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A Program Intended to Offer Health Insurance to the Poor
By Daniel Altman
New York Times, December 4, 2002
A program sponsored by the International Labor Office and the World Bank that is under way in the Philippines has offered hope for a solution to an enduring problem of developing countries: providing health insurance to poor people. The solution involves adding a reinsurance backstop to small, regional insurance plans to guarantee their solvency through periods of extreme need.
Private insurers rarely offer insurance to poor people, since their health is usually worse than that of wealthier people and they cannot afford to pay high premiums. So in developing countries, governments or donors typically offer limited aid in the form of free care. That, however, does not take advantage of the benefits of risk-pooling, and assumes that the poor have no ability to share the cost of care. As a result, medical care may be severely underprovided.
Small regional insurance plans already address this problem in the Philippines and elsewhere in the developing world. But these small plans are extremely susceptible to insolvency when faced with an epidemic or other health catastrophe that might befall an entire community. The I.L.O. and the World Bank set out to demonstrate the positive impact of the small plans and to demonstrate the practical potential for reinsurance.
At a meeting in Montreal last week, the program's organizers reported results from a survey of members and nonmembers of small insurance plans with various backers in five regions of the Philippines. Hospital visits were 40 percent higher, on average, among members than among comparable nonmembers in the last two years. Compliance with drug regimens for the chronically ill was higher in all five regions reported, reaching 100 percent among the survey's respondents in one region, La Union. In four of the five regions, mortality rates for microinsurance members were substantially lower in the last five years than mortality rates compiled from regional statistics.
"Where governments and the private sector have failed to reach low-income and low-health-status people — the poor — we have found alternative solutions that make a big difference," said David M. Dror, a health insurance specialist at the I.L.O. who is a co-director of the program.
The results also suggested that reinsurance could work, at a surprisingly small cost. Under reinsurance, the small insurance plans would pay premiums to a central fund each year. If one of the small plans is unable to cover its own losses in a given year, the central fund would pay out an award — the equivalent of a regular insurance claim — to bail out the plan. Within six years, according to a range of estimates by the I.L.O., reinsurance could expand to encompass regional plans covering 600,000 to one million people in the Philippines.
Starting the program would require an initial injection of capital in case catastrophic losses occurred in the first few years, before the plans' reinsurance premiums had accumulated. Despite the increased medical care among the plans' members, according to Dr. Dror's calculations, the amount needed to keep the system solvent would be only about $9 million.
The Filipino program is the most extensive yet tried, said Elisabeth Rhyne, senior vice president of Acción International, a nonprofit antipoverty group based in Boston that makes small loans to poor entrepreneurs in Africa and the Americas. Previous microinsurance efforts, she said, usually covered only "a very limited package of services," not including in-patient hospital care. More ambitious programs had a difficult time calibrating coverage to need, ensuring the availability of medical care and achieving diverse pools of healthy and sick people, Dr. Rhyne said, and thus could not even attempt reinsurance.
Yet the money to start the reinsurance program has not been forthcoming, either from the government, independent donors or private insurance companies. The program's organizers have paid for training and administration in the Philippines so far, but neither has a mandate to provide the start-up funds.
"It's too small for the big money that usually finds takers for infrastructure," Dr. Dror said. "On the other hand, there are still a lot of people in the development community and the donor community that live under the assumption that the poor are uninsurable."
Dr. Dror and his colleagues came up with the figure of $9 million in start-up funds by measuring health risks and the cost of care for the populations already insured in the five regions — about 40,000 people — and adding a conservative margin of error. Just under 5 percent of the population suffers from chronic disease, but more than half of hospitalizations cost $50 or less. About half of the $9 million would pay for administration, Dr. Dror said.
"If you don't come with some initial capital, no insurance can ever work," Dr. Dror said. "You have to be capitalized at your maximum exposure."
Covering widely dispersed microinsurance units under the same reinsurance umbrella would be crucial to containing that exposure, said Howard C. Kunreuther, a professor of decision sciences and public policy at the University of Pennsylvania. When all the insured are concentrated in one area, he said: "Whatever the risk is, there are always possibilities of high correlation. That's what you try to avoid in insurance, if you can — are there any sicknesses that could really hurt everyone?"
Once reinsurance systems are up and running, though, microinsurance units in villages all over the world could protect each other from epidemics, with a slim chance that all would befall the same catastrophe at the same time.
"You can pool the north of the Philippines with the south of the Philippines, which is about as different as Cambodia is from Africa," Dr. Dror said. "Every village that joins this social reinsurance is assessed according to their variance of risk, and thus you can pool any kinds of risks."
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