Abstract
Equity in health financing remains significant in the universal health coverage discourse. The way a health system is financed, apart from determining whether people have access to needed health services, also has implications for income inequality in a country. Traditionally, the impact of health financing on income inequality or the redistributive effect of health financing is assessed by looking at whether income inequality reduces because of health financing. This is also decomposed into a vertical component (the extent of progressivity), a horizontal component (the extent to which households with similar incomes are treated equally when financing health services) and a reranking component (whether households change their relative socio-economic ranking after financing health services). Such an approach to decomposition is mainly essential to assess the equal treatment of equals and unequal treatment of unequals in the entire population. This paper argues that in decomposing the redistributive effect of health financing, the impact of health financing on changes in income inequality between and within population groups should be investigated as they are relevant for policy dialogues in many countries. It develops a framework for such analysis and applies this to data from Nigeria. Decomposing the Gini index of income inequality using the Shapley value approach, the results show that changes in inequality associated with out-of-pocket payments for health services within the geopolitical zones in Nigeria dominate the changes in income inequality between the geopolitical zones. Although not all the results in the application in this paper are statistically significant, this framework is still useful for policies in countries that aim to use health financing to reduce, among other things, income disparities between and within defined population groups.