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Financial Literacy

Explained: What is an HMO?



What is a HMO

An HMO is an acronym for a “Health Maintenance Organisation” in Nigeria. They are companies mandated solely to manage the provision of health care services through Health Care Facilities (Hospitals, Opticians, Dentists etc) Accredited by the Scheme. Basically, they are an intermediary between the hospital and companies seeking to provide healthcare for their employees and families of their employees.

How it works

A HMO has a list of Healthcare Facilities that provide healthcare services to its clients (companies). The HMO markets its services to companies seeking to provide healthcare for its employees. Once an agreement is reached, the company pays the HMO premium (just like in insurance). The premium paid will fetch the company a coverage for provision of healthcare service subject to conditions within a stipulated period (usually one year). For example, a company that has 10 staffs who have 10 other members as immediate family and wishes to buy Insurance for the staff and family will apply directly to a HMO. The HMO will offer the company a plan or a variety of plans. Lets assume the company prefers just one plan for their staff and family of the staff. If the HMO’s Plan is N40,000 in premium per person, then the company will pay the HMO N800,000 as premium.


What can the Premium Get me?

Well that depends on the type of policy you get. Usually there are two types. Capitation and one that is like a regular Insurance. A Capitation from my experience has the following characteristics;

  1. Premium is paid periodically for all the employees covered.
  2. The employees under coverage are usually limited to one or two (or as the case maybe) hospitals during the period of the coverage.
  3. They offer different classes of coverage each with its own unique benefits. For example a Basic Plan in one of the leading HMO’s in Nigeria cost about N17,000 per member. That plan has the following benefits coverage only
  • Ambulance Service
  • General Outpatient and in-house specialist consultation
  • Admissions
  • Accident and Emergencies
  • Prescribes Medicines and Drugs
  • Minor Surgeries and procedures
  • X-rays, Laboratory & Diagnostic Test

However it excludes Primary Dental Care, Dental Surgeon Extraction, Maternity (Ante-Natal Care + Delivery and Immunization), Optical Care, Physiotherapy, Scans MRI Scans.

This off course is the least plan in their package. The Executive Plan (the highest) however covers all the above and those covered by the Basic Plan.

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4. The Hospitals will attend to you provided it is the one that you choose and you will have to show them a card from the HMO.

5. The Hospitals are paid an upfront amount called “Capitation” by the HMO regardless of whether you use them or not. In return the hospital, charge the HMO a subsidized fee for drugs and services.

A major disadvantage of this option is that, because the hospitals get money upfront there is every likelihood that they offer substandard services to reduce their cost

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The other method is an “Insurance” Option. This option has the following characteristics

1. You pay the HMO a premium periodically.
2. You are free to go to any hospital that is covered by the HMO. Meaning, unlike capitation where you get to choose one or two, you can choose an unlimited number of hospitals provided it is covered by the HMO.
3. Your premium can however only fetch you a limited amount of coverage. For example, a popular HMO that runs this service has a plan that cost N32,000 per person. This amount has a maximum coverage of N450,000 per person (7.11% premium).
4. The coverage also has limits that it will not cover. These are “General Exclusions” such as;

  • All MRI, CT Scan, Mammogram
  • Acute & Chronic Renal Dialysis
  • Drug and Alcohol Abuse Rehabilitation
  • Spinal Cord and Brain Injuries
  • Diagnosis for infertility
  • Management of Psychiatric Conditions
  • Injuries arising from professional sports

Usually any other diagnosis that is not in the excluded list is under coverage.

5. Treatment excluded as above can be provided on a “fee for service basis”. Meaning you pay them a separate amount for that as premium.
6. Hospitals are paid on a per treatment basis. Meaning they only pay hospitals when diagnosis or treatment is performed on a patient under cover. As such they do not pay capitation.

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A major disadvantage of this for companies is that some of the HMO’s may not be able to pay the hospital due to mismanagement of funds or lack of proper risk assessment. For example, to minimize risk, HMO who practice this method usually go for companies with a large staff strength. This gives them a large pool funds which can mitigate the risk of a large coverage. Just like in Insurance they do not expect every one the staff in the large pool to fall sick as the larger the staff the lesser the risk of medical expense.

However, risk arises if they fail to manage the funds they obtain. As such, they usually have good Insurance background and should invest the funds in good assets to ensure their risk is adequately mitigated.  Without this, a company that is not managed probably, may not be able to service the medical bills adequately which in turn means the hospital will deny medical services for employees.

Which is best for my company?

Companies have different characteristics as such it may be difficult to recommend a particular type of coverage. Most times, people like to deal with one or two hospitals to ensure that their medical history is properly tracked and managed rather than change hospitals randomly. Large companies usually have the privilege of employing Heath Economics Experts who can determine a good package relative to the size of the company.


Irrespective of the HMO you use it is often times an effective way to manage cost and budget for payroll cost. For example they can set budget for medical cost which is mostly more than the premiums they pay for insurance. For example, your medical budget may be N1m per annum. You can get a HMO plan of N500k for your staff, saving you N500k. Some companies in this case write back the N500k to profit. Some others, use it to offset medical bills, where some or all of their staff exceed limit in the insurance scheme or require extra medicare in the fee for service scheme under the Insurance or Capitation Scheme. Either way, your medical cost is managed optimally.


Companies with a staff strength of more than 5 are expected to run a health insurance scheme. From a financial point of view HMO’s are cheaper and take away the risk of having to provide healthcare for staffs that suddenly fall ill at a time when the company is short of cash. It also takes away distractions as your staff concentrate more on your business operations rather than having to manage medicare issues with hospitals.


Payroll cost is also reduced as they do not need to include medicals in salaries of staff. For example some companies pay their staff medicals of N100,000 annually as part of their salary. They pay this amount regardless of whether they fall sick or not. For a company of 50 staffs that is N5m. With a HMO such as illustrated above, they may just need to pay just N40k per staff or N2m for all of them. They can also track their yearly spend which can be useful in negotiating premiums with the HMO’s during renewal. Individuals can also use this scheme whether or not they have a company or not.

Government officials and Civil Servants are covered by a similar scheme managed by the NHIS (National Health Insurance Scheme). These are names and addresses of some HMO’s

This article first appeared on Nairametrics on March 27, 2012.


Ugo Obi-chukwu "Ugodre" is a chartered accountant with over 16 years experience in financial management, corporate finance and financial analysis. He is also a retail investor and a personal finance advocate with over a decade experience investing in the Nigerian stock market. Ugo is the founder/Publisher of Nairametrics and blogs regularly on the website.



  1. trae_z

    August 30, 2012 at 6:33 am

    Broke my femur over a month ago and now by fire, by force i have to take this HMO thing seriously. Thanks for breaking it down like you always do. Cheers!

  2. Dada Ademide

    August 17, 2017 at 12:40 pm

    How can I as a counseling student work for HMO when am done next year

  3. Mariam

    May 10, 2019 at 11:55 am

    Please can’t an individual register for HMO?must it be only a company registering its employees?

    • Alfred Akuki

      May 10, 2019 at 2:16 pm

      Hi Mariam, you can register for a health insurance cover as an individual from any HMO.

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Why CBN’s Intervention loans are not enough to help SME’s stimulate the economy 

Since access to finance is a key constraint to SME growth, funding it has become paramount.



SME's, Here’s why your business needs a solid value proposition (PART 1)

Small and Medium Enterprises (SMEs) play a major role in most economies, particularly in developing countries. According to the World Bank, they represent about 90% of businesses and more than 50% of employment worldwide. Formal SMEs contribute up to 40% of national income (GDP) in emerging economies and these numbers are significantly higher when informal SMEs are included. The World Bank predicts that “600 million jobs will be needed by 2030 to absorb the growing global workforce, which makes SME development a high priority for many governments around the world.  

Since access to finance is a key constraint to SME growth, funding it has become paramount. This has birthed a myriad of programs ranging from incubators to accelerators both locally and internationally giving out loans, grants, and other resources to ensure that the sector is equipped to create jobs and stimulate the overall economy. There have also been federal grants and other forms of support given to SMEs. Since the outbreak of the Covid-19 pandemic, SMEs have been prioritized as recipients to loans and other stimulus packages. The CBN’s N50 billion Targeted Credit Facility (TCF) geared towards supporting SMEs and households whose economic activities have been disrupted by the COVID-19 pandemic, is just one of the different packages that have been put in place to cater specifically to it.  


Explore Economic Research Data From Nairametrics on Nairalytics

While there is data to back the impact SMEs have on our economy, it is true that even though small businesses help the economy, not all small businesses will contribute to the dream – or even survive past its early years.  According to The Better Africa report, by Weetracker, an African digital media company, the top 5 countries that experienced the highest shutdown rates among start-ups between 2010 and 2018 were Ethiopia at 75%, Rwanda at 75%, Ghana at 73.91%, Zimbabwe at 66.7%, and The Democratic Republic of the Congo (66.7%). Failure rate for start-ups in Nigeria averaged 61% over the same period. What this means is that if small business loans are being given to businesses at random in Nigeria, 61% of those businesses are bound to fail and the monies given, completely lost.  

The small business loans being offered by the CBN is a good step in the right direction. However, determining whether it ends up in the hands of the startups that are viable enough to scale and create the jobs or the larger percentage that will fail, depends to a large extent on how they are selectedIn disbursing the loans, there must be clear methods of choosing the recipients. CBN’s N50 billion Covid-19 intervention fund for SMEs in conjunction with NIRSAL Microfinance Bank, simply noted that it would appraise and conduct due diligence applications before sending them to the applications to the CBN for final approval, to CBN for review. The results will tell their story. 

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Why the economy needs more than loans 

The CBN giving out intervention loans is just one part of finding the solution – and this too does not say much about the amount in loans being given and their effect on the economy at large. If it’s too little to make any real difference, then it might only buy many of these businesses a few more months of dogged survival, after which all will be lost.  

The overall operating environment must be able to stimulate growth either through favourable tax incentives for specific industries, moratorium on other forms of loans, or just the provision of basic infrastructures like electricity and speedy internet services.  

READ ALSO: What Nigerian MSMEs must do to thrive in the new normal

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Another important thing is to ensure there is a ready market for businesses within the country. Even with the right federal loans, a business having no ready market will sink its funds into inefficient marketing. This ready market, however, has a lot to do with the ease of local production to ensure competitive pricing, further curtailing the proliferation of imported items, and more. 

In other words, economy will benefit even more from its overall development. The loans might help but, overall, there is unlikely to be sustainable exponential growth until the things that should be in place to expedite the development process exists. 

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How Nigerian SMEs can survive high mortality rate

SMEs are a very important economic catalyst in developing and industrialized countries.



More than 40 SMEs in Lagos shut down due to economic crisis

In Nigeria where unemployment is a serious issue, the local businesses have a special position in the industrial sector because it has created employment and has been able to utilise labour. The local businesses, otherwise known as SMEs which means, Small And Medium Enterprise are everywhere, found on every street and corner as they surround us.

There is however no universal definition of SMEs that is widely accepted as it differs and varies from countries, but this is usually based on employment, assets or combination of the two. Institutions and organizations define SMEs in different ways depending on the purpose and the objective. Take for example, according to Organization for Economic Co-operation and Development OECD (2005) SMEs are considered to be independent firms that employ less than a given number of employees. However, SMEs were classified in terms of size, and financial assets.


The Small and Medium Industries and Equity Investment Scheme (SMIEIs), defined SME as an enterprise with a 200 million naira maximum asset base, with the exclusion of land and working capital and with a workforce of not less than 10 employees and not more than 300 employees. Akabueze,(2002).

Explore Economic Research Data From Nairametrics on Nairalytics

The Third National Development plan of Nigeria (1975 – 1980) defined a small scale business as a manufacturing firm that employs less than ten people, or whose machinery and cost of equipment does not exceed N600,000
The Federal Government Small Scale Industry Development Plan of 1980 defined a small scale business in Nigeria as any manufacturing process or service industry, with a capital not exceeding N150, 000 in manufacturing and equipment alone.

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These definitions give a clearer explanation as to how the meaning of SMEs differs and varies. However, just to give you a clearer understanding of what local businesses or SMEs mean, they are independently owned organisations that require less capital and less workforce and less or no machinery. They are ideally suited to operate on a small scale to serve a local community and to provide profits to the business owners.

READ MORE: FG to disburse N97.3 billion to tech innovators, agric enterprises

Most enterprises in Nigeria, most of which are in the commercial sector are categorized as small businesses. The role of the small and medium enterprises towards the development of Nigeria is of great importance as it has contributed greatly to the country in terms of growth and development and also in providing employment opportunities.

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From seminars to workshop initiatives for SMEs both locally and internationally, a lot is being said about SMEs all over the World.

According to the Central Bank of Nigeria report (2003), SMEs are a very important economic catalyst in developing and industrialized countries.

According to the United Nations Industrial Development Organization (UNIDO), developing countries can conquer poverty and inequality by democratizing, deregulating, and liberalizing the integration of the global economy. Recent studies have shown that SMEs contribute to over 55% of GDP and over 65% of total employment in high-income countries also that SMEs and informal enterprises account for over 60% of GDP and over 70%of total employment in middle-income countries (OECD, 2004).

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READ ALSO: These Nigerian businesses are being affected by COVID-19

However, considering the term “small”, there’s a whole lot of enormous challenges that come with it. In Nigeria, the factors working against the development and growth of local businesses are quite numerous, some of which include:

1. The issue of funding is a major problem with SMEs in Nigeria. However, the problem is not how to source it but the accessibility to either short or long term loans.


2. Lack of infrastructural facilities is a serious impediment to the performance of SMEs. The problem of inadequate infrastructural facilities includes electricity, good road network, availability of potable water, and solid waste management. These infrastructures are left to the business owners to provide themselves.

  1. Poor Management and Low Entrepreneurial Skill Base is a serious clog in the survival of small businesses as there is a lack of essential and required expertise in business which leads to wrong and costly decisions and mismanagement.
  2. Entrepreneurs often blame their failures on inadequate sales. However, the problem lies with poor marketing skills that could help promote their sales.
  3. Most entrepreneurs go into business without proper planning by taking a realistic view of what their strengths and weaknesses are, let alone giving careful consideration and analyzing the economic trends or business conditions in that particular sector of activity, which sometimes leads to mishandling when the business starts to expand.
  4. The root of most employee problems in Nigeria is poor personnel management. They put aside personnel matters till crises set in. Such crises usually pose serious threats to the firm’s survival if they are not promptly looked into.
  5. The harsh deteriorating macroeconomic environment in Nigeria has adversely affected the performance of small business enterprises and has posed as a major challenge to their survival and growth. Most small business enterprises are struggling with the problem of uncertainty caused by the unstabilized macroeconomic environment and policy shifts.

With all of this ongoings, some of the solutions preferred to ease these challenges include:


1. The need for government, and non-governmental organizations to create Seminars and workshops initiatives and other forums, to establish a platform for the interaction of SMEs owners/managers with others which can help to improve on their management capabilities.

2. Government should also provide the necessary infrastructures in order to ease the burdens and thereby encourage and promote rural industrialization.

3. The SME owners/managers should strive to develop effective marketing strategies in order to boost business operations which will become profitable.

4. It is important for SMEs to develop good personnel management policies to avoid crises that could affect their business.

5. Local business owners should take to proper planning, realizing his strengths and weaknesses before diverting into any business to avoid mishandling.

6. Goverments should help create a macroeconomic environment that is stable as it will enable these local businesses to make reasonable forecasts on costs, turnover, and return on investment.

7. The government should help in making funds easily accessible to SME owners/managers, be it short or long term loans that could help to encourage them to execute their business plan.

8. SMEs operators should also develop their competences in managing and sustaining their businesses by constantly engaging in training, research and development.


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Personal Finance

Emergency Fund: Can you raise N50,000 cash tomorrow?

Focus on building up your emergency funds before building a portfolio of assets.



Emergency Fund

Can you raise N50,000 cash tomorrow? Yes cash, without selling any asset of yours; Can you? This is a very important question you need to ask yourself. One generally accepted lesson from the 2020 economic downturn for both corporations and individuals is to always have an emergency fund (EF). So, what is an Emergency Fund? How is it set up? How is it used? Let us explore.

What is Emergency Fund

An EF is a savings account set up to pool and hold a minimum of three months of calculated Non-Discretionary Income (NDI). The EF is advised as the first activity any investors should undertake. Specifically, before even investing a cent, set up and maintain an EF because this fund acts as an “insurance” or stop-gap for your income or investment portfolio.


How is an Emergency Fund set up?

An EF captures a minimum of three months of Non-Discretionary Income (NDI). What is NDI? These are expenses incurred that must be settled irrespective of income. For instance, rent must be paid, groceries must be paid, we cannot simply stop paying utility bills because we lost our job and thus income.

Once we decide on an investment plan, the first thing to do is to list out all expenses we will incur and attach a cost to them per month or annual basis but corresponding to the period of payment. We do this to identify the necessary expenses which we refer to as the NDE.

List of expenses

  • Rent N1,500
  • School fees N500
  • Camping/Holiday N300
  • Go to Movies N100
  • Groceries N400
  • Cable TV N200
  • Gas for cars N200
  • Phone Bill N300
  • Eating out Dinner N200

Total expenses for the month are 3,500

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Next, decide which of the expenses listed above are Non-Discretionary. In other words, which of these expenses must be settled irrespective of income? Let us assume our client chooses the following as NDE:

  • Rent N1,500
  • School fees N500
  • Groceries N400
  • Gas for car N200
  • Phone bills N300

These expenses above come to a monthly NDE of 2,900, with a three months minimum of 8,700. This minimum sum means that should the client lose his job or suffer any other income interruption, these necessary expenses will be paid from the emergency fund, without the need to sell down investment assets at fire-sale prices just to raise income.

How is it used?

The Emergency Fund is simply a piggy bank. Once it is set up, you can increase the minimum saving from 3 to 4 and as high as you want to go. What is does is insulate your investment portfolio from losing any compounding or dissipation in principal because you must sell.  So, if there is income interruption due to job loss or you simply want to take a long holiday and write a book, you can do so and still meet your expenses from these savings.

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An EF is not only for downturns, as it is also good for opportunities. A friend of mine bought an almost brand new car from a work colleague that was emigrating abroad because he could pay cash immediately in short notice. Cash is always king when you are in a tight negotiation with a seller.

Your Emergency Fund should be kept in cash or near cash investments. Return on investment for the EF is secondary to access to those savings. Also, you want your EF in an investment class with fixed income with no variation in returns. this means in practical terms do not invest your EF portfolio in equities that pay a variable return or even any asset which may need documentation and visits before you can access your funds. I am also wary of a commodity like gold, which does hold value, but cannot easily be converted to cash. The recommended asset classes to invest your EF are:

  1. Call or Fixed Deposit in Banks
  2. Sovereign Treasury bills, they are easily discounted and converted to cash
  3. Certificates of Deposit with bank

If the asset call cannot be converted to cash in one activity should be avoided. Also, ask the institution if they charge fees for early withdrawal and what those fees are.

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What can I do tomorrow?

  1. Start an emergency fund immediately. Do the expense exercise, determine your Non-Distortionary Expenses, start to build up a savings pot.
  2. Focus on building up your emergency funds before building a portfolio of assets.

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