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Micro Health Insurance: Chronicle of a Death Foretold?

On May 23, a group of researchers affiliated with the Health Working Group of the Microinsurance Network were hosted by CGAP to share the results of their recent work on various facets of micro health insurance.  The in-person and virtual audience engaged the presenters in a lively debate about a number of critical issues in the field, including why uptake of health insurance remains low, the relative importance of covering inpatient and outpatient care, the role of subsidies, the commercial sustainability of micro health insurance, the central importance of the quality of care made accessible through insurance, and the respective roles of the public and private sectors in providing insurance coverage to low-income families. 

That last point, in particular, was discussed at length based on an example from India. It appears that the large, publicly-funded RSBY scheme is crowding out Indian microinsurance providers when offered in the same markets.This observation led to the most fascinating question of the event (thank you, as always, Peter Wrede!): is there a future for micro health insurance?  Is it destined to go by the wayside as governments take on an increasingly larger share of the burden of providing coverage to their populations? Should it?

A family weaves baskets
A family weaves baskets. Photo by Joydeep Mukherjee.

Like every other industry, microinsurance is—at least partially—concerned with its own survival. It can sometimes forget, however, that it owes its existence to failures in public (and sometimes private) insurance markets. As these failures are addressed and micro health insurance clients are increasingly covered by public insurance, there will come a point where all that’s left for the industry to do is acknowledge its role in this transition, and gracefully bow out. But we’re not there yet—for at least five reasons.

First, not all governments have access to resources like those of the Indian government, which is in essence financing the near-full cost of inpatient health insurance to more than 30 million of its Below Poverty Line (BPL) citizens.  Although that’s only about 10% of the total BPL population in India, the government appears committed and financially able to significantly expand that percentage over the coming years.  For most developing country governments, however, limited financial (and sometimes political) capital would make very difficult—at least in the short and medium term—to finance the cost of care for substantive numbers of people. While these governments are addressing these constraints, microinsurance can play a significant role in providing affordable solutions to low-income families, either by providing coverage in areas where governments have not yet reached, or by complementing basic public coverage.

Second, to the extent that micro health insurance can help build large risk pools, it paves the way for governments to channel their resources (in the form of premium or back-office subsidies) toward low-income families in these risk pools, faster and at potentially lower cost than through financing the full cost of care for these families.

Third, because of the critical need to reduce costs to levels that make their products affordable for low-income families, micro health insurers are continuously innovating to find cost-effective approaches to developing, distributing, and servicing health insurance products—innovations that governments intent on reaching the same populations may find useful to integrate in their insurance programs.

Fourth, while only governments have the ability to mobilize the resources necessary to finance large-scale coverage, there is no a priori reason (and little evidence) that they have a comparative advantage over the private sector when it comes to the two other segments of the health insurance value chain: underwriting and distribution.  In that respect, experiments in India and Nigeria with private underwriting and distribution of public insurance will soon provide critical information about how best to structure public-private partnerships along the health insurance value chain.

Finally, most governments committed to providing health coverage to their vulnerable populations will probably and rightly choose to start by offering a basic benefits package (accessible through public facilities) to the largest possible number of families. In this scenario, the most durable role for microinsurance may well be to offer a complementary add-on to public packages, either by providing access to benefits not included in these packages, or by offering options to seek basic or advanced care in private facilities. 

In any event, I expect that the microinsurance industry will, at some point in the not-too-distant future, realize that its growing irrelevance is the unmistakable mark of its success. In the meantime, micro health insurance can and should continue to provide health coverage options to those families that cannot afford to wait for the public option to help them meet the cost of urgent medical care.

Comments

07 June 2013 Submitted by arindom baidya (not verified)

In RSBY insurance companies provide the cover and the Indian government bears the premium cost. I fail to understand why the writer is saying that RSBY may kill health micro-insurance because it is a micro-insurance scheme, albeit government subsidized one. What it may kill is innovation in health insurance temporarily, but that is compensated by the amount to data collected which would help to design smarter products later.

11 June 2013 Submitted by Ralf Radermacher (not verified)

In most countries we are observing a strong persistence of the informal sector - and reaching people in the informal sector constitutes a significant hurdle for public schemes. Microinsurance schemes often possess better inroads to the informal sector than public schemes, and can thus be crucial for "bridging the last mile". The discussion should thus not be on "either public or microinsurance" but rather focus on the question of how to create synergies utilizing the strength of the two approaches. Subsidies can play a role to move beyond isolated health insurance schemes where the poor are expected to cover all costs themselves (in fairness, most comprehensive health insurance schemes in the "developed world" are heavily government subsidized) and can be one key building block in a macro-micro linkage. But they would need to be smart (to which I would not necessarily count backoffice subsidies) to ensure that they create the right incentives for the development of the health insurance sector as a whole.

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