PAPER WRAP-UP: “Health Microinsurance: A Comparative Study of Three Examples in Bangladesh” by Mosieh U Ahmed, Syed Khairul Islam, Md. Abul Quashem, and Nabil Ahmed (Part IV of IV)

Written by Mosieh U Ahmed, Syed Khairul Islam, Md. Abul Quashem, and Nabil Ahmed, commissioned by the International Labor Organization (ILO), and published by CGAP Working Group on Microinsurance, Case Study No.13, September 2005, 62 pages, available at: http://www.microfinancegateway.org/files/27889_file_Bangldesh_Health_Good_and_Bad_Practices_No._13.pdf

The paper compares three Health Microinsurance (HMI) schemes in Bangladesh that are associated with microfinance institutions (MFIs). Leading up to this paper wrap-up, which concludes the four part series on HMI in Bangladesh, MicroCapital published a case study on each of them: Part I on Grameen Kalyan (GK); Part II on Bangladesh Rural Advancement Committee’s (BRAC) Micro Health Insurance for Poor Women in Bangladesh (BRAC MHIB); and Part III on the Society for Social Services (SSS).

The cost of health care is a major obstacle to those trying to break out of the poverty cycle. In Bangladesh, public health services are urban-based and elite-biased (p.vi). For the poor and rural dwellers, nongovernmental organizations (NGOs) are often the only source (p50) of health services. MFIs have advantages in setting up HMI schemes in that they already possess the infrastructure, workforce, and resources.

All three of the studied HMI schemes pool risks over their target populations by subsidizing health services in exchange for health card fees (USD 0.34 to USD 2.04 ) (p30,p25), which act as premiums. Health cards contain photos and details of the beneficiaries in order to control against fraudulent use of services. GK and SSS act as both a health service insurer and provider. BRAC MHIB insures services provided through associated organizations. All three schemes also use a co-payment system, in which the user pays an additional cost at the time of service (USD 0.03 to USD 0.51)(p19,p30). Besides generating additional revenue, the co-payments (p53) mitigate the overuse of services.

The first challenge identified for HMI programs is marketing (p51-52). Large membership is necessary for any HMI scheme to be successful because it creates an economy of scale by reducing administrative costs per borrower. Poor clients generally do not have an understanding of risk pooling. They are reluctant to part with their funds until they face illness or accident. HMI schemes must therefore use educational programs (p55) to change the behavior of their user groups. Field staff are in a position to explain the merits of HMI, as well as assess the client’s individual needs, and thus play an important role in recruitment.

Due to their geographical range and infrastructure, HMI schemes can participate in national health campaigns (p50) such as immunization programs, safe drinking water, sanitation, and education on family planning, antenatal care, puberty, gender difference, tuberculosis, HIV/AIDS, and STDs. During these campaigns, HMI schemes can promote their product through door-to-door visits, forums, and community meetings.

Other challenges identified include reducing overhead costs (p53) and preventing members from dropping out after their coverage expires. In order to reduce overhead, premiums can be collected directly from members’ savings account (p53). Simple reimbursement (p53) systems also reduce overhead costs, and make the scheme more understandable to clients. Financial incentives, such as ‘no claims discounts’ (p52) enhance membership renewals.

The major challenge faced by the three HMI schemes is financial viability (p54). To have successful client relationships and impact on poverty, product terms and prices must be decided in consultation with the clients. However, the paper argues (p54), “A direct consequence of the organizations prioritizing their social agendas over financial sustainability is that operational costs are not recovered.” All three organizations deliberately overlook risks (p53) of adverse selection and enroll members without any restrictions. BRAC MHIB and SSS provide free treatment to the very poor. GK does not provide any free services.

All three HMI schemes provide treatment to non-members for a higher cost. The strategy to serve the community at large, and cross-subsidize the poor (p50) through a sliding scale that charges the less-poor higher premiums and co-payments, appears to have some merit in meeting part of the operations shortfall. One challenge to such a strategy is to market the program to attract the less poor.

With all of the resources and expertise of BRAC and Grameen, neither they nor SSS have been able to meet their operating expenses from premiums and fees. BRAC MHIB and SSS are not financially viable (p54) without subsidy. The parent organizations may continue to subsidize their HMI programs, but at the expense of their other activities. It is unlikely that donors will support HMI indefinitely.

GK has an operating loss, but is viable after investment income. GK received a large endowment fund (p54) from its parent organization, which it has since paid back. Donors or parent organizations can use this mechanism instead of subsidizing operations indefinitely.

The paper concludes (p54-55), “To be sustainable the three HMIs need to reassess their premium rates to reflect reality, increase renewal rates and encourage timely renewal, and reduce their overhead through efficient management.”

By Ryan Hogarth, Research Assistant

Additional Resources:

Bangladesh Rural Advancement Committee (BRAC): Home

Grameen Kalyan: Home

MicroCapital article, April 27, 2009: “Bangladeshi Society for Social Services (SSS) Subsidizes Health Microinsurance Scheme with Microfinance and Investment Profits”

MicroCapital article, April 27, 2009: “MICROCAPITAL STORY: BRAC provides Micro Health Insurance in Bangladesh. Lessons in Financial Viability.”

MicroCapital article, April 22, 2009: “Grameen Kalyan offers Health Microinsurance for USD 1.73 Per Year and Partners with Pfizer Inc, GE Healthcare, and Mayo Clinic. Is it Economically Viable?”

MicroCapital article, March 25, 2009: Scalable and Sustainable Micro Health Insurance Just Around the Corner?

“Health Microinsurance: A Comparative Study of Three Examples in Bangladesh”, by Mosieh Ahmed, Syed Khairul Islam, Md. Abul Quashem and Nabil Ahmed, CGAP Working Group on Microinsurance, Case Study No.13: September 2005

Society for Social Services: Home

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