Financing NHIS in Ghana

BY: Leslie Dwight Mensah
Dr Samuel Annor — CEO of the National Health Insurance Authority (NHIA)
Dr Samuel Annor — CEO of the National Health Insurance Authority (NHIA)

When it comes to social insurance provision in Ghana, the National Health Insurance Scheme (NHIS) is the jewel in the crown. The scheme, which guarantees health care that is free for most conditions at the point of delivery, benefits roughly 40 percent of the population.

In contrast, the SSNIT pension scheme, another major social insurance programme, benefits less than 10 percent of the retirement-age (60+) population. In its first four years (2005-08), the NHIS ran surpluses fairly comfortably as revenues outstripped expenditures.

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Since 2009, however, the scheme has been in deficit each year, as the combination of a growing membership, rising hospital attendance, and increasing healthcare costs pushed up expenditures to overtake revenues.

Inevitably, this has put the scheme under strain and engendered continuing calls for additional financial resources to stem the deficits and enable the NHIS to continuously deliver on its promise to members.

Tax revenue to fund scheme


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A prominent proposal, which is being championed by the NHIS’ management, is that more tax revenue should be earmarked to fund the scheme, since its existing sources of funding—a 2.5 percent tax on personal incomes, a 2.5 per cent levy applied as a value-added tax, and user premiums—are insufficient to satisfy current and future requirements.

Among others, it has been suggested that so-called sin taxes on sugar, alcohol and cigarettes be raised to fund the scheme. The managers of the NHIS also want more money to be taken from workers’ earnings and a higher levy or additional value-added tax revenue set aside for the benefit of the scheme.

The idea of earmarking (hypothecation)—that is, legislating for revenue from a tax, or a portion of total tax revenue, to be used to pay for some public programme—is always appealing at first thought.

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However, in the light of earmarking intrinsic disadvantages and Ghana’s experience with the practice, we ought to be skeptical about the suggestion to boost funding for the NHIS this way.

Advocates of earmarking say that it ensures automatic and continuous funding for essential public programmes.

This argument lacks enough persuasiveness, because many programmes receive constant budgetary allocations without being tied to any tax revenue. We can think of the capitation grant policy and the school feeding programme as examples.

It needs also be understood that earmarking revenue for a programme does not guarantee its adequate financing. The NHIS is a prime example, as it could not avoid incurring deficits for almost a decade despite its statutorily-guaranteed revenue. The Road Fund, which has been around for more than three decades, has not resulted in satisfactory maintenance of our roads, which is the primary reason for which it was established. It is much the same situation with other earmarked funds.

On the other hand, the evidence (see the publications Revenue Earmarking in Ghana: Management and Performance Issues and Fiscal Rigidities and their Effects in Ghana at www.ifsghana.org) shows that earmarking gives away budgetary flexibility and control that is not necessarily repaid by superior management of taxpayers’ money. The proliferation of earmarking arrangements in the Fourth Republic made it increasingly difficult for ministers of finance to reset the budget’s priorities and control spending to ensure fiscal sustainability. More often than not, transfers to earmarked funds were in arrears, undermining the performance of the programmes which they funded and causing inefficient spending.

The decision since 2017 to place a ceiling on expenditure allocated through earmarking has offered some fiscal wriggle room to the government in a time of deep fiscal stress.

The limitation of aggregate earmarked spending to 25 per cent of tax revenue implies that the proportion of total revenue subject to earmarking is capped, irrespective of the number of earmarks. But it would not be prudent to expand hypothecation for this reason, because more of it obviously reduces the amount of money that can be given to each earmarked fund within the legislated ceiling, which makes each fund worse-off ultimately.

Augmenting the NHIS resources

So what should be done to augment the NHIS’ resources then? The start-off point is to decide the agenda and goals of the NHIS for the next, say, five years. Will it include to attain universal coverage, or maybe 60 per cent or 70 per cent coverage? Will it include an increased or reduced coverage of disease conditions? Will it include to improve the quality and timeliness of care, based on some measurable metric? And so on.

After setting the agenda and goals, the money the NHIS will need to achieve them should be compared with its expected income to establish any deficits. The next step will be discussion and negotiation around how the deficit will be met.

It is necessary that all choices are put on the table for consideration. The NHIS management, for one, will have to be tied to some operational cost-savings (efficiency-improving) targets that could help to shrink the deficit. Non-fiscal revenues—that is, user premiums—may have to contribute their part by the government reviewing the current exemptions policy. And although additional fiscal revenue will be required, it does not call for earmarking.

If we work hard to grow our general tax revenues, including by effecting the necessary adjustments to the tax system to make it more productive, efficient and equitable, we should find more money from there to give to the NHIS.

While we contemplate increasing resources to the scheme, we should also be looking to demand greater performance and accountability from its managers. Often this other side of the funding coin is neglected in discussions. The receipt and use of public funds must go hand in hand with accountability for results.

We will, therefore, need to establish clear annual performance targets for the NHIS in pursuit of its medium- to long-term policy goals. These targets, which should be transparent to the public, will form the basis for holding its managers accountable for results.

For a decade and a half, the NHIS has been the backbone of the system of healthcare financing in this country. Its value to securing the health of the populace is not in doubt. Its own health is of concern at present.

To secure it, crucial decisions have to be made. This requires careful thinking and analysis, bearing in mind that the strength of the scheme is linked inextricably with the strength of the fiscal system that backstops it.

The writer is an economist at the Institute for Fiscal Studies (IFS) Ghana.