THE ROLE OF PREGNANCY IN MICRO HEALTH INSURANCE: EVIDENCE OF ADVERSE SELECTION FROM PAKISTAN

Abstract

With increasing interest from commercial players in developing insurance markets to meet the needs of low‐income people, efforts to find sustainable products have expanded rapidly yet remain elusive. This is particularly true in the domain of health insurance, where the general challenges of offering voluntary private health insurance are often exacerbated by poor underlying health services and a lack of public health programs. In an effort to identify new opportunities to expand health insurance protection to underserved markets, we analyze a rich data set from a micro health insurance program in Pakistan. Observing that pregnancy‐related care accounts for 40 percent of all claims and 36 percent of the total claims amount, we focus much of our attention on understanding the role of pregnancy in micro health insurance. We find evidence of extensive adverse selection related to pregnancy claims, both with regard to original coverage purchase and with regard to renewal. In many countries, pregnancy health care is provided by or paid for by the government. We encourage consideration of this possibility, leaving the remaining health care needs for market‐based health insurance.

Targeting weather insurance markets

“…Adverse selection in rainfall‐indexed insurance can also occur when pricing varies across markets because of variation in historical data quality. By contrast, these problems loom large in alternative products such as crop insurance (Makki & Somwaru, 2001) and in microinsurance products more generally (e.g., Yao et al, 2017). Additionally, the single‐index metric enables quick payouts without need for a claims process, making the product an attractive option for farmers with limited resources.…”

Promoting sustainability for micro health insurance: a risk-adjusted subsidy approach for maternal healthcare service

“…The financial viability of micro health insurance is persistently difficult to achieve, especially for those programmes providing comprehensive coverage that includes maternity services (Wipf and Garand 2008;Biener and Eling 2011;Yao et al 2017b). Most of the existing research targets information asymmetry-especially adverse selection-as the main cause of unsustainability.…”

“…4 No universally accepted definition of microinsurance exists, yet typically the term refers to commercially available insurance products designed to insure low-income people against specific perils including, among others, life, crop, and health coverage. The provision of maternal healthcare through micro health insurance has been shown to be associated with increased utilisation of formal services, decreased outof-pocket payments (OOPs), and improved quality of care in developing countries (Okusanya et al 2015;Smith and Sulzbach 2008;McQuestion and Velasquez 2006); however, the ability to provide such coverage on a financially sustainable basis is challenging due to the prevalence of adverse selection and moral hazard (Clement 2009;Frimpong et al 2014;Okusanya et al 2015;Yao et al 2017b). To save administrative costs, micro health insurers often charge a flat rate for all enrollees on policies designed to be simple and clear with minimal underwriting.…”