ABSTRACT
In recent times, health insurance which seeks to reduce the financial bottlenecks that surrounds access to healthcare has gained much prominence in low-income countries. This may partly be attributed to the observed negative impacts of unanticipated health shocks on poor and vulnerable households in developing countries. A number of African countries in recent years have piloted universal health insurance schemes to provide some basic coverage for all their citizens. However, the impact of universal coverage of health insurance beyond health care utilization in developing countries is not well understood. Ghana introduced the National Health Insurance Scheme (NHIS) in 2003, in this regard, to provide healthcare services to its citizens at an affordable cost, to remove the challenges that exist as a result of incurring excessive out-of-pocket health expenditure in the event of health shocks and to eliminate the traditional system of „cash and carry‟ (pay before treatment).
This study empirically examines the impact of health insurance coverage on household savings behavior and children‟s educational investments in Ghana. In terms of impact on educational investments, the study further explores heterogeneous effects of NHIS on different components of children‟s educational investments. Data for the empirical analysis was obtained from the nationally representative sixth round of the Ghana Living Standards Survey (GLSS 6) 2012/2013. Addressing possible endogeneity due to the non-random enrollment to the NHIS, the propensity score matching (PSM) estimation technique was adopted to examine the causal impacts of NHIS coverage on household savings and children‟s educational investment. The analysis reveals that households enrolled in NHIS tend to save approximately 15 percent more than
households that are not enrolled. In terms of educational investments, the study finds that households enrolled in NHIS tend to invest approximately 20 percent more in their children‟s education than households that are not enrolled. The disaggregated effects show that the extra income from health insurance coverage is channeled into payments for extra classes or tuition and the purchase of books. The study finds little impact of NHIS on regular tuition, examination fee payments and payments for sport activities. Overall, households on average invest more in their children‟s education than save.
Keywords: National Health Insurance Scheme, household savings, Educational investment.
CHAPTER ONE
INTRODUCTION
Background to the Study
The health status of individuals and households are of great importance to all countries. A healthy person is more likely to engage in productive activities to generate income. Low- income households are deeply affected when faced with unanticipated health shocks (Kolukuluri, 2018). Without health insurance mechanisms, households would have to make out-of-pocket health expenditure to mitigate the effect of health shocks. This situation leads to poor health conditions especially when households have less income to embark on such expenditures. Also, it increases the risk of bad economic outcomes (Kolukuluri, 2018). Health shocks have the tendency to aggravate poverty situations by reducing savings and investments in children especially in low-income countries.
Studies by Whitehead et al (2001) and Kolukuluri (2018) maintain that, households in low-income countries may fall into long lasting poverty due to high cost of healthcare. Their view is not different from Leive and Xu (2008) and Wagstaff (2008) who both maintained that, poor households are at a higher risk of sinking deeper into poverty due to health shocks. In the event of health shocks, households will have to spend so much on healthcare. Such expenses range from medical services to purchasing drugs (Asenso-Okyere et al., 1997; Leive & Xu, 2008; Alfers, 2013). This situation may prevent households from saving and investing, which are needed to break the poverty cycle. Again, households would have to withdraw their savings and investment in order
to take care of these unanticipated health needs. The situation may give rise to lower savings and investments and perpetuate poverty.
Access to quality healthcare at an affordable cost can therefore create an avenue for individuals or households, especially the less privileged in society to better deal with health shocks. The World Health Organization (WHO) recommended Universal Health Coverage (UHC) to ensure that every individual has access to healthcare without any financial hardships. In recent times, many sub-Saharan African countries such as Ghana, Kenya, Nigeria, Uganda and Tanzania have introduced universal health insurance schemes to increase access to healthcare and mitigate the detrimental effect of health shocks on households. However, the impact of health insurance on household behavior have not been well examined and for that reason this study seeks to examine the impact of health insurance coverage on households savings and investment in children‟s education in Ghana.
Ghana started the implementation of a Universal National Health Insurance Scheme (NHIS) in 2003. Prior to the introduction of the NHIS, the system that operated was the “Cash and Carry” System where patients have to pay before treatment is given even in car accident situations. This system prevented many poor households with little savings from accessing healthcare and this heightened the inequality in access to healthcare in Ghana (see Asuming, 2013). Under this system, the poor cannot afford to make out-of-pocket expense and therefore are faced with prevalence of ill-health and continuation of the poverty cycle. The evidence on the impact of health insurance on individual and household savings is inconclusive. For example Chou et al. (2003) is of the view that, in order not to be caught by surprise in the event of health shocks,
households tend to save more to mitigate the effect of unanticipated shocks. Similarly, Cheung and Padieu (2013) opined that higher savings is needed to address the problems that arises from unanticipated health shocks. Starr-McCluer (1996) on the other hand maintain that, with health insurance coverage households do not have to spend so much money on medical expenditure in the event of shocks, as such they can save for purposes other than health, consume more and invest. One form of this investment is the investment in children‟s education. The study of Hsu (2013) and Qui (2016) were consistent with the findings of Starr-McCluer (1996). Specifically, Hsu (2013) maintained that health insurance coverage reduces household‟s health expenditure and increase savings. Also, Qui (2016) is of the view that households with health insurance coverage stands a higher chance of owning stocks and investing large fractions of their assets in stock compared to uninsured households.
Households engage in saving for several reasons some of which include; the need to leave behind inheritance for children and family members (bequest motive), future uncertainties (precautionary motives) and the means to cater for temporary inequalities between consumption and expenditure (life cycle motives) (Kimball, 1990; Horioka & Watanabe, 1997; Ercolani, 2016). Some scholars have argued that savings can alleviate poverty through the provision of investment opportunity (Dupas & Robinson, 2009), quasi insurance (Dupas & Robinson, 2009) and mental accounting (Dupas & Robinson, 2009; Rutherford & Arora, 2009). Klasen et al. (2015) opined that savings increase resilience to economic shock and reduce vulnerability to poverty. This goes to confirm that savings is a very important socio-economic variable that cannot be over looked.
It is important to reduce current poverty but also very critical to break intergenerational poverty from parents to children. For this reason, the study also examines the impact of NHIS on household‟s investment in children‟s education. The failure to invest in education may be costlier than the actual cost of investing in education (Levin, 1972; Levin, 2008). According to Surr (2017) a household will not be able to compete if it fails to invest more in its members. Heckman et al. (1999) are of the view that investing in early education and for that matter children‟s education can yield higher returns in the future.
At the macro level, education leads to the development of human capital which is a prerequisite for a country‟s development (Suryadarma & Suryadiha, 2006; Foster & Rosenzweig, 2010). Otieno (2016) on his part stated that, educational investment is very important for economic growth and development. Evidence available suggests that the average rate of returns for an additional year of schooling in lower and middle-income country is about 10 percent.
The direct benefit of education is accrued to the household and therefore the need for the households to invest in the education of its members, especially children (Levin, 2008). Failure to invest in education has two major consequences thus micro and macro level implications; at the micro level, inadequate or no investment in education will lead to lower levels of education and income. This situation makes it difficult to break the poverty cycle leading to intergenerational poverty. In a quest to generate income and sustain consumption levels, victims of less or no education tend to involve themselves in risky job (risky activities) with huge health risk that normally also yields lower returns. Less education also hinders the socio-economic stability of households. At the macro
level, failure to invest in education can lead to higher public spending (Levin, 1972; Levin et el., 2007).
Problem statement
Researchers such as Nurkse (1953) and Myint (1967) opined that low income countries are faced with a vicious cycle of low income which translates into low savings, low investment and back to low income. This vicious cycle if not tackled through measures that seek to improve savings can lead a country into poverty and perpetual stagnation. Whereas savings have doubled in Eastern Asia and some developed countries, there has been a drastic reduction in savings in Sub-Saharan Africa (SSA) (Elbadawi & Mwega, 2000; Nwachukwu & Odigie, 2011) of which Ghana is not an exception (Larbi, 2013). The average savings rate in Ghana has been fluctuating since the 1970s. Private savings declined from 14.14 percent of GDP in 1974-79 to 7.33 percent of GDP in 1980-85 (Larbi, 2013). There was a further decline to negative 0.15 of GDP in 1986-93 (Aryeetey & Harrigan, 2000).
In recent times the savings rate in Ghana is far below that of other countries in the sub-region. For example, the average savings in Ghana between 1980 and 2001 was 6.4 percent of GDP compared to 37.4 percent of GDP in Botswana, 21.4 percent in Cameroon, 21.6 percent in Nigeria, 13.9 percent of GDP in Kenya for the same period (World Bank, 2003). Between 2000 and 2004, Ghana recoded an average savings of 6.87 percent of GDP (Larbi, 2013). The savings rate in Ghana declined from 6.1 percent of
GDP in 2006 to 3.8 percent of GDP in 2007. In 2008 when Ghana is said to have recorded the highest growth (8.1%) in decades, its savings rate was 2 percent of GDP.
Currently, the saving rate of Ghana is lower than the average for the ECOWAS region. Data from OECD National Accounts and World Bank national accounts data files indicates that the average savings rate in Ghana was 5.7 percent of GDP in 2017, which is far below that of the ECOWAS region (9.9%) in the same period. This low rate of savings is quite alarming and therefore there is the need for attention to be focused on improving savings.
