This study examined the socio-economic and geographic differences in illness occurrence and levels of expenditures in South Eastern Nigeria, together with policymaker and healthcare provider views on how to alleviate the financial burdens placed on the poorest by existing payment mechanisms. We found no evidence of differences across socio-economic group in illness occurrence but there was inequity in expenditures, payment mechanisms used and sources of funds to cope with the burden of payments. Policymakers and facility managers were found to assume that households have the capacity to cope with healthcare payments and there is no functioning system of fee exemptions. Policies are needed to protect the poor and other vulnerable groups against the financial risk of ill-health. Copyright © 2009 John Wiley & Sons, Ltd.