Progress in Bangladesh
Microinsurance is increasingly considered important in Bangladesh because of the limitations of conventional loan-based microcredit programmes in protecting the poor from all sorts of vulnerabilities. Although microcredit leads to various beneficial results, there is also evidence that not all sectors of the poor benefit. It therefore makes sense to supplement microcredit with other services.
One such vulnerable group of people are those who experience severe health shocks. Illnesses and accidents reduce people’s ability to work, and require a redirection of their resources to healthcare. Micro health insurance (MHI) can protect people in cases of need when other coping strategies fail. In Bangladesh, so far, the poor in general lack health insurance, and the government does not meet their healthcare needs. This is particularly so in rural areas.
Governmental health services have many shortcomings, mostly because of supply side constraints. The working conditions in primary healthcare centres including Upazilla Health Complexes (UHC – Upazilla is a sub-district administrative level) are poor. In addition, there are no sufficient incentives to retain doctors in the hospitals. There is also a lack of proper input mix and skill mix due to under-resourcing. Typically, many UHC staff are unfriendly and unapproachable, thus discouraging local people from resorting to them. All too often, moreover, they demand unofficial fees (bribes).
As a result, the UHCs are under-utilised. The majority of patients turn to private healthcare providers, especially to informal providers who typically have no scientific medical qualifications (BBS, 2006). There is no state-run social health insurance scheme even in the formal sector in Bangladesh.
Coping with health shocks
Health insurance is the most sophisticated tool to deal with health shocks. These shocks always translate into unforeseeable healthcare costs, and poor people often cannot afford them. The poorer people are less able to cope with the economic consequences of health shocks. Therefore, the importance of insurance increases with the depth of poverty.
In the absence of health insurance, households adopt various coping strategies. These strategies include depleting saving, borrowing and selling assets and livestock. These strategies are normally more expensive than what a health insurance would have cost. According to a recent study (Hamid et al., 2009) health shocks are more prominent in the rural areas of Bangladesh, and they imply massive economic burdens for the people concerned. The study also found that health shocks mostly hit poor households. Often households’ regular incomes and accumulated savings are not sufficient to cover the expenses caused by the shocks. People therefore have to borrow money and sell assets and livestock.
If, on the other hand, people have access to health insurance, there is less need for such coping strategies. They can manage health risks by regularly paying a premium, a small amount of money, to the insurance provider. In turn, the insurance provider pays their health-related costs.
Conventional health insurance providers are almost entirely absent in rural Bangladesh, however. Indeed, they face disincentives to becoming active in disadvantaged areas. These disincentives include
– high administrative costs,
– problems of contract enforcement,
– adverse self-selection (people with high risks want to join, whereas low-risk and higher-income do not, so the insurance company cannot spread the risk over many people), and
– moral hazard (ex ante – people shy from spending on preventive measures, and ex post – they tend to make excessive use of medical care).
Rural people, moreover, normally neither understand how insurances spread risks over large groups nor what the financial consequences are. For several reasons, their demand for formal healthcare is rather low, which also implies that they are difficult clients for conventional insurance companies (Desmet et al., 1999).
There are several models for providing MHI to the poor:
– In the partner-agent model, the partner (the insurance company) is responsible for actuarial, financial and claim assessment services. The agent (the MFI) is in charge of selling the insurance product.
– In the full-service model, the MFI bears all the responsibilities, including product development, marketing, servicing and claim assessments. In Bangladesh, MFIs tend to deliver healthcare services through their own health facilities.
– In the community-based model, volunteer managers, who are elected by the policyholders, are responsible for designing, developing, servicing and selling the product as well as dealing with external health service providers.
– In the provider model, health-service providers (hospitals, clinics, groups of doctors et cetera) are the insurer.
It is often said that the partner-agent model generates the most benefits for all sides involved. The partner (insurance company) can expand its business thanks to the network of the agent (the MFI). The MFI, in turn, benefits from commission payments. On top of that, it is making a difference in its clients’ lives. Most important, the partner-agent model generates greater benefits for the clients offering insurance products at lower costs than the full-service model (Brown, 2001).
However, as health insurance is more complex, MFIs may not find a suitable partner. The evidence suggests that “most existing partner-agent relationships tend to provide the least complex form of insurance: basic life coverage” (Brown, 2001, p. 17). Moreover, the partner-agent model is not so effective if the agent does not have some bargaining power over the partner.
The full-service model also has some advantages. The costs of marketing and administration are kept low thanks to a marketing infrastructure that is already operational. It is easy to sell insurance to credit groups this way. Moreover, MFIs can give concessional benefits to the targeted poor. In addition, the full-service model can adapt flexibly to different situations.
All the MHI schemes in Bangladesh – with the exception of Dhaka Community Hospital (DCH), which is community-based – broadly belong to the full service model (see box, p. 67). They provide healthcare through health centres, hospitals or miniclinics, which they own and run themselves. The advantages are that
– the insured get coverage immediately as there is no need to submit a claim, and
– the uninsured can also seek healthcare from the same facilities, which helps to fund the schemes.
Stuck at a primary level
Financial sustainability is the main challenge for the MHI schemes that are currently operational in Bangladesh. These schemes do not fit the standard model of three-party healthcare, in which the insurer, the insured and health service providers take part. In Bangladesh, micro health insurers are also the providers of healthcare. One consequence is that the scope of their coverage remains limited. They typically focus on primary care, but do not provide protection from the costs that arise from major illnesses. That insurance clients are charged co-payments is also a disincentive to joining the schemes.
Institutional sustainability is another important challenge. The MHI schemes in Bangladesh are mainly operated by MFIs, which require huge investments for capacity building including skilled human resources and establishment of health centres. Problems are exacerbated by the fact that there is no formal regulatory body to date.
All summed up, MFIs in Bangladesh have made progress in terms of MHI in the past decade. However, they seem to be stuck at the level of providing only primary services and doing so themselves. The MFI-run full-service model, which dominates Bangladesh’s emerging sector of micro health insurance does not offer the economies of scale that go along with the tri-party model typical of most rich nations.