DEPARTMENT OF ECONOMICS

Unversty of Malaw Chancellor College DEPARTMENT OF ECONOMICS Workng Paper No. 2007/02 The Deand for Prvate Health Insurance n Malaw Donald Makoka, Ben Kaluwa and Patrck Kabewa August 2007 Publcaton Funded by the European Unon

2007 Departent of Econocs The Workng Paper Seres are publshed wth fundng fro the Governent of Malaw/European Unon through the Capacty Buldng Prograe for Econoc Manageent and Polcy Coordnaton. The vews ressed n the papers are those of the authors. Departent of Econocs Unversty of Malaw Chancellor College PO Box 280 Zoba Malaw Tel: +265 (0) 1 524 222 / 1 525 021 (D) Tel: +265 (0) 1 524 256 Fax: +265 (0) 1 525 021 Eal: econocs@chanco.una.w Web: http://www.econocs.chanco.w

Unversty of Malaw Chancellor College DEPARTMENT OF ECONOMICS Workng Paper No. 2007/02 The Deand for Prvate Health Insurance n Malaw Donald Makoka, Ben Kaluwa and Patrck Kabewa August 2007 The Workng Papers contan prelnary research results, and are crculated pror to full peer revew n order to stulate dscusson and crtcal coents. It s ected that ost Workng Papers wll eventually be publshed n soe for, and ther contents ay be revsed. The fndngs, nterpretatons, and conclusons ressed n the papers are entrely those of the authors.

The Deand for Prvate Health Insurance n Malaw Donald Makoka, Ben Kaluwa and Patrck Kabewa Unversty of Malaw, Chancellor College Abstract: Ths study nvestgates the deternants of deand for prvate health nsurance aong foral sector eployees n Malaw, a poor country wth heavy pressure on under-funded free governent health servces. The study s based on ebershp n the Medcal Ad Socety of Malaw s (MASM), three schees, naely: the VIP, the best; the Executve, the nteredate; and the Econoplan, the nu. The results ndcate that foral sector eployees prefer to receve edcal treatent fro prvate fee-chargng health facltes, where health nsurance would be relevant. The study fnds that the probablty of enrollng n any of MASM s schees ncreases wth ncoe and wth age for the top and nu schees. More chldren and good health status reduce the probablty of enrollng nto the two lower schees. The results suggest the potentally portant roles that can be played by nforaton and nterventons that address the affordablty factor such as through eployer contrbutons that take nto consderaton ncoe and faly sze. 1. Introducton Although publc health servces are stll free at the pont of consupton n Malaw, the health sector faces the probles of a sall resource envelope, and neffcent and nequtable servce delvery. The challenge facng governents s that f servces are to be provded for all, then not all servces can be provded (WHO, 2000). 1 In Malaw, ths has resulted n resource aldstrbuton, The artcle s based on the frst author s MA (Econocs) thess subtted to the Departent of Econocs, Unversty of Malaw, at whch second and thrd authors are faculty ebers. The usual dsclaer apples. Correspondng author: Departent of Econocs, Unversty of Malaw, Chancellor College, PO Box 280, Zoba. Fax 265 1 525021. Tel 265 8 864579. Eal: pkabewa@chanco.una.w 1 In Malaw, t was noted that publc fnance has attepted to provde too broad a range of health servces resultng n ther beng spread too thnly over any servces (Malaw Governent, 2001a). 1

geographcally, between levels of facltes and servce types. The probles faced have been n the areas of budgetng and fnance operatons, health personnel, drugs delvery, and operatons. Durng the decade followng deocratc electons n 1994 the probles worsened and nvolved drug plferage and deoralsed health personnel. On the equty front, t has also been observed that the non-poor have been the an benefcares of subsdsed hgher-level servces fro publc tertary facltes and that all these neffcences have generally rased the burden of dsease for the poor (Malaw Governent, 2001a). Governent servces have not only becoe neffectve but the poor (and others) end up gong to for-proft facltes and payng for drugs they would have accessed for free at publc facltes. In recent years, Malaw governent s endture on health has aounted to 8.4 percent of total endture copared to Southern Afrca Developent County s (SADCs) average of 13.7 percent (UNDP/SADC/SAPES, 2000). In per capta ters, governent endture on health servces was around US$11 between 1997 and 2000 copared to US$21 for low-ncoe countres (World Bank, 2003). The physcan/patent rato s 1.1 to 100,000 and there are 1.3 beds per 1,000 patents (Malaw Governent, 2001a). The odern health sector coprses three types of health servce provders, naely: the publc sector, non-proft prvate sector, and the prvatefor-proft sector. In 1998, these accounted for a total of 7 tertary, 82 secondary and 417 prary facltes (Malaw Governent, 2001a). The coverage of the sector n ters of the total nuber of facltes s therefore stll qute lted for a populaton of 12 llon and ths partly accounts for Malaw s poor record wth health ndcators. 2 The publc sector, led by the Mnstry of Health (MOH) accounts for 71 percent, 50 percent and 45 percent respectvely, of the facltes at the tertary, secondary and prary levels. It also donates n servce provson, accountng for 60 percent of all foral health care servces followed by the not-for-proft Chrstan Health Assocaton of Malaw (CHAM), whch accounts for 37 percent and the prvate for-proft accountng for 3 percent. Health servces n the publc sector are currently provded free of charge apart fro aternty care, prvate wards at central and dstrct hosptals, payng 2 As at 1997 lfe ectancy at brth stood at 38.9 and 39.6 years for ales and feales respectvely, copared to 47.3 and 50.7 years for the whole of the SADC regon (UNDP/SADC/SAPES, 2000). In 1998, the nfant ortalty rate was 134 per 1,000 lve brths, copared to 54 for SADC (Governent of Malaw, 2001a and Governent of Malaw/World Bank, 2006 p133). 2

outpatent departents and the new hosptal by-pass fee (Malaw Governent, 2001b). Over te and despte ts donance, state-servce delvery falure, has been shftng the burden of access to effectve health care to the prvate pocket. Estated out-of-pocket endtures by households on health servces have been on the rse and nvolvng a growng nuber and dverse range of prvate-for-proft players. Fro US$9.1 llon n 1995 prvate enses ncreased to US$ 37.1 n 2000 when the share of prvate endture on health to GDP was 4 percent copared to governent s contrbuton of 3.6 percent (Malaw Governent, 2001c; World Bank, 2003). Aganst ths background, health nsurance can provde an addtonal source of health care fnancng, albet on a self-selecton bass. It offers a nuber of econoy-wde or publc benefts, ncludng: prvate sector cost-sharng that releves governent of the burden of provdng servces for those wllng and able to pay and allowng ore effectve targetng of publc health care resources towards the needy,.e. equty effects, and; further ncreasng effcency through ncreased copetton n health servce provson. To the potental partcpants n health nsurance schees there would also be prvate benefts fro proved schee perforance, better value for oney and the relef fro nconvenencng out-ofpocket endtures (Conn and Walford, 1998; Abel-Sth, 1992). But these potental benefts not wthstandng, the effectve deand for such schees n Malaw has never been assessed. Ths paper assesses the deternants of deand for prvate health nsurance aong foral sector eployees n Malaw. Ths entals takng nto consderaton: a) the extent to whch foral sector eployees prefer to receve treatent fro prvate health facltes where health nsurance would be relevant, b) for those wth no nsurance, whether ths was because of ncoe or lack of nforaton, and c) the factors that deterne an ndvdual s specfc partcpaton n three schees offered by Malaw s oldest and largest health nsurance provder, Medcal Ad Socety of Malaw. 2. The Health Insurance Industry The health nsurance ndustry n Malaw s underdeveloped. There s no copulsory health nsurance even for those n publc foral sector eployent. Before the establshent of OASIZ Medcal Ad n 2003, the MASM was the only thrd party nsttuton n the health nsurance ndustry. Soe parastatals and soe frs have sall schees of ther own whch they operate theselves or contract MASM to adnster on ther behalf (Malaw Governent, 2001a). 3

The MASM s a non-proft-akng organzaton, whch asssts ts ebers to access edcal support and servces through three schees. The ost coprehensve schee s the VIP schee, wth a onthly preu of MK 1,500 and caterng for treatent n any country n the Southern Afrcan regon. The Executve Schee requres a lower onthly contrbuton of MK 700 per person. It covers payents for edcal treatent up to MK 300,000 per annu fro governent, sson, and prvate hosptals and clncs regstered wth the Socety. The last schee, Econoplan whch caters for low-ncoe ndvduals, has a onthly preu of MK 300 for treatent as n the Executve Schee but wth a uch lower annual lt of MK 50,000. Contrbutons to MASM are payable onthly, quarterly or annually. MASM reburses the costs of consultatons, prescrptons and treatent at a rate dependent on the type of coverage chosen. In the perod 2004-05 there were 56,269 people nsured wth MASM. However, n a country wth a populaton of over ten llon people, the nuber of those who have health nsurance s stll very nsgnfcant. The nsured nvolved 1,116 groups or copany schees and 1,957 ndvdual or faly schees. Out of total endture of MK719 llon n 2004-05, 93 percent was accounted for by the groups or copany schees. The actual orentaton of the endtures was donated by consultaton (about 30 percent) followed by edcals, accountng for 28 percent (Fgure 1). Fgure 1 Health Insurance Servce Expendture 2004-05 35 Percent of Total Cost 30 25 20 15 10 5 0 Consultaton Medcal Adnstraton Dental Drugs Type of Servce 4

3. Earler Eprcal Studes There are two ajor contendng theores about what otvates people to take out nsurance, ncludng health nsurance. One espouses the axsaton of ected utlty of ncoe when there s a possblty of loss that can be nsured aganst. 3 An alternatve theory s called prospect theory and t suggests that the deand for health nsurance s deand for ncoe transfer fro the healthy state, when edcal care s an rrelevant good, to the ll state, when edcal care becoes a substtute for other goods and servces (Tversky and Kahnean, 1986a and 1986b). Soe observers have argued that the two theores have a ajor weakness n the sense that they rely on people coparng the ected gans fro nsurance over the costs of preu and costs fro future prospects of llness f not nsured (Nyan, 1998 and 2001). Regardless of the detals about how these two perspectves atter, and there are sceptcs. The factors that drve the decson to take out health nsurance would lkely be the sae, fro the deand sde such as ablty and wllngness to pay, and supply sde such as suppler barrers. Eprcally, the Unted States of Aerca s long hstory wth healthcare provson based on prvate health nsurance provdes a vast eprcal lterature on the subject of deand for health nsurance. Of ore relevance and nterest here however would be studes based on contexts where the erences cater for state and prvate provson of nsurance and/or health care. These nclude soe Western, Asan, transton East-European and Afrcan studes whose objectves have been as vared though nsghtful. These have ranged fro seekng vews about ectatons fro health nsurance as a eans of fnancng health care, whether t represents value for oney, whether there should be equty consderatons, to the role of possble deand-sde factors (ncoe, educaton, sex, artal status, age, health status, and dependents) and supply sde factors (servce qualty, rsk). A study on people s vews about health sector and nsurance refors n Croata between 1999 and 2000 found that 31 percent sad that access to servces should reflect payent and 39 percent sad that what they contrbuted n nsurance corresponded to the servce they receved (Mastlca and Babc-Bosanac, 2002). A ajorty, 60 percent, ected nsurance contrbutons to reflect equty consderatons.e. be progressve and ncrease wth ncoe. 3 Ths theory was orgnated by von Nueann and Morgenstern (1964) and was further elaborated by Fredan and Savage (1988). 5

Two studes have exaned the deand for prvate health nsurance as an alternatve to governent or statutory schees n Tawan and Gerany. In Tawan, the key fndngs were that ncoe and educaton had a postve pact on the deand for prvate nsurance, whether the respondent was a arred feale and workng n a state-run enterprse (Lu and Chen, 2002). The Geran study fnds that the alternatve voluntary health schee attracted a norty who had ncoes above a nu threshold and that the argnal benefts dd not outwegh the costs n ters of choce of servce provder or servces provded. Furtherore, voluntary health schees penalsed those wth dependents, the elderly and those n poor health (Thoson et al, 2002). In the Catalona regon of Span a study dentfed a qualty gap between publc and prvate health nsurance as a key deternant of the rsng deand for prvate health nsurance and attendant health servces (Costa and Garca, 1999). A study on the strengths and ltatons of rural countybased health nsurance schees n Kenya, Uganda and Tanzana found that despte the great need for decentralsed and effectve health care at ths level, fnancng through nsurance faced the probles of lted household resources whch placed enorous stran on schee desgn and pleentaton (Musau, 1999). 4. Methodology and Data The study s based on prary data collected n two urban centres of southern Malaw of Blantyre and Zoba 4 between March and Aprl 2003. A structured questonnare was used to gather nforaton fro foral sector eployees. 221 respondents were randoly selected, 42 percent of who were feale. Data collected ncluded: respondents soco-econoc characterstcs, ndvdual s self assessent of health status, health care utlsaton, ther atttudes towards prvate health nsurance and ther status regardng ther holdng prvate health nsurance wth MASM. In the study, deand for MASM health nsurance s analysed usng a logstc regresson odel due to the categorcal nature of the response varable. In partcular, a ultnoal logt odel (MNLM) s eployed by dervng the MNLM as a probablty ode (Long, 1997). Let y be the dependent varable, deand for health nsurance, wth nonal outcoes or types of schees. Although the categores are nubered 1 to, they are not assued to be ordered. Ths assupton s based on the followng arguent: even though 4 Blantyre and Zoba are respectvely the second largest and fourth largest urban centres n Malaw. 6

the schees have a nonal preference orderng fro VIP down to Econoplan and No Schee, they are eans-bound n whch case the eans or affordablty operates as weghtng factors. The study adopts the ultnoal logt odel as presented n equaton 3 n the Appendx. The present study bulds on several earler studes. Of partcular nterest s a study undertaken n Denark (Chrstansen et al, 2002). However, the nature of the present study s organsed wth due consderaton to the specfc features of the health nsurance ndustry n Malaw and the avalablty of data. Deand for prvate health nsurance should be understood as a predctor of enrolent for ebershp wth MASM, dependng on a nuber of lanatory varables. Based on the odels by Long (1997) and Chrstansen et al. (2002), Table 2 provdes a lst of varables that are ected to nfluence deand along wth ther ected sgns. Table 2 Descrpton of Independent Varables Varable Descrpton Expected Sgn Gender Sex of the ndvdual + Age Age of the ndvdual + AgeSquared Age of the ndvdual squared - Schoolyears Length of schoolng for the ndvdual + Chldren Nuber of chldren the ndvdual has + HealthStatus1 Excellent self reported health status of + the ndvdual HealthStatus2 Far self reported health status of the ndvdual + HealthStatus3 Poor self reported health status of the ndvdual - Incoe Total onthly ncoe + Response Varable (Mebershp nto MASM) Group 1 = VIP Schee Group 2 = Executve Schee Group 3 = Econoplan Group 4 = Not eber It s ected that the probablty of a person to be nsured s lkely to ncrease wth age because of an ncreased need for health care. However, the share of the nsured above the age of 55 s ected to decrease wth ncreasng age because of the age ltaton n MASM and therefore the age-squared varable s ected to have a negatve sgn. To see how ths effect ateralses, one needs to relate the decson to take out health nsurance to an nvestent where one needs to calculate the dscounted net benefts 7

over the perod of nvestent, whch n ths case ght be saller the closer one s to the age lt. Length of schoolng was used as a proxy for general knowledge of the benefts of beng healthy at least cost, and ected to affect the atttude towards health nsurance postvely. Self-assessed health status was ncluded n the study wth three categores, excellent, far and poor. Owng to enrolent crtera at MASM, ebers are ected to be n good health wth poor health beng negatvely assocated wth barrers fro the supply-sde but observable as low deand. Both excellent and far health statuses ere ected to postvely affect the probablty of a person to be nsured. Snce MASM regsters chldren as dependents, t gves an ncentve for fales wth chldren to enrol. The study therefore ects the probablty of beng nsured to ncrease wth the nuber of chldren. Furtherore, based on earler studes that have shown that the dstrbuton of health nsurance preus s progressve wth respect to ncoe, the present study ects the probablty of beng nsured to ncrease wth an ndvdual s total ncoe. The theory of deand for health care stpulates that feale ndvduals deand ore health care than ther ale counterparts. As a result, the study ects gender to postvely nfluence the probablty of havng health nsurance. 5. Eprcal Results In order to test the hypotheses on the choce of health faclty, whch akes health nsurance relevant or rrelevant, and on the reasons for not havng nsurance, a bnoal test was used. The test copares the observed frequences of the two categores of a dchotoous varable to the frequences ected under a bnoal dstrbuton wth a specfed probablty paraeter, whch n ths case was assued to be 0.5, representng a 50/50 outcoe. Table 1 Bnoal Tests on Choce of Health Faclty and on Reasons for not Havng Insurance Test Category Observed Proporton Test Proporton Asyptotc Sgnfcance (2 Taled) a On Choce of Payng 0.98 Health Faclty Non-payng 0.02 0.5 0.000*** On Reasons for not Havng Insurance Lack of knowledge Lack of 0.68 0.32 0.5 0.004*** ncoe Note: a Based on Z approxaton 8

In order to run the bnoal test on the choce of a health faclty, we have restrcted our choce of health faclty to two, payng and non-payng. The results show that the observed asyptotc sgnfcance level based on Z approxaton s very hgh. We therefore reject the hypothess that the proporton of each category s equal (0.5), at 1 percent level of sgnfcance and conclude that the proportons of the two categores are statstcally dfferent at 1 percent level. As any as 98 percent of the respondents preferred payng health servces whch are prvate health facltes where health nsurance s relevant. The results of the bnoal test on the reasons for not havng nsurance ndcate that the proportons for lack of knowledge and lack of ncoe are also statstcally dfferent, at 1 percent level of sgnfcance. The results show that the ajorty, 68 percent, of the respondents wth no nsurance cted lack of knowledge as the reason rather than low ncoe, plyng that nforaton and arketng would be a crucal part n extendng the outreach of the health nsurance ntatve. Table 3 presents results of the ultnoal logt regresson showng varables whch were portant for deternng deand for the varous schees. The portance of each of the varables n the ultnoal syste was tested,.e. whether all the varables have a sgnfcant effect on choosng a partcular type of schee, aganst the baselne choce (no nsurance schee). The results show that at 1 percent level of sgnfcance all the nne varables have a sgnfcant jont pact on the probablty of choosng each of the three schees. Table 3 Factors Affectng Deand for Varous Insurance Schee Varable VIP Schee Executve Schee Econoplan Schee β P>z β P>z β P>z Gender -1.041 0.107-0.0732 0.865-0.4489 0.865 Age 1.317 0.030** 0.4089 0.233 0.6722 0.233* AgeSquared -0.018 0.024** -0.0055 0.218-0.0089 0.218* Chldren -0.0.52 0.871-0.3849 0.057* -0.6312 0.057* Incoe 0.0004 0.000*** 0.00038 0.000*** 0.00032 0.000*** Schoolyears -0.385 0.013** -0.1083 0.353-0.0617 0.353 HealthStatus1-13.818 0.219-14.8050 0.020** -14.9894 0.020** HealthStatus2-13.170 0.237-14.9755 0.018** -15.7949 0.018** Note: Hstatus3 was dropped to avod the proble of atrx sngularty. * denotes sgnfcance at 10 percent level, ** denotes sgnfcance at 5 percent level, *** denotes sgnfcance at 1 percent level Next we tested whether the drect pact of onthly ncoe has the sae pact on an ndvdual s choce of a partcular schee as 9

t does for another schee. The results ndcate that the pact of total onthly ncoe on an ndvdual s choce of the VIP Schee and the Executve Schee was not equal, at 1 percent level of sgnfcance. At the sae sgnfcance level of 1 percent, we also reject the hypothess that the pact of total onthly ncoe on the VIP and the Econoplan Schee s equal. However, for the Executve and the Econoplan Schees, the null hypothess can only be rejected at 10 percent level of sgnfcance. The results n Table 3 show that under the VIP Schee, Age, AgeSquared, and Incoe were sgnfcant wth the ected sgns at the 5 percent or 1 percent levels. Schoolyears s sgnfcant at 5 percent level wth a negatve sgn, contrary to ectatons. Thus, age postvely nfluences the probablty of VIP schee ebershp up to 55 years and becoes a negatve nfluence thereafter, whle ncoe also has a postve nfluence on ths ore ensve but better schee. Schoolyears was used n the study as a proxy for the general knowledge of the benefts of beng healthy. But there s a strong possblty n Malaw that for the VIP schee ths varable could be pckng up other effects, such as job category, ncoe and nsurance enttleents by type of eployer (prvate sector versus publc sector), where the prospects for nsurance would be better for prvate even wth less schoolng. In the saple, 38 percent of the respondents had post-secondary educaton. For the Executve Schee, only Incoe was sgnfcant wth the ected sgn at 1 percent level. Chldren s sgnfcant at 10 percent level wth a negatve sgn whle HealthStatus1 and HealthStatus2 are also sgnfcant at 5 percent level and wth a negatve sgn. Age, AgeSquared, and Schoolyears whch are portant varables n lanng the probablty of havng a VIP Schee, dd not nfluence an ndvdual s probablty of havng an Executve Schee. These fndngs show that respondents deandng the Executve Schee tended to be nfluenced postvely by ther ncoe levels, negatvely by household sze whch restrcts ablty and /or wllngness to pay, and also negatvely by whether they were n excellent or far health. Copared to the deand for the VIP Schee, these fndngs gve Executve schee the hallark of a necessty. Ths would stll be out of reach for those wth ore chldren who ght have greater need for an nteredate schee to oderate preu payents and outof-pocket enses. The results suggest that there s a potental oral hazard proble n people deandng the Executve Schee, whereby respondents would lke to enrol when they suspect they wll need health servces. Where they self assess to be ft or farly ft, then they are not lkely to enrol for the Executve Schee. In case of 10

unected llness, these would be lkely canddates for governent health facltes. The deand for the Econoplan shares the sae characterstcs as that for the Executve schee except that ths te both Age and AgeSquared were sgnfcant at 10 percent level and they had the ected sgn. Below the age restrctons, age s a otvatng factor for ths cheaper or nu schee. 6. Concluson Results fro the statstcal analyss have revealed that, at deand for health servce level, foral sector eployees prefer to receve treatent fro prvate health facltes where health nsurance would be relevant and portant. Although soe foral sector eployees do not possess an nsurance schee wth MASM due to fnancal constrants, the ajor reason why ost eployees do not have a schee wth MASM s lack of knowledge. If foral sector eployees becae ore knowledgeable on health nsurance procedures n general, and the operaton of MASM n partcular, the nubers of people wth prvate health nsurance aong these eployees would ncrease. Inforaton s therefore an portant factor n ncreasng outreach. Although dfferent varables nfluence the probablty of havng dfferent schees dfferently, the study establshes ncoe as the coon ost sgnfcant factor that postvely affects an ndvdual s probablty of havng any of the three types of schees wth MASM. Ths ples that the affordablty factor poses a constrant on deand for health nsurance. The success of the ntroducton of socal health nsurance for those n foral publc sector eployent would need to take nto account ths ncoe or affordablty factor, possbly through a sutable approach to ts desgn lke eployer contrbutons. The age of the ndvdual ncreases the probablty of a person enrollng n the VIP and Econoplan schees because of the potental need for health care. However, the age squared varable negatvely affects the probablty of enrolent, such that the probablty of enrollng decreases wth ncreasng age because of the age ltaton. Therefore, n the decsons regardng health nsurance, governent pleentaton of socal health nsurance would lkely beneft older eployees ore than younger ones. For the nteredate, Executve schee and the nu Econoplan, whch would lkely be attractve for the lower-ncoe, the probablty of beng nsured decreases wth the nuber of chldren, suggestng probles wth effectve deand. Ths has adverse welfare plcatons n the case 11

of poor servce at governent facltes because of the burden of outof-pocket enses at payng facltes. Agan wth reference to the two lower level schees, good selfreported health status reduces the probablty of havng a schee wth MASM because t reduces the ncentve to enrol n the schees. Snce poor health s a ground for barred entry, good health now probably also reduces the perceved dscounted net benefts and/or rases fath n the free servces at governent facltes. Overall, the results of ths study suggest that health nsurance would becoe attractve wth ore nforaton and n the event of further declnes n the perforance of the free publc health syste or f these servces also becoe user-charged. Presently, those argnalzed appear to be those lkely to need the schees ost.e. those wth lower ncoes and those wth larger fales, and especally ncludng young chldren. As an ant-poverty easure n the face of resource constrants, the governent has the choce of provng ts own servce delvery, whch wll reduce the ncentve for nsurance by those able to pay, and ntroducng statutory nsurance schees, lke the Geran one, startng wth ts own eployees. References Abel-Sth, B. (1992) Health Insurance n Developng Countres: Lessons fro Experence, Health Polcy Plan, 7 (3) pp. 215-26 Chrstansen, T., Laurdsen,. and Kaper-orgensen, F. (2002) Deand for Prvate Health Insurance and Deand for Health Care by Prvately And Non-prvately Insured n Denark, Unversty of Southern Denark, Health Econocs Paper 2002:1. Conn, C.P. and Walford, V. (1998) An Introducton to Health Insurance for Low Incoe Countres, London: Insttute for Health Sector Developent. Costa,. and Garca,. (1999) Deand for Prvate Health Insurance: Is there a Qualty Gap? Departent de Teora Econoca, Unverstat de Barcelona, Workng Paper. Fredan, M. and Savage,. (1988) The Utlty Analyss of Choces Involvng Rsk, ournal of Poltcal Econoy, 66 (4), pp 279 301 Lu, T. C. and Chen, C. S. (2002) An Analyss of Prvate Health Insurance Purchasng Decsons wth Natonal Health Insurance n Tawan, Socal Scence and Medcne, 55 (5), 755-74. 12

Long, S.. (1997) Regresson Models for Categorcal and Lted Dependent Varables, Calforna: SAGE Publcatons, Inc. Malaw Governent (2001a) Malaw 2000 Publc Expendture Revew, Llongwe: Mnstry of Fnance and Econoc Plannng. Malaw Governent (2001b) The Malaw Essental Health Package (EHP), Llongwe: Malaw Governent (2001c) Malaw Natonal Health Accounts (NHA): A Broader Perspectve of the Malawan Health Sector, Llongwe: Mnstry of Health. Malaw Governent/World Bank (2006), Malaw Poverty and Vulnerablty Assessent: Investng n our Future, Mastlca, M. and Babc-Bosanac, S. (2002) Ctzen s Vews on Health Insurance n Croata, Croatan Medcal ournal, 43(4), 417-24. Musau, N. M. (1999) County-Based Health Insurance: Experences and Lessons fro East and Southern Afrca, Partnershp for Health Refor, Techncal Report No. 34. Nyan,. A. (1998) Theory of Health Insurance, ournal of Health Adnstraton Educaton 16 (1), 41 66. Nyan,. A. (2001) The Deand for Insurance: Expected Utlty Theory fro a Gan Perspectve, Unversty of Mnnesota, Workng Paper. Thoson, S., Busse, R. and Mossalos, E. (2002) Low Deand for Substtutve Voluntary Health Insurance n Gerany, Croatan Medcal ournal, 43 (4), 425-32. Tversky, A. and Kahnean, D. (1986a) The Frang of Decsons and the Psychology of Choce, Scence 211, p453-458. Tversky, A. and Kahnean, D. (1986b) The Frang of Decsons and the Psychology of Choce, n on Elster (Ed), Ratonal Choce, New York: New York Unversty Press. UNDP/SADC/SAPES (2000) SADC Regonal Huan Developent Report, Harare: SAPES Books. von Nueann. and Morgenstern, O. (1964) Theory of Gaes and Econoc Behavour, New York: ohn Wley World Bank (2003) World Developent Report, Washngton D.C.: World Bank/Oxford Unversty Press. WHO (World Health Organsaton) 2000, World Health Report 2000, Geneva: WHO. 13

Appendx Techncal Note on the Multnoal Logt Model Let pr ( y = x) be the probablty of observng a partcular outcoe gven x, a vector of ndependent varables. The probablty odel for y can now be constructed as follows: pr y = x s a functon of the lnear Assue that ( ) ( ) = K cobnaton xβ. The vector β β o... β k... β ncludes the ntercept β 0 and coeffcents β k for the effect of x k on outcoe To ensure that the probabltes are nonnegatve, we take the xβ : xβ. Although the result s onental of ( ) nonnegatve, the su ( xβ j ) j= 1 does not equal 1, whch t ust for probabltes. The thrd step, therefore, nvolves restrctons to ake the probabltes su to 1. We thus dvde ( xβ ) by ( xβ ): j= 1 j ( y ) pr = = x (1) j= 1 ( x β ) ( x β ) Ths noralzaton ensures that pr( y = x) = 1 = 1 j However, the odel s undentfed snce ore than one set of paraeters generates the sae probabltes of the observed. ( xξ ) By ultplyng resson 1 by t can be shown that ( xξ ) the odel s not dentfed. Snce the operaton s the sae as ultplyng by 1, the value of the probablty reans the sae: ( y = ) pr x = j= 1 ( x β ) ( x β ) j ( xξ ) ( x ξ ) 14

= = j = 1 j = 1 ( x β + x ξ ) ( x β + x ξ ) ( x [ β + ξ ]) ( x [ β + ξ ]) j j...(2) Although the values of the probabltes have not changed, the orgnal paraeters β have been replaced by β + ξ. Thus, for every ξ 0 there s a dfferent set of paraeters that results n the sae predctons. Clearly, the odel s not dentfed. In order to ake the odel dentfed, restrctons are posed on the β ' s, such that for any nonzero ξ the constrants are volated. Ths s acheved by constranng one of the β ' s to equal 0, such as β = 0 1, or β = 0, 2 or β = 0. The choce s arbtrary. In the study we set β = 0. Clearly, f a nonzero ξ s added to β, the assupton that β = 0 s volated. Addng ths constrant to the odel results n the probablty equaton gven as: pr ( y = x ) ( x β ) = where β = 0. (3) x β j= 1 ( ) j pr ( y = x ) ( x β ) = where β 4 4 j = 1 ( x β ) j = 0...(4) whch s used n the study, where: x = the vector of covarates for respondent β = the coeffcent vector for choce of ebershp nto MASM = the nuber of choces. 15