Focusing on financial access can sometimes obscure the rationale for doing so. We don’t really care about access to finance for its own sake. The point of providing quality financial services to poor households is to give them an easier, more stable path to prosperity. But what are the pitfalls and slippery spots on that path that we hope to ameliorate?
It seems that financing health care is one of the biggest obstacles that poor households face. Take Joseph, a farmer from the Kenyan Rift Valley Province. When his three-year old daughter inhaled a piece of corn she began struggling to breathe. Joseph had no cash at the time, so he waited before visiting a doctor, hoping she would get better. But after three days, symptoms became so serious that Joseph had to take his daughter to the hospital for emergency care. The only way Joseph could accumulate the sums necessary to pay the bill was to sell his land. When I met him two years later, it seemed unlikely that Joseph would ever be able to buy it back. Selling the land had pushed the household into extreme poverty.
Joseph is just one of the 150 million people per year for whom health expenditures become a financial catastrophe, as estimated in this Health Affairs paper. Financing tools such as health insurance or savings accounts may reduce this burden, in particular in countries where affordable public health care is unavailable. But what are good health financing instruments? Some ongoing research is starting to provide answers to this question, but also raises new puzzles.
One of the biggest is the low take-up of “micro” health insurance. Products that have been tested are often quite basic with heavily subsidized premiums. Such products seem like they should be appealing given the risks poor households face, but they have been a difficult sell. Stefan Dercon, Jan Willem Gunning and Andrew Zeitlin for instance document 10 to 22 percent take-up in a study with Kenyan tea farmers – which is actually high compared to a number of earlier projects evaluated. In a program in rural Nigeria, I find higher enrollment rates of 25 to 38 percent, but that was with a 92.5 percent subsidy of the premium.
Why does take-up of subsidized health insurance products remain low? We don’t really know. To answer the question we need to understand how health insurance creates value compared to other financial instruments such as savings and credit, and the true nature of the financial constraints the poor face when paying insurance premia. Together with Wendy Janssens from the Amsterdam Institute for International Development, I am currently collecting yearlong ‘Health Finance Diaries’ in Nigeria and Kenya – with financial support from the PharmAccess Foundation. We developed a novel health diary and combined this with a Portfolios of the Poor-type financial diary. The project will enable an in-depth analysis of the size and sources of costs related to illnesses and injuries; of how households prepare for and manage these costs; and of the financial constraints to seek health care or take insurance. Ultimately, our aim is to generate insights on how sound financial instruments and innovative payment systems may increase access to health care.
Another looming puzzle is how households cope with the financial burden of a global epidemic of chronic diseases. Non-communicable diseases (NCDs) like hypertension, diabetes, chronic lung conditions and cancer place a tremendous demand on health systems that are already overburdened (80 percent of all NCD-related deaths occur in low- and middle-income countries!).
Financing health care for chronic conditions may be even more problematic than financing catastrophic illnesses. Costs for chronic conditions are constant, while incomes for poor households are volatile. Health insurance for chronic conditions is difficult to offer affordably, even in developed countries. A major problem is adverse selection. Prospective clients are likely to have private information about their health, and if those with a costly condition are more likely to enroll, insurance cannot be sustainably priced. Rachel Polimeni and David Levine demonstrate such adverse selection into an insurance scheme in rural Cambodia. If there is indeed such adverse selection in voluntary health insurance, then we may want to consider alternative financial tools. One solution is group health insurance - in which an entire microfinance institution, cooperative, or other group in the informal sector enrolls at once. Health savings accounts (e.g. as in this experiment by Pascalina Dupas and Jonathan Robinson) are another option. Dupas and Robinson’s results are assuring with respect to savings for acute illnesses. But will such products help poor households save for prevention and treatment of less salient chronic diseases?
Understanding how poor households finance health care—and how to help them do it better—is a crucial next step for financial access and development.