Health Microinsurance Outcomes Assessment Baseline Pakistan
Serious illness is the number one risk faced by poor households around the world (Cohen and Sebstad, 2003; Matul, 2005; Matul, 2006; Mekong Economics, Ltd, 2003). The multiple costs of ill health include the direct costs of medical care such as consultations, treatment, and drugs as well as indirect costs such as transportation and care for attending family members. Furthermore, the sickness and incapacitation of income earners results in reduced productivity and lost income for families (Asfaw, 2003 as cited in Jutting, 2003).
The coping strategies most often used by low-income households to address health shocks—drawing down savings, borrowing, and selling productive assets —are usually inadequate and can lead households to fall into poverty (Cohen & Sebstad, 2003). Access to formal risk management products may enable poor people to better cope with the financial shocks resulting from serious illness, but access remains low in the developing world (Roth et al., 2007).
The purpose of microinsurance is to reduce vulnerability (i.e., prevent people from falling into poverty) by protecting against the chance of a loss. This is in contrast to microcredit, which aims to reduce poverty by increasing household incomes. Globally, health insurance is the most highly desired microinsurance product (Roth, McCord, & Liber, 2007).
Interest in health microinsurance has been rapidly growing as has the number of initiatives to deliver private, commercially-based health insurance to the low-income market in developing countries. The Health Microinsurance (HMI) product, a voluntary, private insurance developed for the Northern Areas (NA) of Pakistan is just one example. This product was designed and implemented by the Aga Khan Agency for Microfinance (AKAM) with support from the Bill & Melinda Gates Foundation (BMGF). The primary objective of the insurance is to prevent low-income families from falling into poverty as a result of catastrophic medical costs.
Despite the availability of a free-to-user, government-supported health and hospital system, 75 percent of all health-care expenses in Pakistan are met by out-of-pocket expenditures (due to a variety of factors including low standards of care in the government facilities), demonstrating that the medical costs borne by households are significant (Seckhu & Savedoff, 2005). The HMI provides hospital coverage and free consultations for participating families as well as life insurance for one breadwinner. The product allows families to access hospital care at higher quality health facilities, usually with no cash outlay required. AKAM implemented an innovative marketing and distribution system that relies on existing community development organizations to reduce the costs of bringing the product to the target market: households with incomes just above the poverty line.
This study, the HMI Outcomes Assessment, will assess whether the HMI program reduces household vulnerability to health risks and if so, how. The study is part of the broader Financial Services Assessment (FSA) project. Undertaken by the IRIS Center at the University of Maryland and its partner Microfinance Opportunities, the FSA project aims to assess the impact of grants provided by the Bill & Melinda Gates Foundation (BMGF) to microfinance organizations for the design and development of financial services innovations in developing countries.
The research investigates changes in household health risk management behavior and health-seeking behavior to determine if households that enroll in the health Health Microinsurance Outcomes Assessment, Pakistan microinsurance achieve improved financial and health outcomes as a result of using the insurance. The evaluation also probes for changes at the hospital level, such as new levels of hospital utilization, costs, and revenues that could lead to changes in the quality of care offered.
This report presents the findings of baseline research that was carried out in November and December 2008 as the HMI product was rolled out. It summarizes the results of three separate but related qualitative field research activities. The first research activity focused on consumers and investigated the demand for the HMI product, their current use of risk management financial services for health emergencies, their current health-seeking behaviors and consumer preferences for health and hospital care providers. The second activity explored and documented the supply of formal and informal risk management financial products in the study area. The third activity examined the supply of health-care services available to HMI policyholders.
The research mainly employed focus group discussions (FGDs) and structured key informant interviews to assess these changes and explore the value proposition of the HMI. Research focused on the population of Ghizar district, the western-most part of the Northern Areas.
Research findings clearly demonstrate the importance of health issues as a financial risk for people in Ghizar. However, people often delay treatment or fail to obtain it altogether due to the high cost. Although people in the area have developed a number of ex-ante and ex-post coping strategies to address the risks they face, these are often inadequate to meet their needs, especially in the face of a serious medical crisis. Moreover, they tend to rely on ex-post strategies, which are higher in cost and more stressful.
The formal health-care landscape in the Ghizar district is comprised of three health-care systems: government, Aga Khan Health Services, Pakistan (AKHSP), and military facilities. Care in government facilities is ostensibly free and available to all local residents. Hospitals in the Aga Khan network, however, are generally seen as providing better quality care. Consumers with the resources to choose typically preferred the fee-for-service AKHSP facilities. Out of necessity, poor consumers were more likely to seek care free-of-charge through the government sector.
The direct costs of hospital care (consultation, diagnosis, treatment and medication) are substantial for all users of the AKHSP system. However, those who live far from the major hospitals in Singhal and Gilgit incur extra expenses. First, they pay more in transportation to reach medical facilities in Singhal and Gilgit. Second, in the event of a serious illness, they may be referred to several health-care providers before they receive the appropriate care.
There are no other private health insurance options in the region except for the relatively few households who obtain insurance through their employer. Given that many in the area cannot afford the AKHSP system, they borrow to cover the expense of hospital care. However, options for obtaining loans are limited, especially for the middle and lower classes. The middle class tend to use the First Microfinance Bank, Village Organizations (VOs) and Women Organizations (WOs), Karakorum Cooperative Bank and cooperative societies. For the poor, however, the informal financial services sector comprises their main resource. If households have difficulty repaying their loans after a health crisis, they often sell productive assets or provide labor at low rates to remove the burden of debt. These are high-stress coping strategies that increase household vulnerability.
Based on the information received from residents, it appears that the HMI can effectively protect families from most of the direct costs of one week of hospitalization at an AKHSP hospital or a much longer stay at a government hospital. Yet only four percent of the population enrolled in the HMI during the first year. The main reason for the lack of demand was cost, particularly for those living in large or joint households. Findings also suggest that lack of understanding and lack of trust in insurance may have created a reluctance to purchase the HMI. A substantial portion of the population did not have access or the opportunity to purchase the HMI because they lived outside of the HMI marketing territories, their VO/WO was ineligible, or because they were never made aware that the product was available.
The value proposition of the HMI could be considerable for the residents of this area, but the value is unevenly distributed across the population. Generally, the HMI will serve only the segment of the population that both needs it and can afford it—that is, the middle-income group. The value proposition may be considerably higher for families living closer to the major hospitals since they would not face the higher travel costs that dilute the product’s value for more distantly located households. In addition, considering that the program only covers in-patient costs, the value proposition will vary depending on the proportion of direct in-patient costs to total hospital-related costs. Finally, the value only applies to those families who do not require specialized medical care outside of the Northern Areas.
Lessons from the study applicable to AKAM and to its sister company, the First Microinsurance Agency (FMiA) include:
- The use of community development organizations—Local Service Organizations (LSOs)—to serve as distribution channels and group policyholders for the HMI had advantages and disadvantages. The outreach of the available and qualified LSOs was low. As a result, the marketing territory within which the HMI was accessible in Ghizar district only covered 34 percent of the population.
- Other distribution channels will be needed if the HMI is to be accessible to 100 percent of the population. Placing the bulk of the responsibility for marketing and selling the HMI on the LSO partners to hold down distribution costs of the HMI unintentionally resulted in uneven marketing and inconsistent messages relayed to the consumer market. FMiA and AKAM may need to make a deeper investment in marketing in future launches.
- The market data gleaned from this fieldwork identified a number of distinct and sometimes surprising market segments for the HMI in Ghizar district (for example, families who already have health coverage through an employer). These findings suggest that there is demand for the HMI from unexpected quarters and that the market for the product may be larger than imagined. The research found that the eligibility requirements were modified in some places during the enrollment period. This had the effect of boosting insurance sales, but may have allowed a higher-than-desirable level of adverse selection. FMiA needs to monitor this situation closely and take corrective measures, or else risk the financial viability of the program.
Lessons from the study applicable to the industry include:
- The research indicates that the feasibility of health microinsurance remains a challenge in sparsely populated areas where transportation costs are high to access health care and other services. Covering transportation costs would increase the value proposition of the insurance for policyholders who live far from major health facilities and thus would increase the demand in these areas. Doing so, however, may or may not be financially viable.
- With voluntary insurance it is imperative to get the marketing and enrollment right. Incentives must be sufficient to effectively motivate the marketers within various distribution channels. Mass media product marketing can take the burden off community-based promoters and sales forces while reaching larger audiences.
