Providing Health Insurance through Microfinance Networks in Rural Karnataka, India PDF version
Details of the Intervention:
Researchers partnered with SKS Microfinance to evaluate the effect of bundling a health insurance policy with microcredit loan renewals. From a list of 201 villages where SKS operated microfinance programs, researchers randomly selected 101 to serve as the treatment group and 100 to serve as the comparison group. In 2007, SKS began requiring loan clients in these villages to purchase health insurance at the time of renewing their loan. In comparison villages, SKS continued to operate its microfinance business without any changes.
Researchers conducted baseline surveys with a randomly selected sample of SKS client households between late 2006 and early 2007 and collected follow-up data with the same households two years later from 2009 to 2010.
Results and Policy Lessons:
Bundling insurance products with loan renewals caused clients to reduce renewal rates. A portion of clients gave up credit to avoid buying insurance. Microcredit clients who did renew were, on average, neither unhealthier nor more likely to incur health expenses.
Loan renewal take up: The requirement to purchase health insurance substantially lowered microcredit clients’ loan renewal rates. Within a year of the program roll-out, loan renewal rates in treatment villages dropped to 55
percent, 16 percentage points lower than the 71 percent rate in comparison villages, suggesting that many were willing to give up microcredit to avoid buying insurance. Following widespread discontent with the health insurance requirement, SKS made the insurance add-on voluntary in late 2008 and removed the option altogether in early 2009. Even after this removal, clients in treatment villages were 16 percentage points less likely to have an outstanding loan than the average 54 percent in comparison villages. These households did not generally take out other loans, suggesting that this was a net loss in access to microfinance.
Client riskiness: SKS Microfinance’s fear that only riskier or unhealthier clients would take up health insurance packages proved unfounded, primarily because very few people wanted the product at all. Researchers did not observe greater insurance take-up for households in worse health at baseline. Even for pregnancy, a relatively more predictable healthcare expense, there was no evidence of any difference in insurance take-up.
Overall these findings suggest the need for more comprehensive and reliable insurance products. In early stages of introducing formal health insurance to the poor, researchers recommend that institutions concern themselves less with client riskiness and more with how best to market and manage insurance products for low-income consumers in order to increase demand.
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