Over the past two years, The MicroInsurance Centre’s Microinsurance Learning and Knowledge (MILK) Project is a three-year research and learning project that has been working to answer two principle questions about microinsurance. Is there a business case for microinsurance? Does it provide value for clients? To understand the financial value of microinsurance, one tool MILK uses is “Client Math," consisting of in-depth interviews of low-income people (some with insurance and some without) who recently suffered death, flood or health shock. It quantifies the components of both the full cost of the shock and the financial response, exploring the role insurance played in helping clients and beneficiaries recover.
Photo Credit: Wim Opmeer
In the case of health microinsurance, the financial value from Client Math is an important component of the value story, but it isn’t the whole story. Health insurance may end up costing clients more than their current alternatives, which often consist of “patching” together care from various health service providers including pharmacies, public providers, NGOs and skipping parts of their care to lower costs. In particular, it may be difficult to offer outpatient care that creates financial value for clients.
Then what can a microinsurance product covering outpatient care do for clients who experience an illness? To address this question, the MILK team traveled to rural Moshi, Tanzania to study an insurance product offered to members of the Kilimanjaro Native Cooperative Union (KNCU). The KNCU Health Plan, designed by the global microinsurance intermediary MicroEnsure, covers outpatient care and medicines, with premium subsidies, investments in health care facilities, and other support from PharmAccess Foundation. We spoke with insured KNCU members and similar uninsured people in the same communities, all of whom had recently been treated for an acute illness (malaria, pneumonia, and several other illnesses with similar costs and severity) at a local health facility. We calculated the “Client Math” related to these illnesses, documenting their full cost (direct and indirect) and how those costs were financed by the insured and uninsured.
As might be expected, the direct costs related to the illness were far lower (virtually zero) for insured people than for the uninsured, who spent on average $6.61 for treatment including medication. We find that insurance offered two clear benefits to clients: the behavioral incentive of “use it or lose it” which sent clients to the doctor sooner, and an efficient financing mechanism for a community with limited access to a range of efficient coping mechanisms for small health shocks.
Lost income due to missed work, often one of the largest components of a financial shock, was far lower among the insured, because they were incentivized by the insurance to seek care sooner. Since they had already paid for the insurance and knew that their treatment costs would be covered when they went to the facility, insured people were motivated to “use it or lose it.” The uninsured, by contrast, waited on average two days longer to seek treatment (for many, because they were concerned about the cost of treatment). This willingness to seek care sooner also likely has positive health implications, though we did not measure health outcomes directly.
When forced to quickly pull together funds to pay for these unexpected costs, uninsured people often turned to inefficient financing mechanisms, including selling assets that were worth more than the cost of the shock or taking out large, costly loans. Insurance helped cover costs more efficiently by covering the precise amount needed to cope with the health shock.
We invite you to read the full study results and look forward to hearing your thoughts.
----The author is the president of EA Consultants.
the difficulty remains how to convince clients of the added value of this service. At least in West Africa, micro health insurance in a very hard sell to BOP populations!