WILLINGNESS TO PAY FOR HEALTH INSURANCE AMONG INFORMAL SECTOR PRACTITIONERS

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:

1. To examine the effect of household income on willingness to pay for health insurance among informal practitioners.

2. To find out the extend at which consumers’ ignorance is influencing the demand for health insurance in the informal sector.

3. To find out the link between standard of living and willingness to buy health insurance by self employed workers

4. 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;

1. What is the effect of household income on willingness to pay for health insurance among informal practitioners?

2. Will consumers’ ignorance influence the demand for health insurance in the informal sector?

3. 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.

Hypothesis Three

Ho: There is no significant relationship between standard of living and willingness to  buy health insurance by self employed workers.

Hi: There is a significant relationship between standard of living and willingness to    buy health insurance by self employed workers.

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