Micro Health Insurance The research perspective

1. Micro Health InsuranceThe research perspective Lakshmi Krishnan Centre for Micro Finance, IFMR (Chennai) May 06 2009

2. 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)

3. 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

4. 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)

5. 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

6. 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

7. 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

8. Further questions for research • Usage of the product • Claims rate • Specific impact of the programme on health and economic indicators at household level