state governments has not been helpful.

 Way forward

The Scheme should be made mandatory and awareness increased. Provider networks should be strengthened especially at the primary care level. Also health should be placed on the executive list and alternatives sources of funding found for the Scheme, e.g. Sin tax, Sales tax etc. This is needed considering the high level of poverty.


  • Ashley, Allan and Jayen B. Patel: The Impact of Leadership Characteristics on Corporate Performance. International Journal of Value-Based Management 16:211-222, 2003.
  • Tubbs, Stewart L., and Eric Schultz: “Leadership Competencies: Can They Be Learned? The Business Review, Cambridge. 3(2)7-12, Summer 2005.
  • Kane, N.M. and TurnBull, N.C. (2003). Managing Health: An International Perspective. U.S.A: Jossey-Bass



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Leadership of health care systems: Understanding health insurance