Is microinsurance really revolutionary?

The New York Times this week profiled “microinsurance”– local health insurance schemes for the poor and sick–which the Times characterized as a revolutionary new safety net system for the world’s poor. The idea behind microinsurance is simple: big insurance companies sometimes don’t give coverage for the poor and sick, so just like microlending gave loans to poor people opening businesses, microinsurance is a way to pool money among the poor in order to cover the catastrophic expenditures associated with illness.

We asked our colleagues of epidemiologists and public health workers and humanitarian relief organization directors to find out what they thought about these schemes…and, surprisingly, we couldn’t find a single one who knew of a good example of a microinsurance program that actually worked. In fact, they were almost universally critical of the idea. What gives?

The Times profiled one case study of a microinsurance company in South Africa, called AllLife, which provides insurance for patients with HIV and diabetes. The catch is that AllLife is not actually being used by a community for local healthcare insurance. Rather, AllLife is a for-profit life insurance company with a specific, if unusual business model: it doesn’t pay for healthcare but helps prevent deaths and household income losses. It provides life insurance coverage and, while the South African government gives patients HIV medications for free, the company pays families a small rebate upon a family member’s death. The company also checks in on patients to avert deaths–by following-up lab results and calling patients to find out about their medical adherence. So, it performs a service and may prevent catastrophe to the household from loss of a breadwinner. Essentially, it prevents a “poverty trap” wherein illness prevents the household from recovering from catastrophe, and may even allow a household with a chronically-sick member to invest in other tasks rather than having to save money to buffer for a breadwinners’ death. As a LeapFrog investment guru put it: “A daughter can go to school rather than work, the farmer can plant crops that can triple his income. We’re used to thinking of insurance as a safety net, but it’s also a springboard.”

Big companies like LeapFrog are looking into the market, especially because local insurance schemes–like India’s Shriram insurance program–do something that’s quite profitable: they sell life insurance to the poor, and bundle the insurance with loans. This might seem sketchy. But the companies defend themselves by saying that they provide a vital service: life insurance is normally required to get significant loans from banks, and now investment capital in the client’s business can be given at the same time as life insurance.

On the other hand, the terms of these agreements are concerning: low insurance payouts are given to the families of the deceased, and interest rates on the loans exceed typical levels associated with microlending programs.  AllLife company clients, for example, have plans that give their households  only about $60k in benefits after a death, but their clients pay at least twice (and up to five times) what a regular insurance premium would charge. The companies argue that these people would have no insurance otherwise. Conversely, it could be argued that better regulation would prevent bigger insurance companies from discriminating against these clients in the first place, permitting more risk sharing among the community at large as the healthy and wealthy cross-subsidize those who are less lucky.

Community-based programs

An alternative to these for-profit models has been presented in the form of “community-based health insurance” schemes. Rather than covering just life insurance, the idea is to provide actual healthcare coverage through community resource pooling into common slush funds to prevent catastrophic expenditures from devastating any one household. Some of these schemes involve significant community control and participation, and an initial review of very preliminary data from these programs was quite optimistic about their potential for improving healthcare access. The idea sounds compelling and potentially sustainable as well as pro-poor.

Perhaps the most well-known example of this scheme is in Rwanda, where the “mutuelle” health insurance scheme has been frequently cited as an example of community-based health insurance. A look at the data from Rwanda’s program, however, reveals some important concerns.

First, there does not actually seem to be a good correlation between mutuelle use and the actual health improvements in Rwanda which are attributed to the scheme; rather, the five-fold increase in health spending, most if it from foreign donors, seems to more clearly correspond to mortality improvements, rather than  mutuelle funds that amounted to covering only 5% of healthcare expenditures.

Second, a recent study examining utilization patterns at health facilities in the country showed that mutuelle enrollment increased utilization of services, but only after subsidization, suggesting that premiums and co-payments  remain a major financial barrier to the poor. Further studies have shown that even with high enrollment through subsidization, the mutuelle program generates minimal financing. Rwanda is now introducing higher premiums to gain more finances through the program; but charging the poor to cover more of the poor, and pricing them out of reach, it unlikely to produce substantial new funding or health improvements. Administering the insurance program itself, recent data show, requires a lot of overhead cost and diverts government funds that could pay instead for a free public health system, and begs the question of how much this insurance scheme is really ‘sustainable’. Similar reports from Ghana also show that a parallel community-based microinsurance scheme doesn’t  seem responsible for health outcome improvements either.

A real-world experiment

Other countries that have attempted to mimic Rwanda seem to have done poorly. In Tanzania, for example, user fees have been a traditional barrier to healthcare access with 73% of women delivering in a government facility still paying for care despite claims of universal health access. Tanzania then underwent a sort of real-world case-control experiment: two  insurance schemes were introduced, one for the formal sector and one for the informal. The National Health Insurance Scheme (NHIS) for formal sector and government employees was funded by a 6% salary contribution split between employee and employer. NHIS includes a real package of health care coverage. But 90% of the population work in the informal sector who have limited access through a community health fund (CHF; and its urban equivalent, Tiba Kwa Kadi, or Tika). Set up by the World Bank, it is a voluntary pre-payment scheme with an annual membership fee of US$3 to $6 with matching government funds, but even moderate hospital coverage is not included. A recent WHO Alliance for Health Policy and Systems Research assessment found that coverage with this informal program had only reached 4% and recent data show that Tanzanians are less likely to seek medical care when they are ill and are more likely to rely on self-medication. Furthermore, the microinsurance contributions do not vary with income and ability to pay, such that the poorest are typically not joining the program despite exemptions that have significant problems being administered. Ultimately the microinsurance informal sector program just can’t generate enough revenue because the wealthier formal sector is not required to cross-subsidize the poor; even large numbers of the poor can’t generate enough capital to buffer the high costs of their illness.

Take-home messages

In summary, a few countries using  community insurance schemes have achieved healthcare coverage expansions, but most have fewer than 10% of the population enrolled. The funds collected through these schemes seem limited, as do the benefits they can cover and their ability to sustain funding. Rather, what seems to improve health in these nations is sustained investment in the public health system itself, rather than in financial schemes that attempt to re-create the U.S. health insurance markets in other countries.

This issue becomes particularly interesting as India plans to develop free universal healthcare coverage that will be guaranteed by the central government.  A new federal initiative details how the government of India plans to deviate from both the user fee and microinsurance models to employ a scale-up of health services based on general taxation to cross-subsidize the poor. This large-scale roll-out of free medications and universal healthcare access will provide some important lessons and serve as a potential model for other middle-income countries now contemplating how to develop their public health infrastructure. In the meantime, it seems that microinsurance may be a market-based mechanism that just doesn’t sufficiently correct for market failures in healthcare, as the Nobel Prize-winning economist Kenneth Arrow warned us in the 1960’s.

One response to “Is microinsurance really revolutionary?

  1. You analysis is absolutely spot on. There have been 100s of attempts to run community health insurance schemes over the last 30 or so years and the results have been very poor. Basically these small risk pools are ineffective (don’t raise much money for the health sector), ineffficient (large admin costs) and inequitable (the poor tend to be excluded). It’s one of the golden rules of health insurance that one wants large risk pools so community micro health insurance is almost an oxymoron.

    Basically it is the voluntary nature of these schemes which dooms them to failure becuase at the end of the day the healthy wealthy will not join them if they realise that they are cross-subsidising the sicker poor. In countries that are now claiming high coverage rates, membership is in effect compulsory so these are social health insurance schemes which is a very different entity. I would be interested in sharing more material with you if you on this topic if you would like to send me an email.

    Rob Yates

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