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Micro Health InsuranceThe research perspective

Lakshmi KrishnanCentre for Micro Finance, IFMR (Chennai)

May 06 2009

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What do we know about health shocks?

• They impose direct costs (cost of treatment) & indirect costs (income loss from reduced labour supply) on households

• Ex-post coping mechanisms may worsen the effects of illness– Reduce consumption– Sell assets used for production or consumption– Increase borrowing – frequently high-cost debt

from informal sources– Effect on labour supply (children, in particular

girls)

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What do we know? Some statistics• Insurance rates are low, public facilities are inadequate,

average spending is high– 80% of all health care spending is private (nearly all of this

out-of-pocket). Less than 2% of households in India have access to health insurance

– Hyderabad slums: almost none of the households had health insurance (Spandana)

– Karnataka rural mf clients: tend to visit private facilities, spend an avg. of Rs 1,867 (40% of avg. monthly expenditure)

– Karnataka rural mf clients: only 0.5% of all households had a health insurance policy; only 13% have ever been offered insurance or are aware of this being available in the village

• This is of big concern because ex-ante mechanisms lead to inefficient financial and health behavior– Households may under-invest in health

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What do we know? Some statistics• Frequent health events

– Karnataka rural mf clients: 51% of clients had a major illness, average 2.4X (SKS)

– Hyderabad slums: 17% of households reported the main purpose of a loan to be “health expenses” (Spandana)

• Health shocks: single most important factor for households falling into poverty– 107 villages of 3 states in India: 60% of all descents in

Rajasthan, 74% in AP, 88% in Gujarat (Krishna 2005)– Over 40% of those in India hospitalized borrow money

or sell assets to cover expenditure (World Bank 2001)

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Challenges in delivery• Supply-side

– High transaction cost– Adverse selection (riskier member pool)– Limited information – for e.g. absence of a database on

illnesses, frequency, expenses• Demand-side

– Irregular cash flows– Low levels of financial literacy– Anecdotal evidence suggests low claims rate

• MFIs as agents and distribution channels– Selective drop-out of client base – retention is a concern in

a highly competitive environment– Lower satisfaction levels – if there are problems with

insurance provider; of if people are unaware of insurance– Increase administrative burden

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Evaluation of SKS’s catastrophic health insurance product (CMF)• Led by Profs. Abhijit Banerjee and Esther Duflo

(MIT)• Gulbarga and Bidar districts of Karnataka: 201

villages of which 100 randomly selected to receive health insurance. 6000 households in the study for baseline (2007)

• ICICI Lombard– Covers hospitalization and surgeries– Maternity and accidents included– Premium is between Rs 375 and Rs 525 (varies with # of

family members covered)– Cashless and reimbursement services– Sum insured - Rs 20,000

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Preliminary results: implementation• Mandatory health insurance – appears to have

reduced loan renewal rates. 11 percentage points lower in treatment, off a base renewal rate of 70% in control

• No evidence of adverse selection – loan renewal does not vary with households health in the last one year

• New client sign-up does not seem to be affected• Financing health expenses

– Approx 43% of households reported borrowing to finance health expenses (3% of loans from SKS; 32% from moneylender), 67% reported primary source as household savings

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Further questions for research

• Usage of the product– Claims rate

• Specific impact of the programme on health and economic indicators at household level