Do Micro Health Insurance Units Need Capital or Reinsurance? A Simulated Exercise to Examine Different Alternatives

The Geneva Papers on Risk and Insurance - Issues and Practice, Vol. 31, No. 4, 2006

23 Pages Posted: 27 Sep 2007

See all articles by David M. Dror

David M. Dror

Micro Insurance Academy (MIA)

John Armstrong

Institue of Health Policy and Management, Erasmus University

Abstract

The purpose of this article is to provide a technical discussion of capital loading that "micro health insurance units" (MIUs) must add to the premium to maintain financial sustainability. MIUs offer benefit packages and require prepayment, that is, they create a rudimentary community-based health insurance for poor people in low-income countries. We broke up the 2001 data set of a health insurer containing upward of 1.3 million insureds into 535 "virtual MIUs"; and running 1,005 iterations, we got a data yield of 537,675 virtual MIUs. Capital loading levels increased steeply with decreasing group size and higher confidence levels. The impact of group size remains strong even with groups of 25,000 plus, and is stronger than the impact of changes in confidence levels. We discuss options to correct size-related premium bias through government subsidies, and conclude that reinsurance is cheaper than capital loading and a preferable solution for governments compared to other alternatives.

Keywords: reinsurance, capital requirement, health insurance, micro health insurance units, social reinsurance, low-income countries, social insurance, insurance for the poor, community based health insurance, health financing

Suggested Citation

Dror, David M. and Armstrong, John S, Do Micro Health Insurance Units Need Capital or Reinsurance? A Simulated Exercise to Examine Different Alternatives. The Geneva Papers on Risk and Insurance - Issues and Practice, Vol. 31, No. 4, 2006, Available at SSRN: https://ssrn.com/abstract=1017101

David M. Dror (Contact Author)

Micro Insurance Academy (MIA) ( email )

New Delhi, NCR
India
+41 78 790 6789 (Phone)

HOME PAGE: http://https://en.everybodywiki.com/

John S Armstrong

Institue of Health Policy and Management, Erasmus University ( email )

Rotterdam
Netherlands

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