Macroeconomic Outcomes of Healthcare Financing Reforms in Nigeria: A Computable General Equilibrium Analysis

Health reform in Nigeria refers to the rebuilding of its healthcare system and constantly reviewing the use of the NHA. Health reform includes addressing the increase in the financial costs of national healthcare for individuals, families, and the government. It also addresses the benefits citizens receive from the service and how citizens obtain health insurance (D​i​x​o​n​ ​e​t​ ​a​l​.​,​ ​2​0​0​4). The goal of health reform is to reduce the number of uninsured individuals, families, and governments, make sure that healthcare is more affordable for citizens, and improve the quality of healthcare service across the nation. In the aspect of global health, healthcare reforms that take place in health systems across the world vary depending on various factors within the nation. Such factors that drive health reform in each country depend on the economy of the country, average per capita income expenses on healthcare, financial costs and expenditures, insurance industry structure, government support for healthcare coverage, research, and development. This initiative is progressing towards universal health coverage, which requires a concerted effort to strengthen the health system (H​s​i​a​o​ ​e​t​ ​a​l​.​,​ ​2​0​1​1).

Computational general equilibrium is a numerical method that combines economic theory with real economic data in order to derive the computational impacts of policies or shocks in the economy. This provides a framework to simulate policy changes and trace their impact on key economic variables, including income, that capture the structure of the economy and the behavioral responses of agents (firms, households, the government, etc.). (P​a​r​t​r​i​d​g​e​ ​&​ ​R​i​c​k​m​a​n​,​ ​2​0​1​0), the purpose for which we used CGE analysis is because computational general equilibrium provides an indicator for a sector that is not efficient and the implication for other sectors.

Nigeria is among the countries with a large number of maternity and under-5 deaths, and it is not on track to achieve the objectives of the key health Sustainable Development Goals (O​g​b​u​o​j​i​ ​&​ ​Y​a​m​e​y​,​ ​2​0​1​9). Health outcomes in Nigeria are weak, not just in absolute terms but also when compared to other countries with similar income per capita (A​b​u​b​a​k​a​r​ ​e​t​ ​a​l​.​,​ ​2​0​2​2). Nigeria is among the world's largest producers of oil, with a position of 13th in the world (among the largest oil producers in the world), while the country is spending less on healthcare as per GDP, which is the second lowest in the world (T​u​l​l​o​c​h​ ​e​t​ ​a​l​.​,​ ​2​0​1​7).

In addressing these challenges, Nigerian policymakers have put forward important health initiatives over the past decade, including the National Health Act, large-scale primary healthcare (PHC) programs such as the Saving One Million Lives (SOML) program, the National Health Insurance Authority Bill of 2022, and other major reforms (A​b​u​b​a​k​a​r​ ​e​t​ ​a​l​.​,​ ​2​0​2​2; K​h​a​n​,​ ​1​9​9​5).

The study shows that there has been recent interest in the household-level economic impacts of illness and out-of-pocket expenditure on healthcare in Nigeria (W​l​o​d​a​r​c​z​y​k​,​ ​1​9​9​3). We also realized that payment for healthcare at public facilities relies on private, for-profit providers, for whose services there are frequently direct payments, which constitute a major financial burden on households (O​E​C​D​,​ ​2​0​1​0). When combined with the costs of being unable to carry out normal activities due to illness, such as daily work, this has consequences for the families that lead them to poverty or are being pushed to poverty. There is also a rapid increase in international advocacy to remove the fees for primary healthcare, particularly from the British government's foreign aid organization, the Department for International Development (DfID) (H​s​i​a​o​ ​e​t​ ​a​l​.​,​ ​2​0​1​1), which proposes with various African governments to remove primary healthcare fees, calling for free access to quality basic health services for all. A lot of households use private health providers due to the poor quality of public-funded services, such as the unavailability of essential medicines, laboratory facilities, and drugs at public healthcare services. In order to gain quick access to healthcare (M​c​I​n​t​y​r​e​ ​e​t​ ​a​l​.​,​ ​2​0​0​6), some efforts have been made at the national and international level on the financing of primary healthcare (PHC) in national health systems in terms of expanding access and ensuring equity (S​i​l​v​a​ ​e​t​ ​a​l​.​,​ ​2​0​2​2). Some of their findings are that there is not a single possible financing model; it depends on the region in which you find yourself (T​e​n​d​l​e​r​ ​&​ ​F​r​e​e​d​h​e​i​m​,​ ​1​9​9​4).

These models seek to investigate the reason for urge importation of health, growth rate in the GDP, private and public consumption, investment demand, price dynamics through the taxation across the different sector most especially on the healthcare which you will find detail in our research findings, we used social accounting matrix to display the expenses of the country by dividing all the sector into three Health, Manufacturer and Other which show the distribution across the sectors, it also display the amount of health import, export, the tax collected from both domestic and importation, the subsidies pay by government across the sector, the firm contribution across the sectors, the consumption of fixed income by citizens, contribution of Rest of the world. We convert the social accounting matrix to a compartmental model to explain more about the formulation and conceptualization of our model. The compartmental model explains the same scenario as the social accounting matrix, with intermediate consumption, industry demand and consumption, household consumption, and demand by different sectors, including taxes.

We visualized our social accounting matrix for us to view the picture of our social accounting matrix before the simulation in the absence of tax and price in order to understand the basic background of the model. At the end, we simulate the social accounting matrix using some equations in the appendix to run our model together with GAMS software so that we can visualize the graphs and analyze the model. We run the model from 25% to 125% in order to see the prices, demand, and consumption dynamics under different tax assumptions. And notice that the more the tax goes up, the more the price of importation increases, but exportation and demand remain constant while supply and consumption decrease. In addition, we find out that the more the government increases the tax on both the company and the household, the more the household is far from accessing quality healthcare due to their inability to pay for the service.

Before the Social Accounting Matrix, the data to be used were reviewed and collected from the Nigeria National Bureau of Statistics office (N​B​S​,​ ​2​0​1​1) called NBS in Abuja, where we collected the 2011 input-output table of Nigeria (see Table A1, Table A2, Table A3, Table A4, Table A5, Table A6, Table A7 and Table A8 in Appendix for detail), which consists of 34 sectors and was further segmented into three sectors: health, manufacturing (MAN), and other (OT). Our interest is particularly in health finance (income and expenditure) and comparing health (income and expenditure) with Nigerian manufacturing companies and firms such as banking, services, etc. From the Nigeria 2011 I/O Table, we formulate the Social Accounting Matrix from the table, which minimized and displayed complete Nigerian expenditures in 2011. The data was granted without any limitation.

This section describes the income and expenditure of Nigeria in 2011. In the table, we are only interested in health expenditure and income after formulating our SAM and comparing it with other sectors. We computed our SAM with the 2011 I/O Table and found that in the 2011 input and output table, the health demand is about 23,371.30 in Nigeria (see Table A1, Table A2, Table A3, Table A4, Table A5, Table A6, Table A7 and Table A8 in Appendix for detail), but only 2,931,619.46 are produced in Nigeria and imports are 320,440,061.79 (Table 1, Table 2, and Table 3). Adding the two numerals, we have 323371681.25, which we assumed was an error in the Nigerian calculation of health demand. The difference is a huge amount of money. Using statistics, we derived that only 0.91% of health products are produced in Nigeria and 99.09% are imported from outside the country. From the SAM, we notice that the amount spent on health by Nigeria is approximately 0.79% of the total production of all Nigerian companies (see Table 1, Table 2, and Table 3), and the health subsidies are zero for the health sector, while manufacturing (MAN) and other (OT) subsidies are approximately 238034081.70 and 2722.95, respectively. The result shows that part of what may be causing a lot of problems for health is that the health sector is not subsidies, while other sectors are. This may be part of the issue Nigerians are facing in accessing good health conditions due to health being expensive, in which we are encouraging the government to be able to subsidy the health of their citizens for less privilege to be able to access good health. This also bridges the gaps in inequality in the health sector. Despite that, looking at the data, we realize that a lot of Nigerians are selling their property (consumption of fixed income) in order to pay for their health service, which is an out-of-pocket payment, while the remaining money is spent on manufacturing and other sectors.

Again, looking at the data (SAM), the total tax gain on importation health is around 296075682.33 which is very huge amount of money and almost equal to Health domestics production 2931619.46, this can also cause the citizen not to have access to good health because of tax imposed on health importation together with exchange rate, the implicate of the tax on health at both domestic and at world market is that the more tax is imposed on health, the more citizens we not be able to paid for the service at a particular point were citizens need to be directed to international for proper healthcare in a case when the service is not available at the domestic level some citizens may find it difficult to paid for the bills and health right may be denied due to bills, taxies and exchange rate at international level. We also critically compared the importation service charge with the government tax charge at the importation level and found out that the service charge is around 2931619.46 while the tax charge by the government is 296075682.33. This means that the amount they tax Nigerians on health imports is even more than the health service received by the patient. We did the same thing with manufacturing and other sectors. When we added up the taxes on manufacturing and other sectors (3186842.27+18987.64) and compared them to the health tax (296075682.33), we saw that the health tax was still higher than the two sectors combined.

Part of the sector that is supposed to reduce the financial cost of health expenditure to citizens is enrolling them in an insurance scheme, which is insurance firms. Due to the government, some insurance is compulsory for citizens, and we also have some private insurance in which candidates can enroll willingly, but looking at the contribution of firms to domestic health, which was approximated to be 30567.93 out of 2931619.46, is very small. Looking at the figure in terms of percentage, it was calculated to be 1.04% of domestic health services. The percentage shows that firms and insurance contribute approximately 1% to health, which is very low. We can deduce from the percentage that the insurance sector has a low turn-up in terms of enrollment compared to the total population. And at the aggregate level, it is not even significant.

Figure 1 shows how each sector is receiving from each other as it was shown in the Social Accounting Matrix with primary labour and capital and consumption of fixed income, the social accounting matrix was transform to Model for people who don’t have the knowledge of SAM to able to grape the concept we start the model by considering the LB_j who received a salary as their return for labour, seeing further the data display the distribution of it fund across the sectors (Health, Man, OT) including intermediate consumption in the SAM and C_ij in compartmental Model with government tax and KD_j who received from Capital, firms, Consumption of Fixed Income that’s individual who sell their property to paid for Health, Man and Other. The firm (YHF_j) invested in capital, paid taxes, and saved the rest of the money. The government (YG_j) does the national budget by paying to G, which includes subsidies and some intermediate government demand, Investment (INV), and saving the remaining funds for future use.

Value added (VA_j) contributes to exportation (EX_j), which leads exportation to pay her tax (TE_j), the tax is coming back to the government (YG_j), domestic market (X_j) received from the supply (DS_j) and intermediate consumption (CI_j), and the intermediate consumption gave to intermediate demand (DI_j), where quantity supply received the good from intermediate demand (DI_j), demand (DD_j), and total investment (TI). In addition, every salary-earner payment receiver (YH_sal) also paid tax to the government. After paying tax, there was no saving record from the household, which indicates that some households (YH_h) did not save for that period of time. The government paid subsidies for his people. As you can see, government savings are positive, which is unusual, but in most of the given SAM, most of the government saving in the balance sheet is always negative due to debt incurred by the government in or before the budget, but in our own, the government saving is positive due to our I/O table didn't revealing the government external debt or current debt at that particular time. If we assume we know the government deficit, then we will add it to saving, which may yield a deficit to the government balance in our SAM. The labor (LB_j) plus capital (KD_j) become value added, which is part of domestic production. Intermediate consumption, exportation (EX_j), and importation (IM_j), whose tax was recorded as part of government revenue (YG_j), importation (IM_j), and quantity demand (DD_j) yield quantity supply, where exportation (EX_j) and quantity supply (DS_j) got their goods from domestic production (XS_j).

Looking at Figure 2 and Figure 3, we can see that both health labor and capital expenses are less than in other sectors where the value added of health, man, and OT is 28461, 251302350, and 45971208.38, respectively. Value-added for Health, Man, and OT provides an important entry point for development support, including increased income, employment creation, improved safety, and security. It also helps to identify whether the institute is more effective or less effective, as well as the areas in which it is differentially effective. From the figure, we can deduce that the amount paid to the health worker is very low compared to other sectors, and similarly, the investments in health are also very low compared to other sectors, which can yield low health turn-up for both the worker and the receivers.

Figure 4 shows the quantity of demand by households in different sectors. Despite the low quantity of demand by households compared to other sectors, the government fails to meet their demand. Figure 5 shows the consumption of households and the amount paid to households, but the question is: do people not have an orientation to invest? Because labor is higher than capital, which means consumption is higher than production, this means a low level of production or investment and a higher level of consumption. Looking further, the capital is almost half of the labor, which explains why people didn’t invest, maybe due to their dependence. We need to look at this at the micro-level. Figure 6 shows the total amount of money spent on households for both capital and salary. A critical thought occurs: despite the salary, a lot of people are still selling their property to pay for something (health, man, or other). What could be the problem with the household? This can yield another investigation in the future.

Figure 7 and Figure 8 show sectoral intermediate demand and consumption. The intermediate demand for health is very high, but the supply is very low. This means there is more demand for health than supply, which can be the reason for the importation of health. Second, the health sector requires more demand, followed by the manufacturers and then other sectors. But the surprise is that in terms of distribution and consumption, health sectors come last, followed by manufacturers and other sectors, which are leading in domestic consumption. This brings to light the fact that for the health sector to fill the gaps, they need to import health from outside the country, but what are the scenarios in which other sectors receive more money that is not requested than health and manufacturers? This needs to be investigated in the future.

Figure 9 and Figure 10 show again that the health sector requires more investment than other sectors, which is equivalent to what we explained previously in terms of health demand. Figure 10 shows the basic market GDP of the sector; this is calculated by adding (health labor + health capital) + (man labor + man capital) + (OT labor + OT capital), while market price is calculated by adding taxes to the basic price GDP.

Figure 11 and Figure 12 show the importation of health products to Nigeria, which is almost half of the manufacturing sector. The amount of health imported is even greater than the amount of health produced in the country (for details, see Table 1, Table 2, and Table 3), which shows the amount of money spent on health by Nigerians in foreign countries, but we export nothing in terms of healthcare and other sectors. Even in manufacturing, research shows that the exportation indicators are raw materials we are exporting to other countries (S​a​n​i​,​ ​2​0​0​9).

Upon examining Figure 13, it is evident that the demand for Other, Manufacturer, and Health did not decrease, except at tax rates of 50% and 100%. However, the demand for other sectors remained unchanged. From an alternative perspective, at a supply level in Figure 14, it is evident that the supply for manufacturers exhibits a wide range of variation throughout, whilst the supply for health and other services remains consistently varied at 50% and 100% respectively. For the remaining portions, the appearance remains consistent at 25%, 50%, 100%, and 125%, but it differs at 75% and 150%.

In Figure 15 and Figure 16, we find that in terms of people requested, demand is not equivalent to supply; health demand is steady why the supply is not; likewise, manufacturing demand is somehow steady while the supply is not; for OT, demand is somehow fluctuating why the supply is low compared to demand for the section; in general, this figure shows that the demand for health, man, and OT are not equal to supply, which may motivate the citizen to go for additional importation.

Based on Figure 17 and Figure 18, it is evident that the importation price had a consistent rise across most sectors, with the exception of manufacturers, due to the tax hike. Conversely, the exportation price remained unchanged. This demonstrates that there is a direct correlation between the increase in taxes and the corresponding rise in import prices, while export prices remain unaffected. This implies that our product may not be well regarded in the global market, although their product may be highly regarded in our country. Furthermore, the rise in domestic taxes has no impact on the price in the global market, since the indication has not altered the price at the global market.

Compared to Figure 19 and Figure 20, it is clearly shown that health importation consumes a lot of tax, and the tax received from health by foreigners is greater than the tax of both the manufacturer and other sectors in Figure 19. This can be due to accommodation, flights, and other expensive charges together with tax at that particular moment, but for the exportation, the tax was high at the beginning and became stable at the end.

Figure 21 shows the intermediate demand and consumption. We can see that as tax increases, health demand across the sectors is fluctuating, which becomes stable at the maximum tax increment, followed by manufacturing, which is stable. Stability may be insured by the government for all the companies to avoid inflation. Figure 22 shows that consumption of OT is decreasing and MAN is still stable, while health consumption is invisible in the figure.

Looking at Figure 23, we can deduce that the total intermediate demand is fluctuating for the health sector, while the manufacturing sector is stable throughout. The situation is assumed to be the same for OT, despite the fact that the chart is not visible. And for Figure 24, all the sectors are not stable from the beginning to the end.

The labor demand in Figure 25 has been changing a little bit as a result of the tax change, but the change is in terms of reduction. Maybe people are being sacks due to the fact that the sector cannot longer pay the service fees while capital demand in Figure 26 remains constant as the tax increases from the government. This is telling us that no matter how the government increases the tax, labor and capital demand may remain the same in each sector.

Our research indicates that an increase in taxes does not diminish public demand. Rather, it primarily affects market pricing and the supply of services. Regardless of how much the government raises taxes, it does not have the ability to decrease the desired quantity of demand. Furthermore, a tax increase does not impact the global market price. Based on the findings of the previous study, it is evident that the global market remains unaffected by a tax hike. Consequently, our products lack value in the worldwide market. As the government raises taxes, more individuals are unable to afford healthcare at the local level, resulting in limited access to this service. Furthermore, it is evident that the health sector experiences a significantly higher level of imports in comparison to other sectors. This substantial influx of imports has the potential to destabilize the country’s economy. The allocation of funds to the healthcare sector falls short of meeting the demand, resulting in significant gaps. Who is responsible for filling the gaps? This gap can be addressed by implementing various initiatives such as public-private partnerships, foreign direct investment, or novel financing structures, which will result in improved healthcare and financial coverage in the country. Furthermore, we engage the government to standardize the taxation levied on the populace in order to prevent a rise in healthcare fees. Subsidies should be implemented to promote equity, and individuals should be incentivized to participate in the insurance program to prevent the depletion of residents’ fixed income.

We suggest that the government should implement regulations on household and corporate taxes to standardize the financial burden of living expenses. It is evident that as taxes increase, prices tend to rise accordingly. Additionally, we recommend that the government strive to provide comprehensive insurance coverage for all citizens, thereby eliminating the need for out-of-pocket payments. Encouraging foreign direct investment in the establishment of various hospitals would reduce the reliance on imported healthcare services, allowing the local currency to circulate within the domestic economy. Exploring alternative innovative financing mechanisms could also be considered. Furthermore, it is crucial to enhance the expertise of our citizens in areas where there are deficiencies, enabling local doctors to treat patients without the need for overseas referrals for healthcare services. The government should provide subsidies for healthcare in order to reduce the per capita cost of healthcare. Additionally, external donors and philanthropists are encouraged to support both private and public sectors in subsidizing healthcare.