«Protecting the poor A microinsurance compendium Edited by Craig Churchill Protecting the poor A microinsurance compendium Protecting the poor A ...»
The clients of Microcare defined their degree of solidarity with the chronically ill themselves. Instead of excluding the chronically ill, the clients decided not to include the medication for chronic diseases in the benefit package.
Hence, Microcare does not cover insulin for diabetics, inhalers for asthmatics or anti-epileptic for epilepsy. This exclusion was originally suggested by lowincome MFI clients during the pilot scheme design when they realized how much higher premiums would need to be to cover these costs. The clients decided that “these people are already paying for their long-term medications. Let them continue to do this, but do not prevent them from receiving the other benefits of the scheme”.
Alternatively, coverage for chronic diseases could depend on third-party financing. Karuna Trust circumvents some of these limitations by collaborating with public healthcare providers, which provide free treatment to people around the poverty line. Hence, the benefit package of Karuna Trust can focus on complementing this public infrastructure and tackling some of its shortcomings. In the event of hospitalization, Karuna’s clients are entitled to receive drugs not available at the public health providers and are compensatChallenges and strategies to extend health insurance to the poor 75 ed for wage loss while hospitalized; also, free ambulance transport is provided in cases of emergency. Thanks to a subsidy from UNDP, Karuna Trust is also introducing coverage for HIV/AIDS-related costs.
Lastly, the time (term) for which the benefit package is offered to individuals, households or groups has to be defined. The vast majority of microinsurers use a one-year term and renew the contract with the client annually. A shorter period usually does not make sense as it makes balancing the risk more difficult and people might join just for the time when they are ill or for a particularly susceptible period of the year, for example the rainy season when malaria is much more prevalent.
1.5 Define providers Besides defining the benefits, the modes of service delivery and technical procedures need to be established. While the former determines the relationship with healthcare providers, the technical procedures define how claims are filed and who may be involved in this process.
There are three main alternatives for determining the relationship with
1. The insurers select specific healthcare providers that clients use and conclude a formal agreement with the providers (Figure 7). The insurer usually pays the provider directly for services rendered to the client. This solution is based on the benefit-in-kind principle, whereby the policyholder receives the service rather than money to purchase the service. Yeshasvini Trust established a network of 150 mainly private hospitals that deliver services to clients according to a predefined rate. Patients receive cashless benefits after approval from the insurance administrator.
Claims model 1: Insurer pays healthcare provider (third-party payment) Figure 7
2. Another way of delivering benefits in kind is to combine the healthcare and insurance providers (Figure 8). In this case, the insurer hires its own healthcare staff either for inpatient treatment or as mobile service providers (or alternatively a healthcare provider could launch an insurance scheme). If the insurer has only a few permanent healthcare professionals in a specific region, the employed service provider does not profit from economies of scale – this is a challenge currently facing ServiPerú. It means that certain services will not be offered at all or cannot be offered in a cost-effective manner. However, in regions with a poor healthcare infrastructure, this may be the only way to offer health microinsurance (see Box 17).
Claims model 2: Integrated healthcare and insurance provider (internal financial Figure 8 transaction)
BRAC’s three-tier approach to providing health services Box 17 The BRAC Health Programme in Bangladesh is aimed principally at the community, with a particular focus on women and children, though men are not specifically excluded. The scheme is implemented through three tiers.
The first tier is a cadre of part-time community health workers, called Shashtho Shebikas (SS), who are mostly female front-line workers of BRAC’s Health Programme. They go door-to-door to educate community members on critical health matters, provide treatment for basic ailments and essential health commodities, and help to create “health-empowered” communities. The second tier is a cadre of health paramedics, all women, called Shashtho Kormis (SK). These paramedics oversee the work of the SS, provide pregnancy-related care, and hold health education forums where the community’s health concerns are addressed. The third tier is a network of health clinics, called BRAC Shushasthos, that provide technical backup to the SS and SK, who refer patients that they cannot treat to these centres. The Challenges and strategies to extend health insurance to the poor 77 Shushasthos provide treatment and diagnostic services, have comprehensive laboratories, outpatient facilities, and inpatient services, all supported by qualified nurses and physicians.
3. The third option is to reimburse clients for their healthcare expenses (Figure 9). Here, clients can consult a trusted physician or hospital, pay for the service and then submit the bill to the insurer for reimbursement. This solution offers the client the greatest possible choice (although many schemes work together with health providers who have to meet certain requirements).
However, it also places a heavy financial burden on the clients while they wait for reimbursement. Lack of money is a major difficulty for many lowincome people and might prevent them from seeking healthcare, especially the vulnerable groups (the poorest, women, children). VimoSEWA uses this approach, but recognizes that it is not ideal for its members. Consequently, it has launched a pilot project to address this problem: clients can contact a field worker when approaching a hospital, and receive up to 80 per cent of the estimated costs in advance.
Claims model 3: Insurer reinburses clients’ out-of-pocket healthcare expenses Figure 9
For each of these alternatives, the insurer has to define the claim processing and payment procedure for the service provider. For instance, billing can be per client or per service rendered. There is a wide range of settlement procedures, each entailing different incentives for the provider to offer more or fewer services to the insured.
Regardless of how the provision of healthcare services is organized, it is essential to have mechanisms to verify the services rendered. This task is accomplished in the phase of product servicing. Nonetheless, the questions as to how to control the quality of healthcare services, how to ensure that claims are warranted and how to prevent fraudulent claims must already have been dealt with in the product manufacturing process.
1.6 Mechanisms to avoid moral hazard As highlighted at the beginning of this section, health insurance carries a high post-contractual risk of fraud and moral hazard, i.e., behaviour that violates the spirit of the contract. Due to asymmetric information, it is impossible for the insurer to check whether the insured has actually incurred a loss or whether he has negligently permitted the loss to occur. Likewise, it is difficult for the insurer to prove excessive use of health services. A traditional mechanism to tackle this problem is a co-payment, which is used by UMSGF, BRAC, Grameen Kalyan and others. Interestingly, Grameen Kalyan increased its initially modest co-payments, not to reduce over-utilization, but to signal its quality of care; clients perceived low-cost treatment as poor-quality care.
However, cost-sharing has a number of theoretical weaknesses and empirical disadvantages (Arhin-Tenkorang, 2000). First, over-use does not appear to be a major problem in developing countries, where there is a lack of adequate healthcare and therefore access is usually restricted indirectly by related opportunity costs. Second, cost-sharing counteracts prepayment for healthcare and is thus contradictory to health (micro)insurance. User charges have a negative impact on the most vulnerable groups and prevent the neediest from seeking care, thereby rationing care instead of rationalizing it. The mutuals in the Union Technique de la Mutualité (UTM) in Mali were founded for the sole purpose of helping their members pay the co-payment for health facilities.
The nature of the benefit can play a role in reducing moral hazard. For example, Yeshasvini Trust operates under the assumption that nobody voluntarily undergoes unnecessary surgery. By contrast, Microcare’s co-payments have always been in place for community-level schemes, but they are relatively low (between US$0.30 and US$0.80 for Mission Hospital services). These payments are not regarded as a substantial means of cost recovery or a significant contriChallenges and strategies to extend health insurance to the poor 79 bution to cost-sharing, but are intended to prevent frivolous over-utilization of services by clients living close to the hospital or clinic.
Microcare’s co-payments are also used to include different levels of service providers in the same basic insurance plan by assigning a higher co-payment (US$1 to US$3) for the more up-market urban private clinics. Some microfinance clients have adopted the attitude that their time is valuable, preferring to pay extra for a private clinic where they are treated quickly, so that they can return more quickly to making money again in their small businesses.
1.7 Pricing To design a product that responds to client preferences, information about their willingness to pay and preferred modes of payment has to be obtained (and should be included in the demand study, as described above). To calculate the optimal premium using actuarial methods, the insurer must first define the insurable unit. For instance, UMSGF defines families as the insurable unit, which reduces the risk of adverse selection by spreading the risk within the unit.
As described in Chapter 3.5, the total costs of insurance benefits can be estimated using estimates of expected healthcare utilization and costs. By adding expected administrative costs, contingency reserves – and in case of a for-profit insurer, a profit margin – the insurer can calculate the expected funding need. In principle, the larger the (expected) insurance pool, the lower the (fixed) administrative cost per policy. By operating through the cooperative sector in Karnataka (which has several million members), Yeshasvini Trust achieved a big target population and thus reduced the (fixed) administrative costs per insured considerably.
To avoid undermining policyholders’ trust, frequent or substantial changes in premium should be avoided. When Yeshasvini realized that it needed to double the premium, a third of its clients did not renew their policies. Similarly, Karuna Trust had to engage in a massive trust-building exercise when its insurance programme stopped being subsidized. Half the clients dropped out initially, and only after an intense effort by Karuna’s field staff was it possible to increase numbers.
While the latter was a strategic donor mistake, the first example, Yeshasvini, could have been prevented with reliable data. Reliable data needs to be obtained on the costs of services and the frequency of utilization. Yeshasvini fixed the parameter cost by defining a flat rate payable to all network hospitals; however, frequency of utilization turned out to be much higher than expected.
80 Microinsurance products and services Generally speaking, in contrast to most consumer goods for which the production costs are known at the time of distribution, the costs of the insurance product lie in the future. Human error aside, the key problem is the stochastic (random) character of the insured loss. Even with a sound estimation based on reliable data, losses caused by unfavourable stochastic events may endanger small insurers. Possible ways to prevent this from happening are discussed in the section on maintenance of stability.