«Protecting the poor A microinsurance compendium Edited by Craig Churchill Protecting the poor A microinsurance compendium Protecting the poor A ...»
When a premium is paid, the insurer must issue proof of coverage to the policyholder. For example, Yeshasvini Trust provides a photo identification card for its members. However, issuing these cards takes time, and the photograph adds additional costs. Issuing ID cards to Yeshasvini’s 1.45 million clients involves significant administration costs and logistical challenges. It took up to three months to supply each member with the right ID card and enter each member’s information in a database. While the cards were being processed, patients used letters from their cooperatives and their premium receipts to prove their eligibility. To reduce renewal costs, Yeshasvini has now decided to stop producing a new card each year and instead issue cards that accept a renewal seal. By selling advertisements on the back of the card, Yeshasvini hopes to raise additional income to help cover the costs.
Karuna Trust intends to shift to a photo ID-card as well, but currently accepts the premium payment receipt as proof of membership. As clients may add names to the receipts, staff need to compare the client’s receipt with the copy kept on file. BRAC’s Health Insurance Card contains a photograph of the head of the family and a list of the household members insured, and provides their age, blood type and relationship to the head of household.
Table 8 provides an overview of the tasks to be accomplished in the sales process.
Table 8 Overview of product sales tasks and features
3 Product servicing Product servicing includes claims processing, maintenance of long-term client relations and relationship management with healthcare providers.
3.1 Claims processing The documents required for filing a claim need to be checked for completeness and eligibility. To avoid moral hazard and fraud, all claims must be thoroughly scrutinized. This might require information from the policyholder’s social environment, as well as verification by a physician. Different schemes
use different approaches, for example:
– Insured patients at BRAC and Grameen Kalyan normally use the health providers employed by the schemes. Only 1 per cent of the patients are referred to external healthcare facilities for more serious illnesses and surgery.
At Grameen Kalyan, the patients referred to external facilities submit their claim documents to a local branch of Grameen Bank; the branch manager, the local health assistant and the insurance’s centre director jointly decide upon the reimbursement of the claim.
– At UMSGF, patients must request authorization before seeking treatment.
Armed with the authorization and their membership card, they approach the insurer’s representative at the hospital. A co-payment for the consultation is required, but all subsequent inpatient treatment is provided on a cashless basis. When discharged, the patient receives a voucher indicating the treatment performed and the period of hospitalization. The patient can use this voucher to claim for the transportation costs to the hospital. The hospital receives a direct payment from the insurer for the treatment after submitting a monthly statement. This statement is verified by comparing it with the vouchers collected from the insured.
– A cashless mechanism is used by Yeshasvini Trust as well as by the government schemes in Bolivia (SBS/SUMI), Peru (SMI/SIS) and Paraguay (SI). In Yeshasvini, insured patients approach one of the 150 network hospitals with the ID card and a letter proving their membership in a cooperative society for a free consultancy. If surgery covered under the scheme is required, the hospital submits a pre-authorization request to the scheme’s third-party administration (TPA). Authorizing non-emergency surgery can take up to four days. Once authorization is given, all costs relating to the surgery are covered by the insurer at a predefined rate. The scheme reimburses the healthcare provider directly.
Challenges and strategies to extend health insurance to the poor 87 – Microcare issues smart cards carrying the photographs of the client and covered dependants. On presentation of this card at a Microcare check-in desk at a participating hospital or clinic, the identity and coverage entitlements of the client are verified using the networked computerized database developed for the insurer. The claims are entered into the system and processed in real time, permitting rapid payment for services rendered.
– Social workers are placed at the three designated public facilities with which Karuna Trust collaborates and ensure immediate payment when the patient is discharged from hospital.
3.2 Managing the relationship with healthcare providers Having an insurer’s own staff at a healthcare facility has a value beyond checking a patient’s insurance status. These staff – like Karuna’s social workers, Microcare’s check-in nurses or Bienestar Magisterial administrators – offer guidance and look after patients’ interests, ensuring, for example, that providers treat them in a friendly manner and offer quality care. A similar mechanism is applied by Uplift Health; patients who need treatment can call the scheme’s doctor, who accompanies them to a hospital and ensures proper treatment.
This arrangement also helps avoid provider-driven moral hazard. Generally, neither the insurer nor the patient can assess whether the treatment was necessary and carried out in the most economic way. The insurer would have to bear high information costs to find out whether the treatment was necessary. As laypersons in medical matters, patients take health services on trust.
They cannot verify whether improvements in their health are a direct consequence of medical treatment.
Yeshasvini tries to verify the necessity of expensive treatments by having a local representative of the scheme visit the health facilities concerned. This mechanism is also intended to prevent fraud. These district coordinators are supported by a doctor working in the scheme’s head office. However, most healthcare providers are more knowledgeable about medical issues than microinsurers, and thus could easily mislead them.
3.3 Long-term relations with clients The maintenance of long-term client relations includes the continuous provision of information, timely response to the changing demands of the clients and solving problems with the product or procedures. A positive experience with an insurance product will build trust among the members and may induce them to purchase additional benefits for a higher premium. The perMicroinsurance products and services manent information flow helps the scheme maintain client satisfaction and could help attract new clients.
An important element of client relations is the renewal of contracts for consecutive years. The premiums for most clients cannot easily be collected by automatic direct debit from a current account. Whenever premiums are collected on a recurring basis, transaction costs are high unless the collection can “piggyback” on existing mechanisms (see Chapter 3.3).
Clients who have not filed any claims in the past year present a real challenge because they need to be convinced that membership still makes sense.
The renewal rates in many schemes are low; BRAC managed to increase the renewal rate from 15 per cent in the first year of operation to 50 per cent in the third year. Grameen Kalyan is also stagnating with a renewal rate of 50 per cent. Considering that it can be much more expensive to acquire a new customer than to retain an existing client, the low retention rates for health microinsurance pose a serious problem. Nevertheless, some schemes fare quite well; at UMSGF, 80 per cent of members renew their coverage.
Another reason to strive for frictionless renewal is because late renewals may count as new contracts. This implies that certain conditions imposed on new members, such as waiting periods or exclusions for certain treatments, will need to be reapplied. In VimoSEWA’s insurance product for instance, pre-existing conditions are not covered for six months.
If clients are well integrated into the system, they will identify with the microinsurer and be more likely to behave responsibly. This is a particular advantage of community-based schemes (see Chapter 4.3). For example, in Uplift Health’s mutual insurance scheme, the members monitor each other and press for healthy behaviour. If members jeopardize their health unnecessarily, the other members might refuse to renew the person’s contract or accord only a partial reimbursement of costs. In other institutional models, similar results can be achieved through claims committees consisting of policyholders and knowledgeable employees of the insurer. In general, when policyholders assume responsibility for the scheme, social capital is likely to have a positive impact on moral hazard.
To this end, it is beneficial to have preventive health activities integrated into the microinsurance scheme, to maintain an ongoing communication with the clients, as well as providing them with a tangible benefit even if they have not fallen sick and utilized the curative services. For example, Microcare offers HIV prevention activities and a malaria prevention programme that distributes insecticide-treated bed nets (see Chapter 3.9).
The organization and implementation of health education and prevention programmes may be suitable not only to show a positive presence among the target group, but also to lower the financial burden of severe illnesses that Challenges and strategies to extend health insurance to the poor 89 cause high insurance costs. BRAC and Grameen Kalyan both organize annual health check-up camps for their members. BRAC also launched a HIV/AIDS information campaign among its members and participates – like Grameen Kalyan – in the government’s immunization campaign.
Some product servicing tasks overlap. For instance, verifying a client’s claim also involves verifying the healthcare provider’s services – both provider- and patient-driven moral hazard can be minimized by a single procedure. Karuna Trust’s hospital-based social workers can check with patient and provider, and thus monitor the behaviour of both. Yeshasvini Trust and Bienestar Magisterial require a pre-authorization before surgery, and may include a verification visit in the case of a high-cost surgery. A close relationship with healthcare providers generates knowledge of their strengths, weaknesses, and prices, which improves the quality of the guidance and consulting on health services offered to the client.
Product servicing tasks and features are summarized in Table 9.
Table 9 Overview of product servicing tasks and features
4 Maintenance of long-term stability A key task for any insurance scheme is to ensure long-term stability. The stability of an insurer guarantees that its clients’ claims will be settled. It represents the abstract dimension of the insurance product.
Maintenance of long-term stability involves the financial management of the insurance provider, permanent risk monitoring, and particularly the management of the overall actuarial risk (see Chapter 3.6). An insurer’s existence is threatened when aggregate losses exceed the sum of premium payments and capital reserves (actuarial risk). Partial risks occurring in subsets of 90 Microinsurance products and services the insurance pool do not necessarily threaten the insurer’s existence as long as cross-subsidization and reserves are sufficient. It therefore makes sense to spread risks broadly across different subsets to reduce the danger of covariant losses, i.e. losses that influence each other, as in the case of epidemics.
BRAC, for example, not only serves the poor, but includes more affluent clients as well. However, many microinsurers are too small to spread and pool their risks effectively.
The clients of health microinsurance schemes overlook these technical considerations relating to long-term stability. From their perspective, investment in future years seems less relevant than paying back “unused” premiums for the current year.
Actuarial risk has two main components. The first is “parameter risk” arising from incomplete information on the actual probability of loss. The second component is “process risk” arising from the random nature of benefit costs, which would still remain due to the randomness of events even if the true probability of occurrence were known (Albrecht, 1992; Dror, 2001).