Financing Micro Health Insurance

Theory, Methods and Evidence

David Mark Dror

• Publisher: WSPC
• Year: 2018
• eBook ISBN: 9789813238497
• Topic: Physical Sciences
• Subtopic: Condensed Matter

Healthcare for all at affordable prices is still a major but universally elusive goal. Everyone spends money on healthcare, and it is the most impoverishing consumption item. Thus, most governments (and the United Nations) promote Universal Health Coverage — each country's unique blend of tools for healthcare financing, including taxes, subsidies and market controls.

Most people in low- and middle-income countries (LMICs) have no health insurance of any kind. And most LMIC governments lack the political will, information, or resources to require their citizens to buy health insurance themselves or to subsidize insurance for all who cannot afford the price. This book deals with financing voluntary and contributory health insurance for resource-poor and rural groups in LMICs.

This book addresses three issues. The first is how to catalyse demand for health insurance and develop insurance literacy among the largely illiterate and innumerate target population, using training programs to build an enabling consensus, allowing locals to create and administer such schemes. The second involves the process of developing simplified methods for risk assessment, which can help to underwrite risks, price the micro health insurance schemes, and ensure proper implementation. The third issue is formulating a compelling business case which would make this health insurance affordable, financially sustainable, and operationally scalable.

This book develops insurance education and financial literacy for students of economics, business administration, insurance, development studies, and social work to prepare them for practical work as implementers, policymakers, or evaluators. A supplementary section for teachers and students includes comprehension questions.

Contents:

• About the Author
• About the Contributors
• Acknowledgments
• Synthesis
• Theory:
  • The Demand for (Micro) Health Insurance in the Informal Sector
  • The Effect of Consensus on Demand for Voluntary Micro Health Insurance in Rural India
  • 'One for All and All for One': Consensus-building Within Communities in Rural India on Their Health Microinsurance Package
  • Willingness to Pay for Health Insurance
  • • The Elusive Quest for Estimates of Willingness to Pay for Health Microinsurance
    • Estimating Willingness-to-Pay for Health Insurance Among Rural Poor in India by Reference to Engel's Law
    • Systematic Review of Willingness to Pay for Health Insurance in Low and Middle Income Countries
  • Hardship Financing of Health Care Among Rural Poor in Orissa, India
• Methods:
  • Illness Mapping: A Time and Cost Effective Method to Estimate Health Care Data Needed to Establish Community-based Health Insurance
  • A Model to Estimate the Impact of Thresholds and Caps on Coverage Levels in Community-based Health Insurance Schemes in Low-Income Countries
  • Do Micro Health Insurance Units Need Capital or Reinsurance? A Simulated Exercise to Examine Different Alternatives
• Evidence:
  • Health Insurance Benefit Packages Prioritized by Low-Income Clients in India: Three Criteria to Estimate Effectiveness of Choice
  • What Factors Affect Voluntary Uptake of Community-based Health Insurance Schemes in Low- and Middle-Income Countries? A Systematic Review and Meta-Analysis
  • Building Awareness to Health Insurance Among the Target Population of Community-based Health Insurance Schemes in Rural India
  • Mobilizing Community-based Health Insurance to Enhance Awareness and Prevention of Airborne, Vectorborne, and Waterborne Diseases in Rural India
  • Enrollment in Community-based Health Insurance Schemes in Rural Bihar and Uttar Pradesh, India
  • Implementing a Participatory Model of Micro Health Insurance Among Rural Poor with Evidence from Nepal
  • Microinsurance: Innovations in Low-Cost Health Insurance
  • Can the Rural Poor in India Afford to Treat Non-communicable Diseases?
  • 'First We Go to the Small Doctor': First Contact for Curative Health Care Sought by Rural Communities in Andhra Pradesh and Orissa, India
• Impact:
  • Field-based Evidence of Enhanced Health Care Utilization Among Persons Insured by MHI Units in Philippines
  • Impact of Community-based Health Insurance in Rural India on Self-Medication and Financial Protection of the Insured
  • The Impact of Filipino Micro Health Insurance Units on Income-related Equality of Access to Health Care
• Author Index
• Subject Index

Readership: Students of economics, business administration, insurance, development studies, and social work, policymakers, and implementers of micro health insurance.Microinsurance;Micro Health Insurance;Health Insurance;Community-Based Health Insurance;CBHI;Demand for Health Insurance;Willingness to Pay for Health Insurance;Microinsurance Package Design;Implementation of CBHI;Business Case of Microinsurance00

Chapter 1

Synthesis*

“If you think you are too small to be effective, you have never been in bed with a mosquito.” (Betty Reese)

“In order to change, we must be sick and tired of being sick and tired.” (Anonymous)

All people spend money on their health care. What triggers their decisions to spend, how much to spend, when to spend it, and how to obtain that money, can make all the difference.

Governments of most high-income industrial countries promote Universal Health Coverage (UHC)¹ in an attempt to limit individuals’ out-of-pocket spending (OOPS). UHC is the “code name” for each country’s particular blend of taxes, dedicated contributions, regulations obliging individuals to be insured, and other price and market controls, for ex-ante health care financing.² These measures are designed to propel and control the supply of health insurance (HI) and the supply of inputs for health care delivery (staff, perishables, medicines, buildings, equipment, hospitality, and other services). Most low- and middle-income countries (LMIC) generally follow the early models but with their more limited resources, smaller subsidies and limits on individual mandating in order to reach formally employed groups. These limits leave most of the population unprotected, especially rural dwellers and unsalaried self-employed workers whose activities outside the formal sector are subject to weaker governmental supervisory, regulatory, and organizational control (Schanz and Wang, 2014). Attempts to provide health care have been least effective in rural and informal settings where most of the world’s poorest people live and work.

The shortage of public health care facilities, especially in rural areas, has prompted the rural poor to seek care from nearby private practitioners (most often non-degree allopathic practitioners), paying high — and increasing — health OOPS at the time and place of receiving care (Jayakrishnan et al., 2016; Binnendijk et al., 2012a). This is the default solution of people in the informal sector in LMICs (Gautham et al., 2011). As most persons are uninsured and do not have sufficient current income or liquid savings to pay their health care costs in full, they borrow money (and/or sell assets) not just for inpatient care, but also for outpatient and maternity care. To already unaffordable health costs, this widespread practice adds a big surcharge (for interest on loans or lost value on suboptimal asset sales — “hardship financing”) (Binnendijk et al., 2012b). Individual attempts to reduce hardship financing can be uglier: postpone care, seek cheaper care from untrained practitioners, or forgo care altogether (Escobar et al., 2010).

Collective attempts to offer people a structured local approach and “locally best available” safeguards to reduce members’ solvency risks, liquidity pressures, and external uncertainties of politics, the global economy, and poor corporate governance include “Community-Based Health Insurance” (CBHI),³ “Health Microinsurance” and “Micro Health Insurance” (MHI). Generically, we refer to these as MHI or simply as “micro insurance units” (MIUs).⁴

The economy is sometimes described as a “wealth pyramid”, with a broad base of poor persons. The “base of the pyramid” (BOP) is the context of the poor, where neither demand for HI nor supply is ample. HI is barely known or understood, and not even the rare buyers of insurance can detect potential misrepresentation by their agents or defend themselves against unfair practices. Thus, market equilibrium cannot occur at BOP without some corrective intervention. Nor can the MIU model be confused with (Uber-like) “on-demand economy”, which matches ample existing demand to ample supply for some well-known services.

This book deals with the voluntary uptake of HI in low-income settings in LMICs (where governments cannot apply a mandate to insure) and where local micro insurance units secure their income mainly or only from premiums (without subsidies). This paradigm differs fundamentally from the discussion of financing HI as a state-sponsored activity or variants sponsored by such intergovernmental agencies as the World Health Organization or the World Bank, and from the issues associated with purely commercial insurance or from provider-owned or employment-linked HI that serve other objectives.

What is Micro Health Insurance?

MHI is health insurance designed to fit the willingness to pay, needs and priorities of people in the informal sector who are excluded from other forms of HI. The entities offering it (microinsurance units, MIUs) are voluntary, with premiums suited to people with low incomes. Although health MIUs are not defined by their size, the scope of the risk covered, or the delivery channel, the MIUs must be designed to benefit the insured. For all practical intents and purposes, this definition implies a central role for the community in at least package design and possibly in its operation and governance (Dror, 2014). Three essential characteristics of this definition set MIUs apart from other health financing systems:

•Enrollment is voluntary.

•The regime is contributory without a priori reliance on external sources of income (such as subsidies).

•Evaluation of its results must extend to total welfare gains of its members and not be limited to financial results.

These characteristics invite a discussion of the theory of demand for voluntary and contributory HI in the informal sector of LMICs before examining another fundamental question of how to determine premiums suitable for people with low incomes.

Demand for MHI

Classical economic theories of voluntary demand for HI posit the assumption that humans are consistently rational and narrowly self-interested, usually pursuing their subjectively defined ends optimally (homo economicus, economic man). In light of HI’s dismally low penetration rates in the informal sector, the first question to be answered is: If the benefits of HI are positively provable, how can theory explain the conditions that would induce the 3 billion uninsureds in LMICs’ informal sector to seek voluntary HI? This question suggests two possible replies: first, that the benefits of HI are NOT positively provable, and second, that a new theory of demand for HI is needed because the conventional economic theories do not adequately explain behavioral practices in the informal sector and in the context of poverty and informality (Dror and Firth, 2014). We explore the second issue now and will discuss the first one later.

In the informal sector, people seek welfare gains through affiliation with family, friends, peers, and groups, rather than through isolated transactions with agents they do not know and with whom they have little transactional experience (Mani et al., 2013). This common practice has been studied in behavioral economics literature (based on actual economic behavior, rules-in-use in the informal sector, and societal “cognitive” biases). Beyond the doubts on the validity of conventional assumptions related to the independence of individual choices in the informal sector, or the conventional assumption of perfect market conditions, alternative notions have been developed that point to collective, cooperative, and reciprocal behavior (also known as homo reciprocans, cooperating/reciprocating man) (Kahan, 2002; Dohmen et al., 2009). Most assumptions of conventional economic theories of demand for HI related to expected utility, attitudes toward risk, and moral hazard are violated in the informal sector context and have not found full and satisfactory replies in other theoretical frameworks, notably the Prospect Theory (Kahneman and Tversky, 1979) which also looks at individual choices. Therefore, an alternative theory of demand is proposed, based on relevant and workable assumptions of the role of groups in financial decisions in the informal sector. The postulated theory of demand covers not only purchase decisions but also the influence of local governance arrangements on enhancing trust in the system, which is a necessary but insufficient condition for the establishment of an HI market.

Since an HI market is unlikely to emerge without demand for HI (either true demand, based on voluntary decisions, or mandated purchasing), let’s look briefly at some preconditions for the emergence of such voluntary demand. Two key issues underlie the manifestation of demand in the informal sector: First, people must understand and accept the rules governing the MHI. This would put to rest members’ concerns about their inability to enforce the contract should the MIU refuse to respect its end of the deal. The presence of a “bottom-up governance structure” is a simple way of reassuring prospective members that they are dealing with trusted locals rather than with unknown parties controlling the local MIU and that the trusted persons are in positions to ensure that the agreement will be kept. The second key issue is that voluntary and contributory demand for HI in the informal sector makes sense when the community recognizes that purchasing HI enhances their welfare. In the informal sector, the understanding of welfare gains might not be limited only to the benefits specified in the package. For one thing, because people are well aware of the surcharge they incur due to “hardship financing” when they pay out of pocket, they expect a useful HI to reduce both their OOPS on health care and their hardship financing load. Moreover, high reliance on reciprocal arrangements makes people eager to participate in and conform to group decisions on enrollment. Furthermore, when families pool resources to manage family expenses out of the common fund, they may see the payout by the MHI to one member as ample return for the cost of enrolling several persons. The salient point is that catalyzing demand at the local, community level is the prerequisite to the establishment of an MIU and a likely indicator that a market for HI in the informal sector is emerging.

Panda et al. (2014) identified factors that drive enrollment in CBHI schemes launched in three rural locations in Uttar Pradesh and Bihar. The analysis used two data sources: a baseline survey covering 1,294 households and 7,659 individuals for which valid data could be collected, and information on actual enrollments, premium payments and claims, extracted from the schemes’ management information system. It was observed that a household’s socioeconomic status such as education and occupational status did not substantially influence uptake. Rather, households with greater financial liabilities and households classified as scheduled caste/scheduled tribe found insurance more attractive and were more likely to enroll. Other households with access to formal insurance within their family network were less likely to enroll. However, access to the national hospital insurance scheme Rashtriya Swasthya Bima Yojana (RSBY) did not dampen CBHI uptake, suggesting that the potential for greater development of insurance markets and products beyond existing ones would respond to a need. Recent episodes of illness and self-assessed health status did not influence uptake. Another noteworthy insight was that insurance coverage was prioritized within households, with the household head, the spouse of the household head and both male and female children of the household head, more likely to be insured compared to other relatives.

A systematic review and meta-analysis of the literature on factors affecting CBHI uptake in LMICs stated that education, age, female household heads, and the socioeconomic status of households positively affect enrollment (Dror et al., 2016b). Furthermore, when individuals understand how their CBHI functions they are more likely to enroll, and when people have a positive claims experience, they are more likely to renew. Other factors enhancing enrollment include higher prevalence of chronic conditions or the perception that health care is of good quality and available nearby. On the same note, the perception that services are distant or deficient leads to lower enrollments. On the supply side, the authors observed that trust in the scheme enables enrollment. Clarity about the legal or policy framework also influences enrollments. And the 18 qualitative studies included in that systematic review identified nine major factors as enablers for enrollment: knowledge and understanding of insurance principles and CBHI, quality of health care, trust, benefits package, CBHI scheme rules, cultural beliefs, affordability, distance to health facility, and legal and policy framework. Among deterrents to renewal reported were: stringent rules of some CBHI schemes, inadequate legal and policy frameworks to support CBHI, and inappropriate benefits package. Decisions regarding renewal or dropout were influenced most by the factor of trust in the insurer, followed by the male head of household and household head’s education.

Once the MHI framework is manifest, the members can discuss the desired benefits package. Why decisions to include certain benefits in the package have consequences on the premium payable is self-explanatory as is why the intensity of willingness to pay (WTP) can determine the scope of these benefits. The question is: does price determine the package or does the package determine the price? When HI is sold by commercial insurance that aims to generate a profit, the answer is clear: coverage determines price (and customers cannot review the prices). That is why clients paying subsidized premiums (under many mandated HI systems) have no say over the composition of their coverage, which may include several benefits that they would not choose that do not reflect any notion of solidarity with other insured persons. The subsidies are applied to adjust the price to levels people can pay, based on other parameters, for example, taxable (i.e., declared) income.

Not so in the context of MHI: here, as prospective members have experience with OOPS, they know the overall amount they pay for health care and local practitioners’ prices. Moreover, they can also validate the results of data used to propose packages reflecting local priorities (based on the fr...

Table of contents

• Cover
• Halftitle
• Series Editors
• Title
• Copyright
• About the Author
• About the Contributors
• Acknowledgments
• Contents
• Chapter 1 Synthesis
• Part 1 Theory
• Part 2 Methods
• Part 3 Evidence
• Part 4 Impact
• Author Index
• Subject Index