In India, households prefer investing in physical assets over financial assets, resulting in risk management through debts rather than insurance. The large informal sector dips into the available pool of non-institutional debt channels, thereby increasing its vulnerability and indebtedness. The lack of awareness, affordability and trust in institutional insurance also extends to health insurance. This is where community-based health insurance can leverage the strong social networks in communities to introduce insurance and drive greater coverage. This financing alternative has evolved to build trust in insurance and help prevent aggravating poverty due to high Out-of-Pocket expenditure (OOPE), particularly amongst those segments of the population that are left out by social and private health insurance.
Community-Based Health Insurance
Community-based health insurance (CBHI) schemes are essentially not-for-profit prepayment plans for healthcare characterised by high involvement of community members, which encourages greater participation and enrolment. The two essential features of insurance, i.e. prepayment and pooling, are managed by the community where social capital[1] is leveraged to increase and maintain enrolment. High level of social capital in a community signifies the presence of trust and solidarity among the members. Consequently, when the members of a community trust each other, they are more likely to pool their resources to insure against similar but uncorrelated risks. Hence, the level of social capital plays a significant role in receptiveness to risk pooling, retention in the schemes and willingness to pay. Trust in insurance can be more effectively built when the community members are highly involved in managing the scheme. Moreover, community management helps address the aspects of ability and willingness to pay while setting premiums based on contribution capacity.
CBHI is currently an umbrella term that in various degrees refers to microinsurance, community health funds, mutual health organisations, among others. In all its forms in existence, there are a set of common characteristics which mark their difference from other health financing instruments:
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Community participation: Predominant role of the community in the collection, pooling, and managing of the scheme. Affiliation is also based on community membership.
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An alternative for the “missing middle”: Beneficiaries are mostly those excluded from state-sponsored health insurance or private insurance.
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Social capital: Shared social values of voluntary participation, built-in solidarity mechanisms and reciprocity.
India’s Community based health insurance landscape
Following the characteristics listed above, India does have several community-based health financing schemes that seek to cover those who have been left out by social and private health insurance schemes. These are offered by MFIs, cooperatives, NGOs and health service providers either independently or through partnerships with insurance companies. Based on their ownership and management, there are broadly three types of models of community-based health financing mechanisms in India:
Irrespective of the model, the collection of premium amounts is usually achieved through annual membership drives. Risk is pooled mostly at the community level and to that extent, is quite limited. In the case of larger CBHIs that cater to different groups, the risk is pooled from different client groups, allowing for greater risk-sharing. In the case of NGO-intermediated schemes, the NGO acts as an agent of a larger insurer, and the risk is transferred to the insurer, who does the pooling. This then also allows for greater cross-subsidisation. Given the size of CBHI schemes, the capacity to purchase strategically is limited. However, in the case of provider-owned schemes, by virtue of the scheme being initiated by providers themselves, customers have direct access to a selection of healthcare providers. Even when not actively contracting with a provider, some of the NGO intermediated schemes have used negotiation and awareness to direct consumers to more affordable healthcare providers.
The IRDAI Microinsurance Regulations (2005) allows registered insurance companies to offer microinsurance products through agents (MFIs, NGOs and SHGs). While this addresses the partner-agent model of CBHIs, standalone microinsurance entities are not under the purview of the IRDAI and are hence unregulated. This limits the capacity of other CBHI models where communities have greater participation in management.
Pathways for reform
The attention CBHIs enjoyed in the early 2000s fizzled soon after, with their impact in terms of uptake and utilisation and sustainability considered to be largely limited (see here, here, here and here). However, with the vast majority of India’s population continuing to spend significantly out of pocket on health, there is a need to re-focus on CBHIs to see how their strengths can be leveraged to expand insurance cover in India.
Even though increasing the size of the risk pool allows insurers to predict better the average outlays for the group, commercial insurers do not consider India’s informally employed as an attractive market, despite them constituting more than 70% of the population. This could be due to the high awareness and loading costs associated with individual onboarding that may well exceed premium revenue. Here, CBHIs can be thought of as “entry points” through which communities/ groups can be linked to larger insurers. In this arrangement, CBHIs bring with them the communities’ trust and local requirements needed to design more suitable products. Owing to their direct connection with the community, CBHI management can also cost-effectively build insurance awareness among community members, thereby reducing such costs in the overall model. A critical issue CBHIs face due to their localised nature is the limited capacity to pool risks. To solve this, a larger insurer can act as a ‘hub’ – pooling together the smaller risk pools of each CBHI, which then become a spoke/ agent to this hub. In addition to risk pooling, the insurer can provide the necessary technical and managerial training for greater efficiency. This model can, in fact, be extended to include any pre-existing group with some kind of payment structures already in place (SHGs, labour federations, MFIs, etc.), encouraging them to leverage their social capital, local knowledge and existing mechanisms to set up a community-based insurance system that can then act as the enrolment and delivery infrastructure for the hub.
As constituent CBHIs grow to have strong distribution capacity and the ability to leverage local knowledge to design appropriate insurance products, there is a need for appropriate pathways for them to become full-service insurance companies. Measures such as reduced capital requirements and assistance in reinsurance can be considered to explore this possibility further.
Effective scaling up of CBHIs through this hub-and-spoke model to become a viable alternative providing coverage to India’s growing informal sector would require deeper consideration of the following:
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Given that India’s commercial insurance currently grows at nearly 25% year on year without much innovation, would a large player have the necessary incentive to act as a hub? A strong business case for tying up with existing communities may need to be made here.
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The commercial insurance space in India of late has been seeing the emergence of InsurTech start-ups transforming the landscape through innovative products and solutions. The potential of these entities to innovate delivery systems needs to be studied closely.
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Product and service innovation that meets consumer requirements needs to be enabled by the regulator. The role of the regulator in demarcating the nature and functions of the different players in this model could be critical.
[1]“Social capital is broadly defined to be a multidimensional phenomenon encompassing a stock of social norms, values, beliefs, trusts, obligations, relationships, networks, friends, memberships, civic engagement, information flows, and institutions that foster cooperation and collective actions for mutual benefits and contributes to economic and social development”.
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