Financial Protection at the Bottom of the Pyramid: Evidence from India on the Impact of Micro Health Insurance on Households

Posted: 21 Jun 2007

See all articles by Edit V. Velenyi

Edit V. Velenyi

University of York

David M. Dror

Micro Insurance Academy (MIA)

Date Written: 2007

Abstract

Rationale: To date there is great policy confusion about what form of health insurance is the most successful in reaching the poor and in delivering results. In India, the public health system has not been extended to include effective health insurance for the poor. The outreach of commercial insurers has been minimal and based on risk selection practices.

Focus: The value proposition of micro health insurance (MHI) (defined as small scale, voluntary, organized and managed in participatory manner, and not-for-profit) is that it provides customized benefits at affordable premium levels with clients' involvement in the process; thus, a more pertinent solution. Certain attributes of MHI are better understood, but to date there is little empirical work on its impact on household financial protection. The objective of this study is to investigate whether affiliation with MHI improves financial protection for the target population. The focus of the reported part of the study is on assessing the impact of distributions of illness episodes and health costs with respect to health shocks.

Data: The research is based on household survey data (2005) from seven purposively selected locations in four Indian states where MHI schemes operate. The cross-section covers 4,931 randomly selected low-income households.

Methodology: To capture financial protection, we use vulnerability-adjusted proxy measures, which take into account the level of transitory income, permanent income potentials, and the presence and probability of costly consumption smoothing. Standard econometric techniques are applied to infer differences in financial protection that are attributable to MHI, controlling for household characteristics, scheme features, and community and state environment. We use observational data to extract the distribution functions of illness episodes and the related cost functions. We compare (severity weighted) illness and cost distributions by location, controlling for variation in benefit package design and taking into account scheme size. We compare the level of financial protection for the insured and uninsured cohorts.

Conclusion: This phase of the study offers new insights on the distribution functions, which are critically important for an evaluation of observed financial protection impact of MHI. The effect of health insurance is a direct function of the distributions, the composition of benefit packages, and of morbidity patterns and cost of healthcare, which differ across locations studied. Interpretation of the data and estimating the true financial protection value of MHI is sensitive to the analytical approach and time horizon.

Keywords: micro health insurance, financial protection, household survey analysis

Suggested Citation

Velenyi, Edit V. and Dror, David M., Financial Protection at the Bottom of the Pyramid: Evidence from India on the Impact of Micro Health Insurance on Households (2007). iHEA 2007 6th World Congress: Explorations in Health Economics Paper, Available at SSRN: https://ssrn.com/abstract=994811

Edit V. Velenyi (Contact Author)

University of York ( email )

Heslington
University of York
York, YO10 5DD
United Kingdom

David M. Dror

Micro Insurance Academy (MIA) ( email )

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

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