Factors Determining Renewal of Membership in Micro Health Insurance

Transcription

1 Factors Determining Renewal of Membership in Micro Health Insurance Savitha, Associate Professor, School of Management, Manipal University, India. Abstract Illness is a major threat to livelihoods of poor people in India. Micro health insurance can provide financial protection against these morbidities. The success of any MHI depends on the continued membership in addition to deeper penetration of target population. The aim of this study is to investigate the factors that determine renewal decisions in MHI in Karnataka state. The data was collected from 500 households using descriptive survey methodology. Logistic regression analysis was carried out that indicates area of residence, income class, education of the head of the household and prevalence of chronic illness as the major determinants of renewal in MHI. This finding has larger implications for insurance companies and NGO that is offering the programme. Since insurance sector is being opened up for foreign direct investment, the article highlights the need to enhance investments in MHI industry to widen the coverage of poor population through affordable yet profitable insurance products for the higher growth and development of insurance industry. Key words: Health insurance, affordable, financial protection, renewal, enrolment 0

2 1. Introduction Idiosyncratic risks such as illness, death and crop failure encountered by poor households has detrimental effect in the form of destitution, poverty, and weak human development outcomes. Illness is the second most frequent risk after crop failure in rural areas and the most common shock faced by poor in urban areas that jeopardizes normal life of people with long-term negative effect (Dercon 2004). Insufficient funding for health care by governments, inadequate and ineffective health financing mechanisms, poor delivery of health care especially in public facilities (Patel 2010) and excessive reliance on unregulated high cost private providers has resulted in massive out of pocket expenses and consequent impoverishment of the poor. Households maintain consumption smoothing during adverse income shocks by using various such as borrowing, sale of assets or postpone care when sick. In fact, 40 percent of the families hospitalized borrowed money or sold assets, which establishes the inimical position of the poor due to absence of effective health insurance system (Peters et al. 2002). Health insurance is one of the risk pooling ex-ante strategies that aims to provide financial protection during the health shock to reduce household catastrophic payments (Xu et al 2003; WHO 2000). The World Bank and other multilateral and bilateral agencies have stressed the need of private health insurance for better-off section of the society and micro health insurance strategies for those below the poverty line. Thus, micro health insurance has emerged as a viable option to protect the poor from iatrogenic poverty, improve access to care and better health status. Sustainability and viability of any MHI scheme depends on the continuity of yearly membership. Any drastic reduction in renewal rate can be a death knell for resource-constrained MHI scheme. It may throttle the scheme with adverse selection and moral hazard issues if low risk members drop out leaving behind high-risk individuals who would over utilize the services resulting in high claims ratio. Renewal of membership reflects insured satisfaction regarding hospital services or claim management. Thus, keeping insured in the risk pool through continued membership is a challenge faced by most of insurance companies. 2. Literature Review Empirical studies on the renewal of MHI policies are few. Studies on enrolment in health insurance emphasize higher income (Savage and Wright 1999), larger health care expenditure (Kronick and Gilmer 1999), higher age (Cameron et al. 1988; Savage and Wright 1999), gender (Sindelar 1982) and number of children in the household to be important determinants. Renewal decisions are determined by education of head of the households and income with better education and higher income increases the probability of renewing the policy (Bhat and Jain 1

3 2007). A range of factors have been identified in previous studies that prevents enrolment especially demographic and socio-economic characteristics such as income, age, gender and education of head of family (Sinha et al.2006,, De Allegri et al. 2006; Basaza 2008; Jutting 2003). Theory of large numbers risk averse individuals would be willing to pay premium to cover risk of illness (Pauly et al. 2004) and expected utility theory assumes that individuals hedge risks by purchasing health insurance and prefer certain losses over uncertain losses (Amponsah, 2009) and depends on expected utility that can be obtained from insurance which in turn depends on medical needs of individuals (Bhat and Jain, 2006). The prospect theory postulates that individuals shift income from healthy state to ill state and consumption and other goods are substituted for medical care during health shock (Tversky and Kahneman, 1986). Thus, risk attitude and expected gains from insurance determine health insurance purchase. 3. Methodology 3.1 Research Questions and hypothesis In this paper, renewal decision of households and the role of adverse selection are studied by adopting a well-designed survey in Karnataka. Mainly, two research questions are addressed. One of them is to find out whether chronic illness in the family determines renewal of membership. Another question is related to the demographic and socio-economic determinants of renewal decisions. The results of this study would provide sufficient knowledge on the factors influencing renewal decisions in MHI and provide information that would help insurance companies to redesign the product to meet local requirements without compromising profitability. The present study hypothesizes that households with higher education and higher income are more likely to renew the membership. Highly educated head of the households would be more aware and appreciate the continued membership. Affordability is another issue that prevents poor households from renewing the membership; thus the study hypothesizes that high income household would renew their membership. Another hypothesis is that households with chronic illness would renew their membership compared to those without it. Risk averseness would be high in such households that motivate them to choose certain loss of premium income than uncertain medical expenses. If the household spends a larger proportion of its household expenditure on medical treatment, renewal in SSP can be expected. 3.2 Econometric Modeling Binary logistic regression model was run to estimate how various independent variables such as predisposing (size of household), enabling (income quintile, job and education of heads of the households, area of residence) and need (presence of chronic illness in the family) factors 2

4 determine renewal in SSP. Dependent variable was renewal of membership with renewed households coded as 1 and non-renewed households as 0. Prob (insurance renewal>0)=β 0 +β 1 M x +β 2 X y+ ε {1 if insurance renewal >0, 0 otherwise} Prob (insurance renewal >0) is the probability of renewing. X y is a set of predisposing, enabling and need variables that influence probability of renewal. Area of residence dummies was included to control unobservable characteristics of the communities. The omnibus test of model coefficient, Hosmer and Lemeshow test, and -2 log likelihood ratios checked the robustness of the models. The classification of households into five income groups considered the per capita annual income of the entire sample. The per capita annual income data was divided into five equal parts, after arranging them in an ascending order, as quintile 1(first 20%), quintile 2 (next 20%), quintile 3 (next 20%), quintile 4 (subsequent 20%) and quintile 5 (last 20%). The type of illness was coded into two dummy variables. The area of residence was coded into three dummy variables. The renewed status and gender of the head of the household was coded into two dummy variables and the job status of head of the household was coded into six dummy variables. Education of the head of the family and size of the household were continuous variables. 3.3 Data Data for the study was collected using structured questionnaire as a part of a larger survey focusing on impact of MHI on financial protection. This instrument asked for information on membership, renewal status, years of membership, claims made from the programme and amount of claim, satisfaction with membership, chronic illness in the family (number of members and disease), socio-economic characteristics (age, gender, occupation, education, monthly income, marital status and area of residence). Since most of target population was informal workers, income earned from different sources/occupation was collected and cumulative income of all family members was added to calculate monthly income. Perception of satisfaction with membership was elicited using a five point Likert scale ranging from very dissatisfied (1) to very satisfied (5). Insurance status was classified as non-renewed (did not renew in the year of study) and renewed (renewed membership). The data was analyzed using SPSS version 21.0 (IBM Inc.). Descriptive statistics were calculated and logistic regression analysis was carried out to estimate the odds of renewing membership. Pilot and statistical testing of the tools of measurement was carried out to check for validity and reliability of the questionnaire. Multi-stage cluster design with random selection procedures was adopted to select households for the study. In the first stage, three districts where SSP was being implemented 3

5 were selected and later, 10 taluks (administrative regions) from these districts were selected on the basis of literacy index. In the third stage, 18 valayas (divisions in each taluk) were selected from these taluks and later, 84 karyakshetras (villages) were randomly selected from the list given by the project office. In the next stage, using the list of households in each karyakshetra, 500 households were selected using systematic sampling method. In the sample, renewed members were 340 and non-renewed were 160. Sampoorna Suraksha Programme (SSP) aims to provide risk coverage to the self-help group (SHG) members during health shocks. It provides cashless treatment for hospitalization and adopts linked model of micro insurance. It collects premium, manages the claim processing and insurance companies make payment to hospitals through SSP. Enrolment of members takes in the month of February of every year. The premium payable for the first member of a family was 250 in The sum insured was per individual on family floater basis. In , 1,660,185 members from 420,302 families joined the SSP and 364,085,225 were mobilized as premium in A total of 455,493,625 were given as claim benefits to individuals in There were 110 network hospitals in , which were paid through Real Time Gross Settlement. 4. Results and Discussion Descriptive summary characteristics of the sample The summary of descriptive statistics of the households is given in Table 1. Median age of household head in renewed group was 46 and that of non-renewed was 45 years (p>0.05). Renewed households (2.3 km) stayed near the hospital compared to non-renewed households (2.8 km) (p<0.05). Non-renewed households were predominantly headed by males (85.5%) compared to renewed households (84.3%) (p>0.05). Both groups had a median household size of 4 (p>0.05). Renewed household heads had lower education (median of 5) than heads of nonrenewed households (Median 7) (p>0.05). Most of the household head were married. 4

6 Table 1: Basic Characteristic of Households Renewed Non-renewed Test value Marital Status (%) Married Single Occupation of head of the household (%) Waged labourer Home maker/unable to work 7 5 Self-employment Formal sector employment Unemployed Salaried (informal sector) Agriculture Income quintile (%) Q1 < Q Q Q Q5 > Area of residence 5.59** Rural Urban Semi Urban Chi square test **p<0.1 Role of adverse selection and health expenditure Non-renewal is determined by various enabling, predisposing and need factors. One of the main factors is the adverse selection, defined as the prevalence of chronic illness in the family for more than two years. Another factor is the health expenditure that was incurred in the previous year of enrolment. In the renewed group, 76% of households experienced chronic illness among members compared to a lower proportion of non-renewed households (24%). Table 2 shows health expenditure as % of annual household expenditure. Table 2: Health Expenditure as percentage of household annual expenditure Renewed Non-renewed Zero Mild (<5%) Moderate (5 to <10%) Severe (10 to <15%) Very severe (15 to <25%)

7 Non-renewal in SSP Impoverishment (>25%) Chi square test value= , p=0.001 Binary logistic regression analysis was carried out to estimate the determinants of renewal in SSP (Table 3). The strong evidence for non-renewed households being less likely to incur due to lack of chronic illness in the family compared to renewed households was found (Table 3). The Odds Ratio (OR) for chronic illness was significantly smaller than 1, which implied that renewed households were more likely to experience chronic illness than non-renewed (OR.67). The odds of renewal compared to not renewing were high for households living in semi urban areas compared to those in rural areas. Households in Q1 income class were.538 times less likely to renew and Q2 households were.473 times and Q4 household.567 times less likely to renew membership compared to those in Q5 high income households. Higher health expenditure as % of annual income increased the likelihood of renewing the policy. Those households spending 5% and between 5 to 10% of annual income for health treatment were times and times more likely to renew membership in SSP compared to those without health expenditure. For each year of education of head of the household, the likelihood of renewal decreases by.939 times. Thus, chronic illness in the family (adverse selection), high health expenditure, high income, residence in semi urban areas and low education determines the likelihood of renewal in SSP. Age, gender, marital status and job status of the head of the household and size of the household was not associated with probability of renewal. Table 3: Probability of Renewal in SSP Wald Df Sig. Exp (B) Chronic illness in the family (base=yes) No Age of head Marital status of head (base=married) Single Gender of head (base=female) Male Education of head Occupation of household head (base= Unemployed) Labourer Business Agriculture Salaried (informal sector) Formal sector Home maker 95% C.I.Exp (B) Lower Upper

8 Household size Income quintile (base=q5) Q Q Q Q Health expenditure/household expenditure (base=nil) Up to 5% to <10% to <15% to <25% >25% Area of residence (base=rural area) Urban Semi-urban Constant Number of observations Omnibus test model coefficient:pearson chi square = , p=0.000; -2 log likelihood = ; Cox and Snell R squared= 0.118; Negelkerke R squared= 0.355; Hosmer and Lemeshow Pearson chi square =2.261, df =8, p=0.972 (Dependent variable: Renewed membership in SSP; 1=yes) The model fit was assessed using the omnibus test of model coefficients, Hosmer and Lemeshow test, -2 log likelihood ratio, Cox and Snell R square and Nagelkerke R square. The results of these tests showed that the model fits well and 76 percent of cases were correctly predicted by the model. Multi collinerarity of independent variables was checked using variance inflation factors and the results of the test indicate that VIF was very low (1.05 to 1.146). Satisfaction with SSP membership Satisfaction of renewed members vis à vis non-renewed members on specific features of SSP namely benefit package, premium, pre-authorization procedure, quality of network hospitals, distance to network hospitals and premium collection time is given in Table 4. 7

9 Table 4: Satisfaction of renewed and non-renewed respondents: Intergroup comparison Insurance Mean Standard p status deviation Benefit package Renewed Non-renewed Premium amount Renewed Quality of network hospitals Non-renewed Renewed Non-renewed Pre-authorization Renewed Premium collection time Non-renewed Renewed Non-renewed Distance to hospitals Renewed Non-renewed Mann-Whitney U test From the table 4, it can be inferred that renewed had higher level of satisfaction with regard to distance to hospital (mean 3.13) and premium collection period (mean 4.02) compared to nonrenewed respondents. Although renewed expressed better satisfaction regarding the quality of network hospitals and benefit package, insignificant results of the test suggest no difference in the satisfaction among renewed and non-renewed sample. Even pre-authorization and premium amount was not significant. Intra-group comparison of renewed members on various aspects of SSP shows significant difference (Friedman s test p value <0.00). Thus, renewed members were more satisfied with regard to premium collection period, benefits, quality of hospitals than distance to hospitals, pre-authorization, and premium amount. Non-renewed group did not have significant result and hence the satisfaction of members with regard to distance to hospital, benefits, premium amount, pre-authorization, quality of hospitals and premium collection period remains the same. 4.1 Discussion This paper has been motivated by the limited studies that focused on renewal in MHI, a promising health financing mechanism to mitigate iatrogenic poverty in India. By applying quantitative techniques to household level survey data, following findings can be summarized. Firstly, contrary to expectations, lower education of head of the household resulted in renewal of policy. Secondly, income is an important factor that influences renewal decision. Thirdly, adverse selection leads to renewal of policy and this finding has wider policy implications. Fourthly, if the 8

10 household spends more on health expenditure, the likelihood of renewal is high. Fifthly, area of residence shapes renewal of membership in SSP. Sixthly; renewed members were better satisfied with premium collection period and distance to network hospitals compared to non-renewed. The evidence of adverse selection bias in renewal decision was evident since households with chronic illness had higher likelihood to renew compared to non-renewed was found (at 10% significance level). Chronic illness requires repetitive treatment that increases cost of treatment and makes households risk averse. Hence, transferring the risk to insurance is the strategy used by affected households. However, risk pool composed of high-risk families would jeopardize the financial sustainability of MHI due to high claims. Any MHI should aim to achieve a balanced risk pool consisting of low risk and high risk population. Retaining low risk households should be a primary marketing objective of any MHI scheme to enhance viability and human development in the long run. Another intriguing finding was renewal from households that had spent less than 10% of household annual expenditure on medical treatment. These households belong to mild to moderate impoverishment category. Yet, those suffering from severe to drastic impoverishment did not renew that brings to light a fact that poorest households experiencing health shocks may have been pushed to such a poverty level that they could not afford even the premium amount. Further analysis on this aspect would provide sufficient information to make any valid conclusion. It was found that majority of households (almost 50%) spending more than 15% of expenditure on health belonged to poorest income quintile (Q1 and Q2). Thus, lack of money prevented these households from renewing membership despite risk aversion due to illness. This standpoint highlights the role of income in renewal decisions. Income was a significant determinant of renewal and poorest (Q1 and Q2) households did not renew membership compared to high income households. Other studies have established the decisive role of income in enrolment (Savage and Wright 1999; Sinha et al. 2007), and renewal (Bhat and Jain 2007). Affordability is a main determinant of purchase decisions including insurance that brings to light the potential role of corporate companies or donors to provide risk pooling benefits to poorest population. This can be accomplished either through subsidized premium or granting aids to MHI schemes that in turn can lower premium. Non-renewed households were dissatisfied with the premium collection period (February) that was not in accordance with their seasonal income. Any MHI scheme that considers the income pattern of target population would be successful in retaining the members. Thus, scheme design should match local needs and requirements. Renewal is determined by the area of residence especially semi urban households renewed membership compared to rural areas. Most of SSP network hospitals locate in the semi urban or 9

11 urban areas. Renewed respondents had better satisfaction with regard to distance to hospitals. Staying near the hospitals increases the probability of renewal. Contrary to existing knowledge on the role of education in renewal of insurance, this study found that households with head of the family having lower education renewed compared to households with better educated heads. Surprisingly, higher education of the head of the households reduced the likelihood of enrolment. Previous studies established positive relationship between education and enrolment due to the awareness on the importance of health care and knowledge on how and where to get the health treatment (Jutting and Tine 2000). Since SSP mainly caters to the needs of rural households in which head of the households usually have less education, the finding of the study is not surprising. 5. Conclusions and Recommendations This study has gone some way towards enhancing our understanding of renewal of membership in MHI schemes. This study brings to light the problem of adverse selection in renewal decisions that would adversely affect financial sustainability of MHI schemes. Moreover, poorest were refraining from renewing their membership. Thus, unaffordability of premium would promote social exclusion and impoverishment of poorest population. However, lowering premium would throttle financial performance. This study recommends a trade-off in which the poorest are not excluded due to high premium and at the same time low risk population are retained through risk-rated premium. A possible viable solution to increase revenue collection and retention lies in the recent FDI policy imitative in which flow of capital to health insurance business would not only achieve deeper penetration but also financial viability of MHI schemes. MHI not only needs long-term capital to introduce newer products and services but also requires technical and product expertise of foreign partners to build financial infrastructure in rural and un-penetrated areas. It is hoped that investments in technology, innovation and processes in MHI industry would achieve universal coverage of health insurance in India. References Amponsah, E. N., Demand for Health Insurance among women in Ghana: Cross Section: Evidence. International Journal of Finance and Economics, 33, Basaza, R., Criel, B., van der Stuyft, P., Community Health Insurance in Uganda: Why does enrolment remain low? A view from beneath. Health Policy, 2, Bhat, R., and Jain, N., A study of factors affecting the renewal of health insurance policy. Working Paper No Ahmedabad: IIM. 10

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