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1.2 The charitable insurance model Charitable insurance models cover a wide range of institutional options, which all share two important features: (i) being non-profit and (ii) not putting the risk on the insured. It is especially the first feature that distinguishes this model from the partner-agent model (this is at least true for the insurer’s side), and from some healthcare provider-driven models where the prime objective is to increase utilization of their facilities. The degree of risk on the insured and their involvement in the business process distinguish it from the mutual model (to be discussed later in this chapter). Providers of this kind of insurance can be NGOs, religious associations or any other well-meaning organization. Thus, this model can be applied to some government-supported initiatives as well.
408 Institutional options The motivation for establishing the insurance scheme is to increase clients’ access to care. The motivation is purely social, resulting primarily from the development background of these organizations. The paternalistic and social characteristics of the charitable model do raise some potential conflicts of interest, notably that of placing priorities of the clients behind those of other stakeholders (such as donors or NGO management). Furthermore, in situations where sustainability is based on permanent external financing, the scheme may neglect the education of its clients on proper insurance mechanisms, which might make it difficult to create an insurance culture among the target market.
As most of these organizations have worked with the target group for quite some time, they are familiar with the requirements of prospective clients. However, turning this into an actuarially-priced product is difficult since these organizations usually lack insurance expertise. The health insurer bears the risk of losses. Profits generated in some years are kept as reserves for future losses. All activities of the business process are performed by the offering institution, sometimes with involvement of the target group. The responsibilities of the charitable insurer are illustrated in Figure 28.
VimoSEWA operated its health insurance under this model from 1996 to
2002. In 1996, VimoSEWA found the health insurance products available on the market unsuitable for its clientele. The administrative procedures did not at all respond to the needs of poor women who had to wait a long time before being reimbursed. Thus, VimoSEWA terminated its partner-agent relationship and became its own charitable insurer, but after the 2001 earthquake in Gujarat, the limits of being a small-scale stand-alone insurer became obvious and VimoSEWA entered a new partner-agent relationship.
Yeshasvini Trust, in India, is a mixture of the charitable insurance model and the provider-driven model (discussed below). Initiated by healthcare providers, it is now operated by a trust in which the cooperative sector of Karnataka is equally represented. The healthcare providers shaped the benefits, which are still provided today; the cooperative sector shaped the sales and business process. While the influence of the providers on the product manufacturing process makes it a provider-driven model, the fact that the trust as a whole, which bears the risk (supported by the Government of Karnataka), is not-for-profit and conducts all parts of the business process, makes it a charitable insurance model.
Institutional options for delivering health microinsurance 409
For many charitable insurance schemes, achieving sustainability is a major challenge due to their social background. For instance, they may find it more difficult to reject claims, even if the claim is not fully justified. This is due to what is sometimes referred to as the “dirty work hypothesis”: managers of charitable institutions might feel that they threaten the institution’s reputation by rejecting claims since, unlike in the partner-agent model, the charitable institution cannot blame anyone else to justify an unpopular decision.
Some charitable organizations take this social motivation logic even further, to the point of not even considering sustainability of the insurance scheme an objective. Instead, it is simply assumed that losses will occur, and will need to be covered with external subsidies.
This social interpretation of this kind of organization’s mission also affects the design of its business processes in insurance: the flow of information in the sales process is mainly unidirectional towards the client. Information on how to claim benefits is provided, but no information about preexisting diseases is sought. The distribution process is usually conducted through the organization’s own staff who also have other duties. Voluntary Health Services (VHS) in Chennai (India), for example, distributes its insurance product through mobile health workers or in its health centres. Its objective is to cover those who need it most, not necessarily balancing the bad risks with good risks to stabilize the risk pool.
410 Institutional options Charitable organizations usually agree to relatively unrestricted provision of benefits and product-servicing is also kept simple. For instance, VHS and the Society for Social Services (Bangladesh) both operate their own health facilities and clients are obliged to use them. However, unlike provider-driven models (described below) the motivation here is not to increase the utilization of their own (commercial) facilities, and consequently their financial viability, but rather to ensure that their insured population has access to health services.
Maintenance of long-term stability is arguably the weakest point of the charitable model. Often management does not regard financial stability as desirable: “We do cherry-picking: we only pick the bad cherries,” a manager of VHS points out – nicely illustrating the different underlying mindset. The Society for Social Services can in no way cover the administrative costs of its health programme through insurance. They amount to over 2,000 per cent of the premiums collected! Thus, their means of ensuring sustainability is through a donor rather than a market-based solution (such as reinsurance).
1.3 The provider-driven model Providers of care (e.g. hospitals, clinics) may launch an insurance scheme to generate larger volumes of business in dedicated facilities, as well as to open up access to healthcare at different unit prices for different segments of the target population (see Figure 29). The unique feature of this model is the involvement of the healthcare provider in the design of the business process (including the financing side).
This is an important feature: a healthcare provider directly deciding on the benefit package is significantly different from an insurance company setting up its own healthcare facility, or directly employing providers to service a product. The difference might seem rather theoretical, but the question of ultimate control over the design of the benefit package is not trivial. Consider the case of open-heart surgery – if the decision-maker is a surgeon, whose services are not in great demand due to the high cost of operations, the likelihood of this benefit being included in the package is higher than if the decision is taken by insurance professionals or clients.
This explains why many provider-driven schemes restrict clients’ choice to the provider’s facility or its health professionals, or like Grameen Kalyan and BRAC MHIB in Bangladesh, significantly limit the benefits available outside their own healthcare providers. The clients pay their premium to the healthcare provider, which in turn offers clients a financing mechanism that enables them to consume health services, presumably in a more cost-effective manner than paying for them out of pocket. At the same time, the provider benefits from this arrangement in several ways: a) it increases its potential Institutional options for delivering health microinsurance 411
Nkoranza Community Health Insurance Plan Box 80 St. Theresa’s Hospital is the major provider of inpatient services in the district of Nkoranza in rural Ghana. In 1992, it launched the Nkoranza Community Health Insurance Plan, a provider-based health microinsurance programme, in response to the inability of residents to pay out of pocket for health services, especially hospitalization. The insurance covers inpatient services at the hospital in full including the cost of prescriptions for drugs not available in the hospital, referral to other hospitals and some outpatient services.
When clients seek care, they hand over their insurance card to the treating doctor or nurse who writes the insurance number on the patient’s admission card. Based on the services rendered (fee-for-service) a monthly bill is sent to the insurer. The prices for the services are fixed by an external body, the Diocesan Health Committee, on an annual basis and are valid for all Catholic Hospitals in the region. The insurance reimburses the hospital for all services rendered, but is not entitled to check their appropriateness. Although not observed in this scheme, the fee-for-service mechanism with institutional splitting (between insurer and provider) provides an incentive for the provider to over-prescribe services to increase financial returns.
Source: Adapted from Atim and Sock, 2000.
Most healthcare providers do not have the administrative (or sometimes the financial) capacity to run a viable health insurance scheme. Pricing products actuarially is certainly a weak point even though the data available about healthcare expenses might be relatively good in this model. The main problem of the model is in product servicing: in the case of fee-for-service payments, the healthcare provider might have an incentive to provide more services than necessary, while the insurance provider needs to maintain its longterm stability. The unification of roles of provider and purchaser of services may thus create conflicts of interest.
1.4 The community-based/mutual model Mutual benefit societies, also referred to as community-based health insurance schemes or mutual health organizations, are voluntary non-profit systems of risk-spreading based on the ethics of mutual assistance and solidarity (see Chapter 4.3). This model is based on the premise that the risk is borne by the insured, who are the owners of the scheme, and that profits are in some way retained for the benefit of the insured.
Institutional options for delivering health microinsurance 413 However, community-based and mutual schemes are not identical. The community-based model is usually made up of a small, local group formed on the basis of the social ties developed in day-to-day interaction. The management has little professional expertise in insurance and the degree of involvement of the members is usually quite high. Mutual schemes, on the other hand, have a long history as providers of social security.5 They are often built on religious or common political lines and provide insurance services to their members. Mutuals are often much larger than community-based schemes and usually have professional management. Due to the group size, and the consequent absence of personal links between the members, there may be less social cohesion in mutuals than in community-based schemes.