CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Researchers and health policy makers increasingly agree that out-of-pocket (OOP) payment is the most inequitable way to finance health care, because of its impoverishing and catastrophic effects on household living standards. Where households must pay directly at the point of service, health care becomes a threat to income security. It can push families down the socioeconomic ladder and deepen the overall inequality in the distribution of income (Ataguba et al., 2020; Oburota & Olaniyan, 2020). Access to care becomes unequal in such systems because those who cannot pay are the least able to use services.

The weakness of health financing in Nigeria, as in most of sub-Saharan Africa, lies less in an absolute shortage of resources than in the absence of effective risk-pooling and insurance arrangements, inefficiencies in the allocation of resources and weak purchasing practices. As a result, OOP payment remains the main source of health financing. It is estimated to account for about 70 per cent of total health expenditure in Nigeria (Ipinnimo et al., 2022).

The National Health Insurance Scheme (NHIS) was established to reduce the burden of paying for care directly out of pocket and to pursue universal coverage by ensuring access to adequate and affordable services. Its reach has nonetheless been limited. Enrolment concentrated on the formal sector, particularly federal government employees, and only about three per cent of the population, roughly five million people, was covered, which left about 97 per cent of Nigerians uninsured and reliant on OOP payment (Ozor et al., 2025). The community-based schemes meant for the large informal sector never reached scale. This is a serious shortcoming, because most people employed in Nigeria are self-employed or work in the informal sector, and the poor are concentrated there (Ipinnimo et al., 2022). The poor are therefore the group least likely to be shielded by prepayment mechanisms. In May 2022 the National Health Insurance Authority (NHIA) Act replaced the earlier legislation and made health insurance mandatory for all Nigerians and legal residents, with the aim of extending coverage to the informal sector and the unemployed. Reviewers nevertheless warn that implementation will face obstacles such as low government funding priority for health, a shortage of health workers and problems of enforcement (Ipinnimo et al., 2022).

When a large share of the population lies outside financial risk protection, catastrophic health expenditure (CHE) is bound to occur. CHE arises when health payments exceed a threshold share of household resources, forcing the household to give up other necessities. Studies define the threshold in different ways. The World Health Organization convention sets it at 40 per cent of non-subsistence income (Wright et al., 2025), while Nigerian analyses have also applied thresholds of 10 and 25 per cent of total non-food or total consumption expenditure (Opeloyeru & Lawanson, 2023). Whatever the threshold, the evidence shows that CHE is common in Nigeria and uneven across the country. Reported incidence varies widely between sub-national areas (Wright et al., 2025). Analysis of the 2018/19 Nigeria Living Standards Survey shows that CHE and impoverishment are concentrated in rural areas and in the North East, and that the cost of medicines is a major driver (Odunyemi et al., 2023). Households without health insurance and those facing severe illness are also more likely to incur CHE (Opeloyeru & Lawanson, 2023).

Public funding has not offset these pressures. Government spending on health has remained well below the 15 per cent of the budget that African governments, including Nigeria, committed to in the Abuja Declaration, and the low priority given to health funding is widely identified as a constraint on the health system (Ipinnimo et al., 2022). User fees, which many African countries introduced as a way to raise revenue for public facilities, apply to government-owned services in Nigeria, and private providers also charge fees that patients mostly pay out of pocket. Together these arrangements make households the principal financiers of their own care.

Equity is a core goal of any health system and is stated explicitly in Nigerian health policy. Yet inequity in access to care persists despite a series of pro-poor interventions. The Nigerian health system faces several threats to its ability to extend good-quality services to most citizens: poor access to quality care among the poor, tight budgets, uneven distribution of resources between urban and rural areas and across regions, and a financing system that relies heavily on payment at the point of care (Ataguba et al., 2020; Ozor et al., 2025).

The threat that OOP payments pose to household welfare is a matter of policy concern for at least three reasons. First, OOP payments are unpredictable. Second, they are often large relative to household resources. Third, they are distributed unevenly relative to income, which conflicts with the principle that each household should contribute according to its ability to pay (Ozor et al., 2025). Any health system that cares about the welfare of its citizens must therefore work to reduce the burden of OOP payment. Designing policies and programmes that lower the cost of care to households requires an in-depth understanding of how household health expenditure is distributed in Nigeria.

1.2 Statement of the Problem

The composition of health spending in Nigeria is a cause for concern. Public funds cover only a minor share of total health expenditure, estimated at around one quarter, while private spending, mostly OOP payment by households, accounts for the remaining three quarters or so (Ipinnimo et al., 2022; Ozor et al., 2025). In a country with widespread poverty, OOP spending curbs the use of care, deepens inequity in access to quality services and exposes households to the financial risk of costly illness (Odunyemi et al., 2023).

Nigerian households are especially prone to catastrophic health expenditure because of the prevalence of user fees and the dominance of OOP payment as the means of settling bills. The incidence is likely to be greater among the poor, for whom a given payment represents a larger proportion of income. Studies of non-communicable disease show, for instance, that around one in five affected households is impoverished or pushed deeper into poverty by OOP spending (Odunyemi et al., 2023), and research on cardiovascular patients in Ibadan documents the incidence of catastrophic spending and the poverty headcount caused by OOP medical costs (Adeniji et al., 2022). Health insurance does not yet offer protection to the poor, since the NHIS historically covered mainly formal-sector workers and the poor are concentrated in the informal sector (Ipinnimo et al., 2022).

Nigeria’s health outcomes underline the cost of inequitable financing. The 2023–24 Nigeria Demographic and Health Survey recorded an infant mortality rate of 63 deaths per 1,000 live births, a neonatal mortality rate of 41 and an under-five mortality rate of 110. States differ widely, with Kebbi recording an infant mortality rate of 90 per 1,000 and Jigawa an under-five mortality rate of 161 (National Population Commission & ICF, 2025). Poor health outcomes of this kind are linked to low levels of public spending on health, and the poor are the ones who suffer most from them, because they are least able to bear the cost of paying for services out of pocket compared with the better-off. Some of the poor avoid seeking care because they cannot pay, while those who do seek care often do so at great cost to other essential household needs (Ozor et al., 2025).

A growing body of studies examines how OOP health payments are distributed. Evidence shows that OOP payments contribute to income inequality, particularly within the geopolitical zones (Ataguba et al., 2020). The decomposition of inequities across financing sources demonstrates the effect of health financing on the income distribution (Oburota & Olaniyan, 2020). Payments made out of pocket, including insurance co-payments, are sources of horizontal inequity and re-ranking, and so of inequitable financing (Chukwuedo, 2020). Evidence on progressivity is not uniform, however. Among urban slum dwellers in south-eastern Nigeria, Gini, concentration and Kakwani indices indicated a progressive financing system, with the richest paying proportionately more than their ability to pay, but the poorest relied more on informal providers, which suggests that low payment may reflect denied or deferred care rather than affordability (Ozor et al., 2025). Studies of the determinants of catastrophic spending confirm that insurance status, illness severity, education and household location matter (Opeloyeru & Lawanson, 2023; Wright et al., 2025).

The literature also leaves important gaps. A number of the recent distributional studies are confined to particular localities, such as the Lagos communities studied by Wright et al. (2025), the urban slums of Enugu and Anambra studied by Ozor et al. (2025) and the patients attending hospitals in Ibadan studied by Adeniji et al. (2022), or to particular conditions, as in Odunyemi et al. (2023). Others emphasise the methods of decomposition (Ataguba et al., 2020; Oburota & Olaniyan, 2020) or the determinants of catastrophic spending (Opeloyeru & Lawanson, 2023) instead of the full distribution of household health expenditure across income groups, zones, locations and household types. A study of the national distribution of household health expenditure that measures inequality in the periods before and after payment is therefore needed. This study meets that need. It analyses the distribution of household health expenditure in Nigeria using the Harmonized Nigerian Living Standard Survey (HNLSS) 2008/2009 and applies the Kakwani index, which captures inequality in the prepayment and post-payment distributions among households.

Nigeria has made various efforts to reduce unequal access to affordable, quality care, including the National Health Policy, the National Health Financing Policy, the National Health Insurance Scheme, the National Health Act, which established the Basic Health Care Provision Fund for primary health care, and, most recently, the NHIA Act of 2022 (Ipinnimo et al., 2022). Despite these efforts, unequal access to care remains a predominant problem in the Nigerian state. Poor households, deterred by the impoverishing effect of paying out of pocket, may choose not to seek care at all.

The study is also timely given that universal health coverage, the target of the health-related Sustainable Development Goals, remains distant for most Nigerians. It will provide information on financial accessibility and equity in the public health system, especially primary health care, which is the foundation for addressing the health problems of the poor, who are often concentrated in rural areas. Universal coverage and the provision of affordable care were the declared aims of the NHIS, and those aims will remain unachieved if different socioeconomic groups continue to bear unequal burdens at the expense of the poor. It is on this premise that this study analyses the distribution of household health expenditure in Nigeria.

1.3 Research Questions

The study aims to provide answers to the following questions:

1. What is the distribution of out-of-pocket expenditure across income quintiles in Nigeria?
2. What is the distribution of out-of-pocket expenditure across geopolitical zones in Nigeria?
3. What is the distribution of out-of-pocket expenditure across location (rural and urban) and across households’ head in Nigeria?
4. What is the distribution of catastrophic health expenditure across location (rural and urban) and across households’ head in Nigeria?

1.4 Objectives of the Study

The broad objective of the study is to examine the distribution of household health expenditure in Nigeria. The specific objectives are as follows:

1. To examine the distribution of out-of-pocket expenditure across income quintiles in Nigeria.
2. To examine the distribution of out-of-pocket expenditure across geopolitical zones of Nigeria.
3. To examine the distribution of out-of-pocket expenditure across location and households’ head in Nigeria.
4. To examine the distribution of catastrophic health expenditure across location and households’ head in Nigeria.

1.5 Significance of the Study

The study is significant because it deepens understanding of how household health expenditure is distributed across socioeconomic groups in Nigeria. It identifies the groups most affected by the burden of OOP expenditure on health. In doing so it supplies information needed to improve financial accessibility and equity in financing within the public health system, especially the primary health care system, which is the cornerstone of the Nigerian health care system.

The study also offers policy recommendations to tackle the inequity prevalent in the Nigerian health system and to promote equitable delivery of care based on need. Designing a health system requires knowledge of the households that are most vulnerable to catastrophic payments when they pay for care out of pocket, and this study provides that information. Such evidence is relevant to the effective implementation of the NHIA Act, since extending coverage to the informal sector and to the poor depends on knowing where the financial burden of health care falls (Ipinnimo et al., 2022).

1.6 Scope of the Study

The study examines the distribution of household health expenditure across socioeconomic groups using data from the Harmonized Nigerian Living Standard Survey (HNLSS) 2008/2009. It concentrates on OOP health payments made by Nigerian households. Government health expenditure, although an important component of health financing, is excluded, because equity policy on health care cannot be based on public expenditure when a substantial part of total health expenditure (over 60 per cent) would fall outside the analysis.

1.7 Structure of the Study

The work is organised into six chapters. Chapter One is the introduction. Chapter Two presents the socioeconomic and policy context of the study, and covers the Nigerian health system, the health financing system, health sector reforms, the policies in place for financing health care, the sources of health care financing and the health profile of the Nigerian population. Chapter Three is the literature review. It covers the conceptual literature and the theories that underpin equity in health care financing. These theories are normative, but they are discussed in the light of health care financing. The chapter also reviews the empirical literature from international and Nigerian studies and discusses the limitations of previous work. Chapter Four sets out the methodology. It briefly discusses methodological debates in health care financing, and then presents the analytical framework, the modelling of the distributional analysis of household health expenditure, the estimation techniques, the data sources and the econometric software used. Chapter Five presents and analyses the results, and Chapter Six provides the conclusion and policy recommendations.

References

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Ataguba, J. E., Ichoku, H. E., Nwosu, C. O., & Akazili, J. (2020). An alternative approach to decomposing the redistributive effect of health financing between and within groups using the Gini index: The case of out-of-pocket payments in Nigeria. Applied Health Economics and Health Policy, 18(6), 747–757. https://doi.org/10.1007/s40258-019-00520-4

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Odunyemi, A., Rahman, T., & Alam, K. (2023). Economic burden of non-communicable diseases on households in Nigeria: Evidence from the Nigeria Living Standard Survey 2018–19. BMC Public Health, 23. https://doi.org/10.1186/s12889-023-16498-7

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Ozor, O., Nwokolo, C., de Siqueira Filha, N. T., et al. (2025). Inequities in household out-of-pocket spending among urban slum dwellers in southeast Nigeria. International Journal of Public Health, 70, Article 1607969. https://doi.org/10.3389/ijph.2025.1607969

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