Comprehensive vs. “sliced” health microinsurance: The value of subsidy BBL FOMIN June 2014 Barbara Magnoni Client Value Project Manager MILK Project

Objective is to understand: 1. Does microinsurance offer value to low-income policyholders and their families, and if so, under what conditions? 2. Is there a business case for microinsurance among insurers and delivery channels, and if so, under what conditions? Studied microinsurance programs, insurers, and delivery channels around the world, including work in 6 countries on health microinsurance 3-year project of the MicroInsurance Centre supported by the Bill & Melinda Gates Foundation

What is Health Microinsurance? Microinsurance is the protection of low-income people against specific perils in exchange for regular premium payment proportionate to the likelihood and cost of the risks involved Does not necessarily imply small policies or low coverage, but low capacity to pay typically limits premium size “Traditional” health insurance US health plan USD 4,250 Microinsurance Kenya micro health USD 6.18 India micro health USD % % of the US premium

No response Savings Formal & informal credit Asset sales Friends and family Reduce spending Reduce invest- ment What is Value in Microinsurance? 3. Financial (cost savings, cash flow, financial burden) Value can be: 1. Expected (incentives, peace of mind) 2. Service (access to services) Insurance

Measuring Financial Value Loans Help from family Savings, Etc…  Group client satisfaction studies are not enough  Need more rigorous sampling & measurement  Client Math:  What is the added value of insurance vis-à-vis other common coping strateges?  Measures the full cost of a shock & financial responses  Compare insured vs. uninsured YES! Are you happy with insurance? How much did you spend on each component of the funeral? How did you pay? Food Seating Ceremony Burial Etc…

Programs and Context Location ShockCost in Months of Income Kenya (Afya Yetu) High-cost hospitalization Kenya (Majani) High-cost hospitalization India (MicroEnsure) Medium-cost hospitalization India (Grameen Koota) Medium-cost hospitalization Nigeria (PharmAccess) Management of hypertension for a 3-month period Tanzania (MicroEnsure) Acute illness Guatemala (Banrural) Routine women’s health care *Costs shown for uninsured respondents Samples of approx. 30 insured and 30 uninsured in each study $$$ $ $$ $ $ $ $

How are these costs financed? Consider different levels of access and burden 53%2% 23%40% 53% 40% 23% 2%

Indirect costs Inpatient Medicines Outpatient - curative Outpatient - preventive Choices in product design Healthcare Needs Hospitalization coverage ……. Chronic ….. Acute …. Pediatric ….. Gynecological..………… Hospital cash Outpatient (preventive) Pharmacy Outpatient (curative)

“Doing the math”: Cost of hypertension in Nigeria Transport cost Dietary changes Treatment & services Other costs Lost income

“Doing the math”: Cost of routine care in Guatemala Labs Transportation Appointment Lost income Medicine Annual insurance premium

“Doing the math”: Financing a Hospitalization in Kenya Income Reduced Spending Gifts Informal Loans Savings/Asset sales Formal Loans USD440 USD107

Financial Value of Health Microinsurance Complementary to other tools Reduces need for difficult financing mechanisms Can reduce cash flow pressure Some behavioral incentives = lower costs

Behavioral incentives from insurance Can increase access to quality healthcare But people use mostly what is covered Can also create a “use it or lose it” incentive – seek care sooner, more often, and more regularly Regular care in turn leads to other positive behavior change = financial value

Hospitalization Drugs Curative- Outpatient Preventative- Outpatient Healthcare Needs Lowers Direct Costs Lowers Direct Costs /+ Lowers Difficult Financing Lowers Difficult Financing Postitive Behavioral Incentives Value of different types of coverage

Can Subsidy Help Improve this Balance? Clients are thinking about financial value- not behavior! Subsidy can help include coverage that encourages behavioral outcomes Subsidy can help “sell” a product in the short-term In the long term, subsidy can be reduced with – Greater familiarity from clients – Improved quality improves – Broader risk pool Can subsidy be sustainable? – Cross subsidy – Government engagement

The MicroInsurance Centre “Developing partnerships to insure the world’s poor”