Health insurance

Health insurance provides coverage against the costs of diseases and accidents causing physical injuries. Benefits often take one of the following forms:

  • Reimbursement for cost of treatment and/or medicines
  • Coverage of services and/or medicines at specified facilities on a cashless basis
  • Payment of a specified sum per day, week, or month of hospitalisation without regard to the actual cost (hospital cash or hospital indemnity)

Health insurance is typically a complex product, covering a broad variety of risks that can happen repeatedly. Health insurance involves external health care providers, which makes it very difficult to implement and to manage claims. In many cases these include private providers as well as public providers (where low-income people are more commonly treated for serious illnesses). Fraud risks (false incidents, over-invoicing) are also significant and require preventive measures that are quite often sophisticated. Underlying health systems are often weak, and need to be strengthened for insurance to be valuable. 

Because of this complexity and because of the cost of the underlying services, health insurance is among the least prevalent and most expensive types of microinsurance. Efforts to keep the premiums to a level clients can afford and are willing to pay can involve:  

  • Limiting coverage (for example, to outpatient care only, or to a specified list of services)
  • Limiting provider networks to pre-approved providers offering insurers discounted rates
  • Including co-payments (to reduce moral hazard)
  • Covering only a portion of the cost of some or all covered services (i.e. providing a discount)
  • Subsidising premiums

These efforts may impede the usage of services however and thus reduce the effectiveness and attractiveness of health microinsurance. Balancing coverage and cost are important challenges. The cost of health care provision in developing countries varies significantly and has an impact on the varying degrees of effectiveness and outreach of health microinsurance.