Barbara Magnoni

Don’t Cover Everything: Why targeted health microinsurance can work better than full coverage

I was recently in Nairobi, where a shopkeeper shared with me the story of the loss of his 3-year-old daughter. He wasn’t sure what she had died of, but he felt that the public hospital he took her to hadn’t done enough to help. He thinks continually about his decisions, second-guessing how he might have avoided this fate. After all, he’d had money to spend that might’ve allowed for other alternatives, having paid $300 in incidentals and medications at the hospital.

Earlier this month, in Ecuador, I visited a small town outside of Ibarra where I walked around with a loan officer from a microfinance institution to ask his clients questions about their health care. We didn’t have to look far. Of the six clients we either visited or ran into while walking down the street, every one shared a tragic story of insufficient and costly care. One woman complained of a botched delivery, which sank the family into debt; another mentioned that her sick daughter couldn’t go to school, but that she lacked money to take her to the doctor; one man described excruciating back pain that often kept him from his carpentry work, but explained that he couldn’t afford the MRI the doctor prescribed. Seeking health care and paying for health care are often two sides of the same story. As such, understanding people’s behavior around health care often starts with understanding their financial behavior.

A Disappointing Finding

In 2014, I closed a chapter of our work with the end of a four-year study with the Microinsurance Learning and Knowledge (MILK) project of the Microinsurance Centre. MILK sought to understand both the value of microinsurance to clients and the business case for these products, with the assumption that at the intersection of business case and value, there is a good case to be made for this product line.

Perhaps one of the most disappointing yet obvious conclusions of the MILK project for me was that the financial value to clients of catastrophic health insurance was so much greater than the financial value of primary or outpatient care. That makes sense: outpatient care is less costly on a per-visit basis, but more frequent, and insurance premiums have to take this greater frequency into account. As a result, the amount clients pay for insurance may look a lot like what they would spend out of pocket anyway at the doctor. With less frequent but more costly events like surgeries or serious accidents requiring hospitalization, the numbers look better for catastrophic insurance, at least for clients who make claims.

Through the MILK project we studied seven health insurance products in Africa, Asia and Latin America in a range of high- and low-cost situations. These studies followed our “Client Math” methodology, using interviews with insured and uninsured patients who have suffered similar health events to describe the costs and financing of these events, including the role played by insurance. In the studies, we found that the math worked in favor of the insured for costly inpatient events. Across these studies the insured spent less out of pocket than the uninsured, with an average out-of-pocket cost savings from insurance of nearly one month’s income (and in some cases much greater). My colleague Rick Koven also found that some of the programs covering high-cost, infrequent events had reached (or were trending toward) financial sustainability.

So why was this disappointing? Because the behavioral incentives of these products are skewed against the health outcomes of the patient. The little girl who is taken to the hospital only after serious symptoms flare up, the man who waits until he can no longer get out of bed to diagnose a spinal injury, and the pregnant woman whose preeclampsia was not diagnosed until her delivery may all save money with health insurance that covers these high-cost needs. However, all would likely be much better off from a health perspective if they sought care earlier.

The Importance of “Getting the Product Right”

Fortunately, three of the products we studied offered some insight into how insurers can think about value and some of the challenges that face health microinsurance ahead. One such product was offered by Hygeia in Nigeria, with subsidy and technical support from the Pharmaccess Foundation, and included chronic disease coverage and medication. Here we found some interesting behavioral effects, including more regular adherence to treatments and medication regimens by hypertensive patients with insurance versus their uninsured counterparts. Insured patients also engaged in more healthy lifestyle behaviors (consumption of fruits and vegetables and more rest) than their uninsured counterparts. By conditioning access to drugs for hypertension to a monthly talk about disease management (and thus linking it to patients’ purse strings), the program appeared to be impacting patients’ healthy habits. In Guatemala and Tanzania, studies of two products covering outpatient care showed that patients with insurance sought care sooner after falling ill or with less severe symptoms than the uninsured.

It appears that the behavioral effect – or as we call it, the “use it or lose it” effect – of preventative and early-stage care can be a very exciting, albeit costly effect of health insurance. Many low-income people without coverage simply postpone care, even when they know that in the long term, their risks (and costs) could be higher.

Our findings about the different types of value that these different programs have point to the importance and difficulty of “getting the product right.” With health, we are tempted to try to cover everything, because from a social justice perspective it makes sense. However, with private sector solutions this is usually not feasible. Where the private sector can step in is by offering coverage for “slices” of care that may be weak or missing in the public sector, but that motivate patients to seek treatment early on. These slices can be costly, and thus may have to be quite narrow. For example, in Guatemala, the product we studied only covered preventative and curative care related to gynecological services. Other slices might include chronic care, where patients may be willing to pay a premium and the public sector may be willing to subsidize care to avoid future public health crises, or pediatric care, where insurance fills gaps in the public sector rather than duplicating it. The trick to getting these slices right seems to be to make them narrow enough for the math to work, while building in primary and even preventative coverage to ensure people seek care early on.

Barbara Magnoni is President of EA Consultants.

Education, Health Care
financial inclusion, microfinance, product design, research