supplying health microinsurance: lessons from east africa

30
This article was downloaded by: [Stony Brook University] On: 02 November 2014, At: 03:29 Publisher: Routledge Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK International Journal of Public Administration Publication details, including instructions for authors and subscription information: http://www.tandfonline.com/loi/lpad20 Supplying Health Microinsurance: Lessons from East Africa Michael J. McCord a a MicroInsurance Centre , Chilton, Wisconsin, USA Published online: 03 Jul 2007. To cite this article: Michael J. McCord (2007) Supplying Health Microinsurance: Lessons from East Africa, International Journal of Public Administration, 30:8-9, 737-764, DOI: 10.1080/01900690701226489 To link to this article: http://dx.doi.org/10.1080/01900690701226489 PLEASE SCROLL DOWN FOR ARTICLE Taylor & Francis makes every effort to ensure the accuracy of all the information (the “Content”) contained in the publications on our platform. However, Taylor & Francis, our agents, and our licensors make no representations or warranties whatsoever as to the accuracy, completeness, or suitability for any purpose of the Content. Any opinions and views expressed in this publication are the opinions and views of the authors, and are not the views of or endorsed by Taylor & Francis. The accuracy of the Content should not be relied upon and should be independently verified with primary sources of information. Taylor and Francis shall not be liable for any losses, actions, claims, proceedings, demands, costs, expenses, damages, and other liabilities whatsoever or howsoever caused arising directly or indirectly in connection with, in relation to or arising out of the use of the Content. This article may be used for research, teaching, and private study purposes. Any substantial or systematic reproduction, redistribution, reselling, loan,

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Page 1: Supplying Health Microinsurance: Lessons from East Africa

This article was downloaded by: [Stony Brook University]On: 02 November 2014, At: 03:29Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number: 1072954Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH,UK

International Journal of PublicAdministrationPublication details, including instructions forauthors and subscription information:http://www.tandfonline.com/loi/lpad20

Supplying HealthMicroinsurance: Lessons fromEast AfricaMichael J. McCord aa MicroInsurance Centre , Chilton, Wisconsin, USAPublished online: 03 Jul 2007.

To cite this article: Michael J. McCord (2007) Supplying Health Microinsurance:Lessons from East Africa, International Journal of Public Administration, 30:8-9,737-764, DOI: 10.1080/01900690701226489

To link to this article: http://dx.doi.org/10.1080/01900690701226489

PLEASE SCROLL DOWN FOR ARTICLE

Taylor & Francis makes every effort to ensure the accuracy of all theinformation (the “Content”) contained in the publications on our platform.However, Taylor & Francis, our agents, and our licensors make norepresentations or warranties whatsoever as to the accuracy, completeness,or suitability for any purpose of the Content. Any opinions and viewsexpressed in this publication are the opinions and views of the authors, andare not the views of or endorsed by Taylor & Francis. The accuracy of theContent should not be relied upon and should be independently verified withprimary sources of information. Taylor and Francis shall not be liable for anylosses, actions, claims, proceedings, demands, costs, expenses, damages,and other liabilities whatsoever or howsoever caused arising directly orindirectly in connection with, in relation to or arising out of the use of theContent.

This article may be used for research, teaching, and private study purposes.Any substantial or systematic reproduction, redistribution, reselling, loan,

Page 2: Supplying Health Microinsurance: Lessons from East Africa

sub-licensing, systematic supply, or distribution in any form to anyone isexpressly forbidden. Terms & Conditions of access and use can be found athttp://www.tandfonline.com/page/terms-and-conditions

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Page 3: Supplying Health Microinsurance: Lessons from East Africa

Intl Journal of Public Administration, 30: 737–764, 2007Copyright © Taylor & Francis Group, LLCISSN 0190-0692 print / 1532-4265 onlineDOI: 10.1080/01900690701226489

LPAD0190-06921532-4265Intl Journal of Public Administration, Vol. 30, No. 8-9, May 2007: pp. 1–43Intl Journal of Public AdministrationSupplying Health Microinsurance: Lessons from East Africa

Supplying Health Microinsurance McCord Michael J. McCordMicroInsurance Centre, Chilton, Wisconsin, USA

Abstract: Health microinsurance[1] is a recent entrant in the effort to provide sustain-able health financing products to low-income populations. Literature covering this areais sparse and limited to a focus on one delivery channel. Several other channels arebeginning to show promise in this market, but these have not been carefully reviewed,compared, or contrasted. There is no significant literature that reviews these differentmodels in a practical manner to aid institutions that are considering the development ofa health microinsurance product. This study provides a better understanding of theeffectiveness of these different models. It helps insurers and others to identify goodand “bad” practices[2] within the various models so that they can:

1. decide which model is most appropriate for them, and2. benefit from the key lessons of others.

Keywords: health microinsurance, Kenya, microinsurance Tanzania, Uganda

Seven microinsurance programs were selected based on several factors,including:

1. activity within East Africa,2. providing health care financing services to the low-income market,3. including a variety of methodologies within the sample, and4. willingness to be reviewed.

The research for this paper was conducted for MicroSave (www.microsave.org)with funding from UNDP, CGAP, DFID, and Austria. Any errors or omissions are theresponsibility of the authors.

Address correspondence to Michael J. McCord, 1045 N. Lynndale Drive, Suite 2E,Appleton, WI 54914, USA; E-mail: [email protected]

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738 McCord

One for-profit HMO focusing on the lower middle to upper classes wasincluded in the sampling to provide a comparative perspective. Researchersinterviewed management and staff from each of the insurers, health care pro-viders, and intermediaries, as well as the insured. They assessed financial andinstitutional viability,[3,4] relationships with partners, and client attitudes.Information was gathered primarily through techniques of semi-structureddialog, except for the demand side, where people were formed into randomfocus groups for qualitative research. Each institutional visit lasted betweensix and twelve person days, depending on the complexity of their operations.

Key lessons learned in delivering health microinsurance include the needfor individual and institutional incentives, as well as extensive training ofmanagement, staff, and the market. Success, in terms of profitability and out-reach, requires management that is knowledgeable about insurance basics, andtheir ability to develop and manage institutional and product controls. Effi-cient systems are critical for all parties.

This article presents detailed and practical information that helps healthmicroinsurers provide their products in a more effective manner. Being moreinstitutionally effective will result in access to improved health care for low-income populations in developing countries. The primary findings showedthat issues of profitability involved efficiency, loss ratios, volume, pricing,and controls and risk management.

“It is very difficult these days to get assistance for treatment. If you do nothave the money, you will just be left to die. With death, people can easilyassist you, but not [with] sickness. Sickness is for you and your family.” (Pov-erty Africa client[5])

INTRODUCTION

Microinsurance in various forms has been available in East Africa for manygenerations. From the informal, yet ubiquitous munno mukabi (“friend inneed”) systems of Uganda, to the harambee (“pulling together”) culture inKenya, and the funeral societies of Tanzania, low-income people have cometogether to create mechanisms that help them to manage the financial risks intheir lives. These activities are frequently found in both urban and rural areas;among low, middle, and high-income groups; as well as among men andwomen. Through these structures, people have made great efforts to managetheir risks in terms of health, property, and funeral expenses. However, toofrequently, these strategies have proven insufficient to stop the family fromthe precipitous decline towards deeper poverty.

More recently, new initiatives have been introduced to offer other riskmanagement options for low-income people.[6] Some hospitals and clinicshave developed prepayment schemes. Some non-governmental organizations(NGOs) that work with low-income clients have developed risk managing

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Supplying Health Microinsurance 739

products like emergency credit or microinsurance products. Even some com-mercial insurance companies have begun to identify opportunities in the low-income market. The quality of service varies from program to program.[7]

Regardless of the variation in program structure, one constant is that peopleare identifying a need for improved risk mitigation and taking advantage ofthe newly created opportunities.

The value of HMIs is not in question. One challenge HMIs face is theirability to develop self-sustaining programs that allow them to thrive as viablesolutions to insuring low-income markets. HMIs display a continued depen-dence on donor funding in order to survive. This study explores factors thatcontribute to their dependence and identifies possible solutions based on thefindings.

In this article, we analyze seven cases in East Africa. This region waschosen to learn from start-up processes and implementation from a variety ofHMI programs. Examining microinsurance products in this region offeredresearchers an array of delivery channels to explore. Thus, with the support ofMicroSave, the MicroInsurance Centre, and Microfinance Opportunitiesembarked on a detailed study of the supply gaps for health microinsurers inEast Africa. The expectation was that this information could assist microin-surers in effectively reaching more people. Specifically, we attempt to shedlight on the factors that impede growth and sustainability of HMIs.

To do this we analyzed a variety of data sources to identify HMI vulnera-bilities and areas impeding sustainability. We draw from this investigationinvolving formative research using a qualitative and quantitative explorationof the seven HMI cases in East Africa. The study was designed to build anunderstanding of current management strategies and identify programmaticgaps needing additional interventions. The process also resulted in the identi-fication of practical lessons about the supply of health microinsurance. Thisinformation is disseminated in order to provide valuable inputs for otherhealth microinsurance programs.

METHODS

A Qualitative Approach

This multi-case study involved the use of in-depth interviews conducted withmanagement and staff from each of the HMI insurers, health care providers,and intermediaries, as well as the insured. The financial and institutional via-bility was assessed,[4] as well as client attitudes and HMI relationships withtheir partners. Each institutional visit lasted between six and twelve persondays, depending on the complexity of their operations.

The cases selected were a representation of the various contexts withinwhich health microinsurance has been applied. The sample of cases represented

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740 McCord

various delivery mechanisms, organizational structures, and mix of urban andrural institutions, geographical distribution, and a for-profit institution thatserved the middle and upper market but that had an interest in moving into thelow-income market. Table 1 provides key information about the four modelsand the target institutions practicing these models.

A representative sample encompassed seven HMIs institutions selectedfrom three East African countries, Uganda, Kenya, and Tanzania. The Ugandacases included the Centre International de Développement et de Recherche(CIDR), Kitovu Patients Prepayment Scheme (KPPS), and Microcare Ltd. InKenya, the targets were the Community Health Plan (CHeaP) and MediPlus.Cases in Tanzania were the Community Health Fund (CHF), and the PovertyAfrica Health Programme (PoA). These cases were representative of the vari-ety of HMI institutions active today, and all offered a health insurance orhealth care financing product. Each of the cases also represented one of thefour different general delivery models.[8,9] Other factors contributed to theselection of these seven institutions. Each institution had an active health carefinancing product serving the low-income market except one, the for-profitMediPlus in Kenya. They offered health care financing to the lower middlethrough wealthy market, and were chosen as the only for-profit entity in thesample as a means of detecting significant differences in the non-profitapproach of the others.[10]

To gain a better understanding of the dynamics of these institutions, fac-tors that contribute to their resiliency, and the different opportunities availablefor the low-income market, researchers visited a variety of health insurers.[11]

Cases represented a range of delivery mechanisms and institutional ownershipstructures (Table 2), as well as an urban-rural mix.

Table 2 provides some basic information about the institutions.These institutions ranged from the start-up Community Health Plan in

Kenya with 100 clients to the Tanzanian Government’s Community Health

Table 1. A Summary of Microinsurance Models

Model Key Elements Study Example

Provider Health care provider offers health care risk pooling product to cover its own services, and retains all risk

KPPS

Community Based Owned and managed by members who absorb all risk

CIDR, CHF*

Insurer MFI as insurer, or insured HMO coming down market. MFI or other insurer retains risk

MediPlus, CHeaP, PoA

Partnership Insurer works through MFI or other group and retains risk

Microcare

*CHF works with community-based groups but is overseen by the government.

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Page 7: Supplying Health Microinsurance: Lessons from East Africa

741

Tab

le 2

.T

arge

t Ins

titut

ions

Bas

ic I

nfor

mat

ion

(Jun

e 20

02)

Mic

roca

reK

PPS

CID

RC

Hea

PM

ediP

lus

PoA

CH

F

Cou

ntry

Uga

nda

Uga

nda

Uga

nda

Ken

yaK

enya

Tan

zani

aT

anza

nia

Typ

eH

MO

Hos

pita

lN

GO

MFI

/NG

OH

MO

MFI

Gov

t.M

odel

Part

ners

hip

Prov

ider

Com

mun

ity

base

dM

FI I

nsur

erIn

sure

r (w

ith

insu

red

risk

s)M

FI I

nsur

erPr

ovid

er

Leg

al f

orm

Com

pany

lim

ited

by g

uara

ntee

Hos

pita

lN

GO

NG

OC

ompa

ny li

mite

dby

sha

res

NG

OG

ovt.

Prog

ram

Yea

r sc

hem

e st

arte

d20

0019

9820

0020

0219

9620

0119

96

Cov

ered

live

s77

61,

750

837

100+

65,0

0060

033

0,00

0O

wne

rN

on-s

hare

-hol

der

Boa

rdH

ospi

tal

Mem

bers

Cat

holic

Dio

cese

Shar

ehol

ders

*Pr

ovid

ers

as

inve

stor

sM

embe

rs

Leg

al F

orm

Com

pany

lim

itedy

by G

uara

ntee

Hos

pita

lN

GO

Rel

igio

us e

ntity

Com

pany

lim

ited

by s

hare

sN

GO

Gov

ernm

ent

proj

ect

Tax

Sta

tus

Not

for

Pro

fit

Not

for

Pro

fit

Not

for

Pro

fit

Not

for

Pro

fit

For

Prof

itN

ot f

or P

rofi

tN

ot f

or P

rofi

t

*The

ow

ners

are

thre

e lo

cal a

nd in

tern

atio

nal b

usin

ess

peop

le.

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742 McCord

Fund with its reported 330,000 members. Most of these institutions have lim-ited outreach, ranging from 500 to 2,000 insured lives. The for-profit commer-cial health management organization (HMO), MediPlus covers 65,000 lives.

Supply side researchers spent three to five days interviewing HMI man-agement, staff, providers, and intermediary partners about the health microin-surance program. A separate team conducted qualitative participatory rapidappraisal (PRA) sessions were held with a mix of current, past, and non-clients of each of these programs.[12] The demand research was conducted wasconducted in advance of the supply side research, and the demand researchersinterviewed clients of microfinance programs in the three East Africancountries. A detailed account of the demand research is reported in Cohen andSebstad, 2003[13].

SYNTHESIZING THE FINDINGS

Reviewing the components of each of the HMI organizations, several keyissues arise that could affect their potential for viability. Insurance skillimproves pricing and risk management. Extensive controls against moral haz-ard, adverse selection and fraud can contribute to an overall reduction inexpenditures leading to more appropriate premiums for the low-income mar-ket. Operational efficiencies were also important in reducing premiums and indeveloping an effective product. Where these were present the institutionsappeared to have a better potential for success.

HMI Commonalities

During the visits, the research team sought to gain a detailed understanding ofthe operations of the institutions and the HMI products they offered.Researchers found that each organization provided services through either asingle hospital or a network of health care facilities. None of them have partic-ularly strong governance, and most had very little knowledge of the intricaciesof the insurance business. HMI infrastructure observed included two special-ized computer systems at Microcare and MediPlus. Benefits to these HMIswere made clear through their increased ability to manage controls, and toprovide useful management data. However, in neither of the institutions withgood computerized systems was the data used to its full potential. Manual sys-tems were sufficient for very small community-based institutions where noreal data analysis is expected or attempted.

All of these institutions worked with groups of either those employerswho had low-income employees, microfinance institutions (MFIs), villagegroups, or others who had some financial transactions with the low incomemarket.[13] This facilitated the marketing and the servicing, including

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Supplying Health Microinsurance 743

premium collection, of their product. HMIs working with employers found thepartnership superior to working with MFIs. These employer groups were easierto deal with for several reasons, prime among them was the simplicity of dealingone individual, the human resources manager or the CEO, instead of having toconvince each individual within an MFI or other group to obtain a sale.

Insurer’s Risk

In studying the health microinsurers, key element for consideration regardingthe different models was where the insurance risk lies. The different modelsplace the insurance risk with different entities. The community-based modelleaves the local villagers with all the risk, while the insurer model and thepartnership model place the risk with a professional insurer, while the pro-vider based model leaves the risk with the medical facility. This is a criticalaspect in considering the different models as it relates to the ability of the riskbearer to manage an insurance business, and to absorb that risk without desta-bilizing the insurance activities or other aspects of a multi-faceted business(such as the capital of an affiliated microfinance business).[14]

One of the key differences between the share-based HMO and the NGOs isthe strength of the finance area and their focus on profitability. AlthoughMediPlus is barely profitable, there is a trend towards profitability with aggres-sive yet careful pricing, as well as strong and enforced controls. Interestingly,where the other institutions have problems is precisely in these areas: pricing andenforcement of controls. MediPlus is also the only institution in the group withaccess to regulated reinsurance. Their policy with Africa-Re is a stop-loss policythat is activated when the HMO’s premiums are depleted to an agreed level.

Among the NGO based HMIs, two ownership models were observed(besides the rather ambiguous ownership that derives from donor funding).CIDR groups were owned and managed by their members. CIDR’s objectivewas to work with these groups over a period of time so that they wouldbecome truly independent.[15] They would be managing their funds, member-ship, and controls, as well as negotiating with health care providers, and anyother relevant entities.

However, most of the CIDR groups found it difficult to manage the insur-ance product, and their insurance funds were depleted well before the end ofthe policy period. This is a factor of pricing problems as well as member man-agement issues. Because of these difficulties, in the program’s third year, allgroups except for one had migrated from the insurance product option to anew three-month emergency loan option. Even the exception group did notrely completely on the insurance option and were trying a hybrid method.Looking at the trajectory of growth, capacity, and ownership motivation,CIDR determined that it would take more than ten years of expatriate techni-cal assistance to get these groups truly independent.

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744 McCord

Only two of the target institutions had made any serious attempt at properpricing. MediPlus contracted actuarial pricing that was further reviewed bytheir insurer. Microcare has also contracted a formal actuarial review to assessits risk and premium calculations, and still needs to make the required pre-mium adjustments.[16] The health microinsurance products offered by theseinstitutions are varied in terms, coverage, and premiums. Details of theseproducts are provided below in Table 3.

Success, defined as generation of profits or surplus for the microinsurers,has been varied across the different target institutions. Part of the reason forthis is reflected in the institutional objectives of the targets. Some, likeCHeaP, are almost entirely focused on satisfying the social needs of their“market” area.[17,18] Others, like MediPlus and Microcare, are focused ondeveloping and managing profitable institutions. The objectives of each orga-nization often led to different methods of determining premiums and cover-age. For example, CHeaP and CIDR set premiums and coverage based onwhat their members “can afford.” Microcare and MediPlus price for profits,though within a competitive marketplace.

A key to profitability in health microinsurance is the efficiency of thetransactional processes and required activities, such as underwriting.[19] Table 4shows the most efficient program as CIDR, which is essentially run throughthe volunteer efforts of community members, and CHeaP, which is highlysubsidized by the Catholic Church. Another efficiency indicator is the numberof insured to the total number of staff. Regarding efficiency, KPPS with itstwo staff members, and MediPlus the for-profit HMO are significantly moreefficient than the others. This efficiency gives them greater flexibility in pre-mium setting because of the reduction in costs.[20]

Profitability

Another key to profitability is the loss ratio, or the value of claims to total pre-miums.[21] There was a striking difference between the loss ratio of the not-for-profit institutions and the for-profit institution. Compared with Mediplus,which had a loss ratio of 29%, four of the NGOs had a loss ratio well over100%. Thus, for these NGOs, premiums did not even cover the cost of treat-ment for their members. Continued growth without changes in premiums,coverage, or better controls could simply absorb all available funds. A verylow ratio could be related to a high claims rejection rate, very slow payment,or simply treating reinsurance transactions as administrative expenses. In thecase of MediPlus, each of these explanations is viable. MediPlus providerswere complaining of a long and expanding claims payment period. The aver-age duration was over 120 days at June 30, 2002 (Table 1). Indeed, withinnine months of the case study visit, MediPlus had declared bankruptcy due tooperational decisions of management.

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Page 11: Supplying Health Microinsurance: Lessons from East Africa

745

Tab

le 3

.B

asic

Hea

lth C

are

Prod

uct I

nfor

mat

ion

Inst

itutio

nM

icro

care

KPP

SC

IDR

CH

eaP

Med

i Plu

sP

oAC

HF

In-P

atie

nt c

over

Yes

No

Yes

opt

ions

No

Out

-pat

ient

cov

erY

esN

oY

esY

es o

ptio

nsY

esD

iagn

ostic

test

sC

over

edIn

-pat

ient

Cov

ered

Cov

ered

, lim

ited

Med

icat

ions

Cov

ered

, lim

ited

In-p

atie

nt n

eeds

Cov

ered

Dur

atio

n4,

6, 1

2 m

onth

s12

mon

ths

1 m

onth

12 m

onth

sL

imita

tions

(i

n U

S$)

IP 1

95 p

er 8

m

onth

sIP

-44

OP-

8 Pe

r vi

sit

44–5

6 pe

r ad

mis

sion

(v

arie

s by

gro

up)

63 a

nnua

lm

axim

umA

s pe

r se

lect

ed p

olic

yN

ot li

mite

d fo

r O

P (n

o IP

)Pr

emiu

m

(per

per

son

per

year

, in

US$

)

Adu

lt: $

22.0

0 C

hild

: $11

.00

$5.4

0$2

.00

(mig

ht v

ary

by

grou

p, d

isco

unt

for

big

fam

ily)

$4.5

0O

P: $

118.

00 –

$1

86.0

0 IP

: $1

32.0

0 –

$368

.00

OP

only

: $21

.00,

O

P &

bas

ic IP

: $6

4.00

, Com

p:

$213

.00

Ave

rage

$5.

32

(one

set

fee

for

who

le f

amily

)

Met

hod

of

Paym

ent

Lum

p su

m a

t sta

rt,

cash

or M

FI l

oan

Lum

p su

m

at s

tart

Ann

ual l

ump

sum

in

adva

nce,

sav

ed

over

pri

or th

ree

mon

ths

Mon

thly

in

adva

nce

Lum

p su

m a

t sta

rt

Co-

Paym

ents

? (i

n U

S$)

Yes

(OP:

$0.

56 O

P

and

IP: $

1.86

)N

o$1

.10–

$2.8

0 (v

arie

s by

gro

up)

No

Yes

($0

.63–

$1.2

5 fo

r O

P)N

o

Cla

ims

Paid

dir

ectly

to p

rovi

der

(IP

=In

-Pat

ient

; OP

=O

utpa

tient

).

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Page 12: Supplying Health Microinsurance: Lessons from East Africa

746

Tab

le 4

.B

asic

Key

Ind

icat

ors

for

Tar

get P

rogr

ams

(Jun

e 30

, 200

2)

Mic

roca

re*

Med

iPlu

s**

KP

PSC

IDR

CH

eaP*

**Po

AC

HF*

***

Tot

al #

cov

ered

live

s77

6†65

,000

1,75

083

710

0+60

033

0,00

0#

Insu

red

/ # s

taff

:38

.854

287

820

950

100

9.5

Adm

inis

trat

ive

cost

s to

Pre

miu

ms

N/A

70.9

%78

%18

%42

%N

/AN

/AC

laim

s to

Pre

miu

ms

70%

28.6

%89

%13

3%28

0%47

0%40

0%N

et I

ncom

e to

Pre

miu

ms

N/A

††0.

5%(6

7%)

(51%

)(2

22%

)<

(37

0%)

< (

300%

)N

on-r

enew

al r

ate

60%

15%

6.2%

100%

for

insu

ranc

e pr

ogra

mN

/A48

%64

%C

hang

e in

pre

miu

ms

wri

tten

−5.5

%98

.9%

11%

82%

(20

00–1

)91

%N

/A22

0%D

ays

of u

npai

d cl

aim

s89

.5<

120

Nil

Nil

N/A

N/A

180

*Dat

a at

May

31,

200

2.**

Staf

f in

clud

es c

omm

issi

oned

sal

espe

ople

, ann

ual d

ata

endi

ng J

une

30, 2

001.

***P

roje

ctio

ns f

or q

uart

ers

seve

n th

roug

h te

n.**

**T

otal

insu

red

num

ber

is f

or th

e w

hole

pro

gram

, oth

er d

ata

are

from

one

dis

pens

ary

for

peri

od e

ndin

g Ju

ne 2

002.

† Thi

s is

the

cov

ered

liv

es i

n th

e ur

ban

Kam

pala

pro

gram

fro

m w

hich

dat

a in

thi

s pa

per

is d

eriv

ed.

The

tot

al l

ives

cov

ered

are

app

roxi

mat

ely

9,00

0. H

owev

er, t

he o

ther

s ar

e un

der

a di

ffer

ent p

rem

ium

and

cov

erag

e re

gim

e.††

As

a m

eans

of

obta

inin

g ad

ditio

nal

fund

s fo

r th

e he

alth

car

e fi

nanc

ing

prog

ram

, M

icro

care

man

agem

ent

cond

ucte

d si

gnif

ican

t in

form

atio

nte

chno

logy

act

iviti

es. T

he c

osts

and

inco

mes

rel

ated

to th

ese

acti

vitie

s w

ere

inte

rmin

gled

with

the

mic

roin

sura

nce

resu

lts a

nd w

ere

read

ily s

epar

a-bl

e. T

hus,

dat

a fo

r ad

min

istr

ativ

e co

sts

and

net p

rofi

t for

onl

y th

e he

alth

mic

roin

sura

nce

activ

ities

wer

e no

t ava

ilab

le.

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Supplying Health Microinsurance 747

Subsequent closures notwithstanding, the efficiency levels and relativelylow loss ratios of CIDR, KPPS, and MediPlus are clearly reflected in their netincome ratio being dramatically lower than the other institutions.

Volume

Viability is also a factor of the volume of insured clients that used a healthcare facility compared with the total volume of patients that used the facility.Higher client ratio at a facility gives the health care financier a greater lever-age in negotiating lower rates with health care providers. The ratios for five ofthe cases in this study are shown in Table 5.[22]

Because 80% of the MediPlus clients came from the Purple HeartsClinic’s business, the HMI was able to negotiate substantial discounts on thecost of care.[23] St. Mary’s Hospital in Kenya had an effort to dispose of medi-cations that were almost expired. As a result, CHeaP obtained discounts ontheir medications. CIDR started with a 5% discount with their only providerpartner, but they have negotiated an agreement that as the insured and creditmembership numbers grow, this discount will increase up to 12.5%. Thisissue was reiterated by the managing director of Microcare, who noted that asMicrocare grows to the point where a significant portion of a provider’s busi-ness is represented by Microcare insured, then they will be able to negotiate aswell. He suggested that this level may be 15% to 20%.

In all cases except MediPlus, providers complained that microinsurerswere not insuring enough of their patients. PoA operated through a networkof twenty-five providers. Of these providers, management notes that theyhad to push all but one into participating. PoA is managed by a physicianwho was well known in Tanzania, so he cajoled his colleagues into partici-pating in PoA as providers. Recognizing the problem of low uptake, PoAmanagement urged providers to market the product from their offices. PoA

Table 5. Market Share of Microinsurer within a Health CareFacility*

MicroinsurerPercent of total facility patients that are

covered by the insurance program

KPPS 11% outpatient, 2% in-patientsMediPlus 80% (of the Purple Hearts clinic)PoA 3% (on average)CHF 30% (on average)Microcare 10% (on average)

*The percentage of the total health care facility’s patientsduring a period who are insured with the microinsurer.

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management noted, however, that only one provider had promoted thisproduct in any significant manner, and he was the only one that came to PoAto participate. None of the providers that were pushed into participationmarketed the product, even though they all have equivalent investments inthe program.

Financially, all of these institutions have weaknesses except the Tanza-nian government program where local groups collected premiums for thefund, but the government paid for the medications and the care. This allowedthe fund to grow. All of the institutions examined in this study had had capitalproblems at some point. Only the commercial HMO had insurance reserves tocover its claims. The others had no reserves. The CIDR program required eachof its groups to develop a reserve fund with a self-determined percentage ofpremiums. However, because of premium setting problems, these reserveswere quickly depleted.

Pricing had been extremely difficult for these institutions. Four of theseven began with premiums that were far too low to even cover the costs ofclaims, let alone covering operations costs and leaving reserve funds. Thisderives in part from a desire to charge only “what people can afford” withoutconsideration of the likely costs to be incurred.

Non-Renewal Phenomenon

A non-renewal occurs when a client chooses not to renew or continue payingpremiums for their health microinsurance. Non-renewals were shown to havea negative impact on HMI growth. This was particularly of note for thoseHMIs with products for low-income individuals with incomes that provide asubsistence living experience. Non-renewals for employer-based groups havebeen relatively low. This is because employers provide a stable base fromwhich premiums can be paid. Other institutions were not so fortunate, particu-larly those providing services for low-income populations.

HMI Controls

Controls assist in reducing fraud, moral hazard, and adverse selection withHMI products.[24] These are of particular importance in locations where fraudand abuse are the norm.

Controls were important components for the viability of health microin-surance programs. These controls took various forms. Key controls used bythese institutions are detailed in Table 6. Among the institutions in this study,two had employees stationed at covered health care facilities, and one had anetworked computer system set up in order to confirm identities and enterhealth care transactions for immediate analysis and invoice control. All

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Table 6. Managing Insurance Risks: Strategies used by Case Study Institutions

Risk General Strategy Specific Strategy

Moral Hazard Pre-selected providers

Work with a network of providers (all institutions)

Claims limits Depend on cover purchased (allows client choice) (MediPlus)

Fixed with single product (Microcare, CIDR for some groups, KPPS)

Co-Payments Depend on cover purchased (MediPlus)Always (Microcare, KPPS, some CIDR)

Loss review Conducted regularly (MediPlus, Microcare)Annually (PoA) and monthly (CIDR)

Exclusions and limitations

Extensive with MediPlusLimited – excludes chronic care (Microcare and

CHeaP)Proof of event Staff nurses daily in-patient check (MediPlus and

Microcare)Confirmed for both in- and out-patients

at insurer check-in desk (Microcare and KPPS)Confirmation by group executives (CIDR)

Client identification

Each client must present ID at health care facility to receive treatment. (All institutions).

Client ID matches client number and / or photoin data base so further confirmation of ID is possible (Microcare)

ID Cards are replaced each year (CIDR)Pre-approval of

treatmentOut patient registration nurse must check validity

of patient’s cover prior to receipt of treatment (MediPlus)

Patient must get admission pre-approval (MediPlus, Microcare)

In emergency, patient must get admission approval within 48 hours (MediPlus)

Deductibles None required (too difficult to track such a system)Initial exams None required (MediPlus, Microcare, PoA,

CHeaP, CIDR, CHF)Adverse

SelectionWhole family

membership required

Require member plus at least three (Microcare, KPPS)

Whole family (“living under one roof”) membership required (CIDR)

Required membership within groups

Require greater of 50% or 15 members of groupto join (Microcare)

60% of each group required though it has been completely ignored (CHeaP, KPPS)

(Continued)

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750 McCord

Table 6. (Continued)

Risk General Strategy Specific Strategy

60% of each group required though it has been completely ignored (CHeaP, KPPS)

Defined risk pools

Detailed application analysis allows for this, (MediPlus)

Adults and children priced differently (Microcare)

Use of pre-existing groups

Required (Microcare, KPPS, CHeaP)Form community groups for insurance purposes

(CIDR)Waiting periods 30 days for outpatient care (except for corporates

and individuals previously enjoying cover with a different health insurer) (MediPlus)

14 Days (Microcare), 90 Days (CHeaP), 120 days for inpatient, except in the case of emergencies (MediPlus)

Tying insurance to other products

Tied to MFI loan, employment, or some group membership (Microcare, KPPS)

Require savings but not linked (CHeaP)Periodic cost

evaluationCompany systems automatically conduct

variance analysis sending alerts where provider has overcharged (MediPlus)

Monthly (Microcare)Cost

escalationPreset pricing

agreements with providers

Providers only treat within agreed price limits and if there is the expectation that a procedure’s cost will exceed agreed price limits, pre-approval must be sought (MediPlus)

Fixed price agreement for consultation and medications (CHeaP)

Preset drugs list Adherence to approved drug list is required (MediPlus, Microcare, CHF, CHeaP)

Negotiated discounts

10% plus (CIDR)Fixed price for consultation and medications

(CHeaP)Near limit

warningsNotification of clients and health care facilities

when a client is about to reach their limit (MediPlus)

Fraud and Abuse

Computerized ID systems

Each patient has ID card (all institutions)Continuous data base updating halts use beyond

expiration and maximum use (MediPlus)ID card with photos of each covered person,

matching digitized photos at insurer check-in desk (Microcare)

(Continued)

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institutions had at least some well-considered controls however, for marketingexpediency, and sometimes because of poor control over staff, these processeswere occasionally ignored.

DISCUSSION

For all these institutions, break-even or better, profitability was somewhatquestionable. When the effectiveness of some of the key areas of consider-ation in microinsurance was observed, in terms of management and staffcapacity, pricing, controls, growth, and reserves, all had at least some strengthin one or more areas. However, in the insurance business one weakness can bean Achilles’ heel. Although all institutions were significantly vulnerable, formost of them vulnerability could be mitigated. However, for the smaller pro-grams, remedies were unlikely given their capabilities.[14]

The key lesson here is that if deficiencies in the five areas of efficiency,loss ratio, volume, pricing, and controls are adequately addressed the institutionmay have a better chance at reaching breakeven and profitability or a surplus.

Table 6. (Continued)

Risk General Strategy Specific Strategy

Expense verification

Providers to process separate claim for each patient (MediPlus)

Costs verified against limits of cover, before treatment (MediPlus)

Expenses verified against agreed price limits with provider and for drugs, against international drug prices (MediPlus)

Monthly (Microcare, CIDR)Coverage limits Range with cover purchased for both in- and out

patient (MediPlus)In-patient limited to value and time hospitalized

(Microcare)Limits (not exclusion) for chronic care (CIDR)

Full premium payment in advance

In some cases, require eleven post-dated checks to cover monthly payments (MediPlus)

Full payment in advance required (all institutions)Physical

identificationID card required for treatment access (all

institutions)Presented to insurer staff at the facility

(Microcare, KPPS)Cancellation of

serviceCurrent and future care of anyone who

defrauds the company including through false information on their application (MediPlus)

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It is important to remember, however, that addressing the issues is not a guar-antee of success, simply an indicator of potential. For example, if KPPS, a rel-atively inexpensive program, can manage to improve its pricing andmarketing, the effect could be growth and improvement in its cash flow. Thepotential for improvement, however, would be predicated on managementskill in pricing and marketing insurance products.

For most of these institutions, improving management capacity and insur-ance knowledge would be essential for the development of health microinsur-ance products that work. For several institutions some elements of managementshould be outsourced to skilled insurers. Microcare and MediPlus, for exampleoutsourced actuarial services. Implementing actuarial recommendations, usingeven basic calculations, may significantly improve the pricing of the other pro-grams. However, such professional pricing would almost certainly requireincreases in premiums. Increased premiums would be undesirable, based on themission and objectives of several of these institutions.

Health Care Prevention

One other area deserves discussion. The development of prevention strategiesis often thought to have potential for reducing health care costs.

Researchers found that some of the institutions were implementing healthprevention programs, such as discounts for bed nets in efforts to reducemalaria rates among their clients.[25] Others were planning health preventionactivities and several of the institutions were in some way related to healthcareoutreach entities. However, none of the HMIs had yet effectively worked withoutreach programs on a coordinated effort that would link the two programsand further improve the general health of their market area, which could leadto more effective interventions and reduced claims. Table 7 provides an out-line of the different health prevention methods that were implemented byhealth microinsurers included in this study.

The effectiveness of any of these methods as applied within these orga-nizations is unknown. All of them are trying to identify and address theissues that raise costs, not only for the microinsurer but also for the insured.The primary objectives of health prevention programs for microinsurers havebeen to improve the health of the insured, which will directly lead to a reduc-tion in claims costs. Theoretically, at least, consistently lower claims costsshould translate into reduced premiums and the ability to attract clients fromeven lower economic levels. However, two issues are critical if this objectiveis to be met. The first is that the intervention must be efficient if it is toreduce the overall costs of the health prevention activity. The second issue iseffectiveness.

Institutions that were actively mining their utilization data were most likely topinpoint effective interventions. When they understand the characteristics of

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753

Tab

le 7

.E

xam

ples

of

Hea

lth P

reve

ntio

n A

ctiv

ities

Met

hod

Inst

itut

ion

Com

men

ts

Sale

of

inse

ctic

ide-

trea

ted

bedn

ets

agai

nst m

alar

iaC

IDR

, KPP

S, C

Hea

PT

ypic

ally

, the

se a

re s

ourc

ed f

rom

a s

ubsi

dize

d ve

ndor

. E

ffec

tiven

ess

of th

e ne

ts is

lim

ited

unle

ss a

larg

e pr

opor

tion

of th

e lo

cal p

opul

atio

n us

es th

em. N

one

have

rea

ched

suc

h a

leve

l and

eff

ectiv

enes

s is

unk

now

n fo

r th

ese

grou

ps.

Rel

ated

org

aniz

atio

n pr

ovid

ing

heal

th c

are

educ

atio

nK

PPS,

CH

eaP,

PoA

, CH

FT

hese

pro

gram

s al

l bel

ong

to la

rger

mul

ti-pr

oduc

t org

aniz

atio

ns

that

hav

e an

arm

that

pro

vide

s he

alth

car

e ed

ucat

ion.

How

ever

, no

ne o

f th

ese

intr

a-or

gani

zatio

n pr

ogra

ms

are

inte

grat

ed w

ith

the

heal

th c

are

fina

ncin

g pr

ogra

ms.

Dis

trib

utio

n of

edu

catio

npa

ckag

esM

ediP

lus

The

se a

re d

istr

ibut

ed th

roug

h em

ploy

ers

and

prov

ider

s an

d in

clud

e in

form

atio

n on

con

trol

of

hype

rten

sion

, HIV

pr

even

tion

and

mai

nten

ance

, dia

bete

s co

ntro

l, an

d nu

triti

on.

Free

che

ck-u

psPo

AO

ffer

ed to

new

mem

bers

but

non

e ha

ve u

tiliz

ed th

e op

port

unity

.A

nten

atal

car

eM

icro

care

, PoA

, CH

F,C

Hea

P, K

PPS

, Med

iPlu

sA

s an

ince

ntiv

e, M

icro

care

req

uire

s th

ree

ante

nata

l vis

its to

ob

tain

cov

erag

e of

bir

th e

xpen

ses.

Dai

ly p

reve

ntiv

e he

alth

pr

esen

tati

ons

at c

linic

sC

HF

The

se w

ere

star

ted

by C

HF

but t

hey

foun

d ve

ry li

mite

d de

man

d an

d ha

ve s

topp

ed th

em.

Cla

ims

hist

ory

revi

ewM

ediP

lus

Mon

thly

rev

iew

of

clai

ms

help

s to

iden

tify

conc

entr

atio

ns o

r in

dica

tors

of

issu

es th

at s

houl

d be

rev

iew

ed b

y sp

ecia

lists

. M

ediP

lus

then

sug

gest

s su

ch a

dditi

onal

car

e to

mem

bers

.

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754

Tab

le 8

.C

omm

on S

tren

gths

, Wea

knes

ses,

Opp

ortu

nitie

s, a

nd T

hrea

ts*

Stre

ngth

sW

eakn

esse

sO

ppor

tuni

ties

Thr

eats

PRO

DU

CT

•Si

mpl

e pr

oduc

ts•

Wea

k pr

icin

g pr

oced

ures

•A

ddre

ss id

entif

ied

mar

ket n

eeds

, re

quir

es g

reat

er f

ocus

on

the

dem

and

side

•D

epen

denc

y on

ext

erna

l fun

ding

•Pr

ovid

es a

cces

s to

qua

lity

prov

ider

s•

Con

trol

s no

t wel

l des

igne

d•

Flex

ibili

ty in

pro

duct

des

ign

and

dist

ribu

tion

will

impr

ove

out-

reac

h

•L

egis

latio

n m

ay re

stri

ct fl

exib

ility

in

test

ing

new

app

roac

hes

•Q

ualit

y pr

ovid

er n

etw

orks

•St

ruct

ured

pro

duct

dev

elop

men

t pr

oces

s is

rar

ely

follo

wed

•L

inka

ges

for

loan

and

sav

ings

pr

oduc

ts a

vaila

ble

with

MFI

s•

Mod

ular

app

roac

h to

pr

oduc

t dif

fere

ntia

tion

•L

imite

d ef

fort

in a

idin

g cl

ient

pr

emiu

m g

ener

atio

n•

Com

preh

ensi

ve c

over

age

optio

ns

OPE

RA

TIO

NS

•So

me

have

str

ong

com

pute

rize

d tr

acki

ng

syst

ems

•W

eak

insu

ranc

e tr

aini

ng le

ads

to p

oor

capa

city

•Po

tent

ial f

or r

elat

ivel

y lo

w

oper

atin

g co

sts

•C

laim

s pa

ymen

ts le

ngth

enin

g w

ill

caus

e pr

oble

ms

with

pro

vide

rs

•In

nova

tive

appr

oach

es•

Lim

ited

stru

ctur

es to

man

age

cont

rols

•M

uch

inte

rest

fro

m h

ealth

car

e fa

cilit

ies

•In

adeq

uate

sup

port

fro

m M

FIs

•R

elat

ivel

y lo

w

adm

inis

trat

ive

cost

s•

Wea

k go

vern

ance

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755

MA

RK

ET

ING

•R

eput

able

pro

vide

rs•

Hig

h no

n-re

new

al r

ates

for

th

ose

wor

king

with

MFI

s•

Wid

e un

tapp

ed m

arke

t•

Ope

rati

onal

mis

step

s ha

ve

redu

ced

cred

ibili

ty

•St

rong

rene

wal

for t

hose

with

lo

w in

com

e co

rpor

ate

clie

nts

•W

eak

mar

ketin

g st

aff

•M

uch

dem

and

for

fina

ncin

g of

qu

ality

hea

lth c

are

•M

arke

t con

fusi

on a

bout

insu

ranc

e

•C

omm

issi

on b

ased

mar

ketin

g•

Lim

ited

mar

ket e

duca

tion

•A

cces

s to

pot

entia

l clie

nts

from

fo

cal p

oint

org

aniz

atio

ns•

Lac

k st

anda

rdiz

ed m

arke

ting

•Su

ppor

t fro

m o

pini

on le

ader

s

AC

CO

UN

TIN

G

•E

ffec

tive

invo

icin

g sy

stem

s•

Lim

ited

insu

ranc

e ac

coun

ting

know

ledg

e•

Acc

ount

ing

syst

ems

for

insu

r-an

ce a

re a

vail

able

•L

imite

d ac

coun

ting

know

ledg

e op

ens

the

door

to f

raud

•W

here

pre

miu

ms,

cla

ims,

and

ke

y ra

tios

are

trac

ked

ther

e is

us

ually

bet

ter m

anag

emen

t

•Po

or c

ostin

g an

d pr

icin

g ab

ility

•A

ccou

nts

have

lim

ited

inpu

t in

man

agem

ent d

ecis

ion

mak

ing

•L

imite

d da

ta f

or th

is m

arke

t for

ac

tuar

ial s

tudy

RIS

K M

AN

AG

EM

EN

T

•St

rong

er w

hen

ther

e is

re

pres

enta

tion

in th

e he

alth

ca

re f

acili

ty

•Po

licie

s an

d co

ntro

ls n

ot

docu

men

ted

•L

ack

of r

eser

ves

or r

eins

uran

ce•

Non

-com

plia

nce

with

con

trol

s•

Lim

ited

abili

ty to

acc

ess

risk

•W

eake

r st

rate

gies

in r

ural

are

as

•T

here

is s

igni

fica

nt in

form

atio

n av

aila

ble

on in

sura

nce

cont

rols

•M

icro

insu

ranc

e co

ntro

ls a

re

begi

nnin

g to

be

docu

men

ted

inte

rnat

iona

lly

•L

ack

of r

eser

ves

•P

oten

tial r

egul

ator

y pr

oble

ms

•L

ack

of d

ue d

ilige

nce

with

pa

rtne

rs

*The

se in

clud

e is

sues

that

aro

se m

ulti

ple

times

, but

do

not n

eces

sari

ly r

efle

ct e

very

inst

itut

ion.

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756 McCord

health insurance utilization, it is easier to control how they set premium. Asan example, MediPlus could track utilization patterns of either individualsor corporate entities. They could then create interventions specifically forthose individuals or groups. Of course, HMIs would then need to adjust pre-miums based on these patterns. Most of the health microinsurance programsvisited do not differentiate their pricing based on client risk. They offer asingle premium to all clients even though their risk profilers are different.

Further, to protect themselves, the premium is usually set based on thecosts of older people. Such mining of data should allow for more accuratepricing and thus reduce the burden on others, allowing for a premium reduc-tion over time. Using a database is another way of determining health pre-vention needs. Microinsurers can efficiently coordinate with otherorganizations that conduct health prevention activities as their primary mis-sion. It is interesting that none of the four institutions that have access tosuch a program have made any significant attempts to coordinate activitieswith them.

RECOMMENDATIONS

There is tremendous need in low-income markets of these countries, whereformal insurers cover between 1% and 5% of the population, leaving the restof the people to identify other ways to pay for health care. These institutionsare servicing the low-income market and are learning important lessons in theprocess. Most of these HMIs have attempted to apply these lessons learned asthey move forward.

HMI programs continue to multiply.[26] Lessons learned from this studyin East Africa provide valuable insight into the issues faced by HMI develop-ers. A list of lessons learned from this study is provided in the Appendix A.Some of the basic findings include the nuances of product development, man-agement and governance, operations such as pricing and underwriting andinfrastructure, and marketing, risk management, and intermediary relations.

Many of the issues facing HMIs can be addressed through proper man-agement, training, and capacity building processes, including: client educa-tion, data and marketing management, control for adverse selection, anddevelopment of intermediary provider relationships. Findings suggest that ifprograms are to be successful, the pricing process should be outsourced toprofessional actuaries, training programs should focus energy on non-renewal.Training HMIs about outsourcing might also contribute to achieving thedesired result.

Relationships are also important to the success of HMIs. Working withhealth care providers who have realistic objectives, and who see the benefitsof the health microinsurance are most suited to these programs. Managersmust make sure that the relationship they are entering will not damage their

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company or their clients. Yet, when partnerships are well matched and man-aged properly, these relationships can provide synergies that benefit the client,the intermediary, and the insurer.

IMPLICATIONS

This study looked at seven very different organizations providing health carefinancing to individuals and groups in the low-income market. All of theseinstitutions provided important practical lessons that can help new and alreadyactive microinsurers in their efforts to provide health financing to low-incomepopulations.

Sustainability and profitability have been difficult objectives to reach foreach of the institutions studied. All of these organizations are trying innova-tive ways of reaching the market in terms of specially designed products ordelivery channels. Some of these approaches are effective, while others arenot. Most of the methods for service delivery are relatively new, and the insti-tutions that are trying them, indeed developing them, should be commendedfor their efforts to bring what is clearly an important addition to the risk man-agement strategies available to low-income households. Their successes pro-vide lessons, as do their mistakes. Their flexibility to continue adjusting asthey learn new lessons is an important one.

These institutions are moving forward into the health-financing frontier.Their experiences help others to improve and to be more efficient and moreeffective on the way to achieving the lofty goal of providing affordable, highquality health care to low-income families.

To more adequately understand the health microinsurance market andenhance the potential for success of other health microinsurance organiza-tions, additional research is needed. A broader study or a synthesis of severalregional or country activities from other regions and other types of institu-tional and delivery mechanisms would be helpful. Formal microinsurance pro-grams remain nascent and further longitudinal studies on these and healthmicroinsurance institutions in other regions would provide important informa-tion about the impact of decisions these managers have made to address theconcerns of their programs. Additionally, health microinsurers need more, andbetter, information about the actual effective demand from the low-incomemarket. At present, the Working Group on Microinsurance is attempting toaddress some of these issues.[27,28]

REFERENCES

1. Microinsurance is “the protection of low-income people against specific per-ils in return for regular premium payments proportionate to the likelihood

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758 McCord

and cost of the risk involved.” Working Group on Microinsurance,Preliminary Donor Guidelines for Supporting Microinsurance. October2003. www.microinsurancecentre.org (accessed October 31, 2003).

2. McCord, M. J.; Buczkowski G. CARD MBA, The Philippines: CGAPWorking Group on Microinsurance, Good and Bad Practices Case StudyNo. 4. ILO: Geneva, 2004.

3. McCord, M. J. Health Care Microinsurance—Case Studies from Uganda,Tanzania, India, and Cambodia. Small Enterprise Development, 200112(1), March 25–38.

4. Financial and Institutional Viability refers to the ability of the business modeland its application within the particular organization to result in financialprofits being generated through strong and knowledgeable staff and manage-ment, as well as systems that will enable continued growth and profitability.

5. Osinde S.; McCord M. J.; Millinga A. Poverty Africa HealthProgramme—Health MicroInsurance: Notes from a visit July 2002. TheMicroInsurance Centre: Chilton, WI, 2002.

6. McCord, 2001.7. McCord, 2001.8. McCord, 2001.9. These included the Community-based, Provider-based, Insurer, and Part-

nership models. A detailed discussion of these models relative to healthmicroinsurance is provided in McCord, 2001.

10. McCord, M. J.; Osinde S. MediPlus Health Services: Notes from a VisitJuly 2002. The MicroInsurance Centre, Chilton, WI, USA, 2002.

11. Papers providing expanded discussions of each of these institutions are avail-able on The MicroInsurance Centre website www.microinsurancecentre.org

12. Sebstad, J.; Cohen, M. MicroSave-Africa Research Plan Assessing theDemand for MicroInsurance in East Africa, MicroSave-Africa: Nairobi,May 2002.

13. Churchill C.; Liber D.; McCord M.; Roth J., Making Insurance Work forMicrofinance Institutions: A Technical Guide to Developing and Deliver-ing Microinsurance. ILO: Turin Italy, 2003.

14. Cohen, M.; Sebstad J. Reducing Vulnerability: The Demand for Microin-surance in East Africa. MicroSave-Africa: Nairobi, 2003.

15. For a more detailed discussion on the risks to an affiliated MFI see:McCord & Buczkowski, 2004.

16. McCord, & Osinde, S. International Centre for Development andResearch (CIDR-Uganda) Community Based Health PrepaymentProgramme, Luweero, Uganda – Notes from a visit June 2002. TheMicroInsurance Centre: Chilton, WI, 2002.

17. McCord, M. J.; Osinde S. Microcare Ltd. Health Plan: Notes from a visitJune 2002. The MicroInsurance Centre: Chilton, WI, 2002.

18. McCord M. J.; Osinde S. Community Health Plan (CHeaP Kenya)—Notesfrom a Visit July 2002. The MicroInsurance Centre: Chilton, WI, 2002.

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19. Sebstad, J.; Cohen, M. MicroSave-Africa Research Plan Assessing theDemand for MicroInsurance in East Africa, MicroSave-Africa: Nairobi:May 2002.

20. McCord, M. J. Introduction to and Key Success Elements in Microinsur-ance. Presented at the VII Inter-American Forum on Microenterprise,Cartegena, Colombia, September 2004.

21. McCord, M. J.; Osinde S. Kitovu Patients Pre-Payment Scheme(Uganda)—Notes from a Visit June 2002. The MicroInsurance Centre:Chilton, WI, 2002.

22. Churchill, et al., 2003.23. This data was unavailable for CHeaP and CIDR.24. However, the lack of payer diversification put Purple Hearts at great risk

since their continuing business relied so heavily on MediPlus.25. Churchill, et al., 2003.26. McCord, J., Rivers, K. Health Microinsurance, Social Marketing, and

Disease Prevention: Perspectives from the Field: International Journal ofPublic Administration, 2007, 30(8–9): 791–812.

27. Wiesmann, D.; Jütting, J (2000). The Emerging Movement of Community-Based Health Insurance in Sub-Saharan Africa: Experiences and LessonsLearned. Afrika Spectrum, 35(2). Retrieved October 25, 2004 from http://www.oecd.org

28. The Working Group on Microinsurance was started in 2002 and is lead bythe Social Finance unit of the ILO. Its members include insurers, donors,insurance regulators, and microinsurance experts. The Group has alreadypublished Preliminary Donor Guidelines for Supporting Microinsurance,and is conducting over twenty case studies on microinsurance organizationsas background for a book on “good” and “bad” practices in microinsurance.

29. Working Group on Microinsurance. Preliminary Donors Guidelines forSupporting Microinsurance. October 2003. Retrieved February 23, 2005from www.microinsurancecentre. org

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760

App

endi

x A

.L

esso

ns le

arne

d fr

om th

ese

inst

itutio

ns.

Prod

uct D

evel

opm

ent

Kee

p th

ings

sim

ple

Sim

ple

prod

ucts

and

pro

cess

es a

re e

asie

r fo

r pe

ople

to u

nder

stan

d, a

nd n

eces

sary

for

this

mar

ket.

Pric

e re

alis

tical

lyA

n ai

m to

war

ds c

ompr

ehen

sive

cov

erag

e by

som

e or

gani

zatio

ns s

how

s an

eff

ort t

o pr

ovid

e co

mpl

ete

care

at a

re

ason

able

pri

ce. H

owev

er, t

hat p

rice

is o

ften

err

oneo

usly

cal

cula

ted

and

not f

ully

incl

usiv

e of

all

cost

s, th

us

limiti

ng th

e po

tent

ial f

or s

usta

inab

ility

. Rea

listic

pri

cing

req

uire

s co

nsid

erat

ion

of c

laim

s co

sts,

all

oper

atin

g co

sts,

and

wel

l as

rese

rves

, and

pro

fit,

less

any

inco

me

mad

e fr

om p

rem

ium

inve

stm

ents

. Exc

ludi

ng a

ny o

f th

ese

in th

e pr

emiu

m c

ompo

nent

s w

ill le

ad to

pro

blem

s.D

evel

op c

apac

ityT

here

is a

n at

tem

pt to

dev

elop

inno

vativ

e pr

oduc

ts a

nd d

eliv

ery

mec

hani

sms

to p

rovi

de q

ualit

y he

alth

car

e an

d fi

nanc

ing,

but

man

agem

ent o

ften

lack

s th

e ca

paci

ty to

mak

e th

ese

inno

vatio

ns e

ffec

tive

or s

ucce

ssfu

l, be

caus

e th

ey d

o no

t hav

e ex

peri

ence

or

know

ledg

e ab

out i

nsur

ance

pri

ncip

les.

Edu

cate

clie

nts

Alth

ough

the

mar

ketin

g ap

proa

ch is

fre

quen

tly c

ondu

cted

thro

ugh

com

mis

sion

ed s

ales

, a v

iabl

e st

ruct

ure

for

mar

ketin

g m

icro

insu

ranc

e is

lack

ing.

Mar

ket e

duca

tion

is n

eede

d, w

ith m

arke

ting

coor

dina

tion

and

stan

dard

ized

mar

ketin

g pr

esen

tatio

ns to

kee

p th

e m

essa

ge s

trai

ght.

Hea

lth m

icro

insu

rers

are

bor

row

ing

the

aspe

ct o

f co

mm

issi

oned

sal

es f

rom

insu

rers

but

hav

e no

t ful

ly r

ecog

nize

d th

at th

ere

is a

n un

derl

ying

str

uctu

re

of a

ppro

pria

te tr

aini

ng a

nd to

ols

that

mak

es th

is w

ork.

Ana

lyze

the

data

Som

e or

gani

zatio

ns a

re a

sses

sing

at l

east

som

e of

thei

r ac

coun

ting

dat

a, is

inpu

ts to

man

agem

ent d

ecis

ion

mak

ing,

but

gen

eral

ly th

ese

depa

rtm

ents

are

wea

k an

d m

anag

emen

t is

left

to m

ake

deci

sion

s w

itho

ut th

e va

lue

of a

ccou

ntin

g da

ta. T

his

mak

es th

em v

ulne

rabl

e.Pl

ace

cont

rols

at

prov

ider

site

sR

isk

man

agem

ent i

s st

rong

er w

hen

ther

e ar

e m

icro

insu

ranc

e re

pres

enta

tives

at t

he h

ealth

car

e fa

cilit

y as

at

Mic

roca

re a

nd K

PPS.

Thi

s al

low

s fo

r on

-site

impl

emen

tatio

n of

con

trol

s by

the

orga

niza

tion

that

has

the

mos

t to

gain

if c

ontr

ols

wor

k. L

eavi

ng c

ontr

ols

to th

e he

alth

car

e fa

cilit

ies,

whi

ch h

ave

an in

cent

ive

to c

heat

to g

ener

ate

addi

tiona

l fun

ds, i

s ri

sky,

and

som

e of

the

orga

niza

tions

in th

is s

tudy

are

exp

erie

ncin

g th

epr

oble

ms

that

ari

se f

rom

suc

h re

lianc

e. F

or e

ffic

ienc

y an

d co

st c

ontr

ol r

easo

ns, t

his

is n

ot a

pra

ctic

al s

olut

ion

for

all s

ites,

but

may

be

appr

opri

ate

for

faci

litie

s w

ith

grea

ter

volu

me.

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Page 27: Supplying Health Microinsurance: Lessons from East Africa

761

Edu

cate

and

in

cent

iviz

e st

aff

Esp

ecia

lly f

ront

line

sta

ff a

re th

e pe

ople

who

ope

ratio

naliz

e th

e he

alth

mic

roin

sura

nce

busi

ness

. Thi

s bu

sine

ssis

oft

en f

ar f

rom

the

educ

atio

nal o

r ex

peri

entia

l bac

kgro

und

of m

ost o

f th

ese

busy

wor

kers

. If

they

do

not

unde

rsta

nd th

e m

icro

insu

ranc

e pr

oduc

t the

y do

not

sel

l wel

l and

thei

r re

new

als

are

very

low

.O

ffer

em

erge

ncy

loan

sE

mer

genc

y lo

ans

with

dis

burs

emen

ts m

ade

dire

ctly

to th

e he

alth

car

e fa

cili

ty c

an b

e ap

prop

riat

e an

d so

met

imes

pr

efer

red

over

insu

ranc

e by

clie

nts,

as

obse

rved

at C

IDR

.Fo

llow

a s

trin

gent

pr

oduc

t dev

elop

men

t pr

oces

s

Follo

w a

str

inge

nt p

rodu

ct d

evel

opm

ent p

roce

ss w

hen

deve

lopi

ng th

ese

prod

ucts

. Too

man

y of

thes

e in

stitu

tions

sk

ippe

d th

e de

man

d re

sear

ch a

nd w

ent f

rom

pro

toty

pe to

rollo

ut w

ithou

t any

pro

per t

estin

g. M

ost o

f the

pro

blem

s th

ey e

ncou

nter

ed c

ould

hav

e be

en a

ddre

ssed

in a

mor

e co

ntro

lled

man

ner

if it

had

bee

n te

sted

fir

st. F

ixin

g pr

oble

ms

whe

n th

e pr

oduc

t is

alre

ady

rolle

d ou

t has

pro

ven

very

dif

ficu

lt an

d ne

gativ

ely

impa

cts

grow

th.

Gat

ekee

ping

with

in

-pat

ient

pol

icie

sIn

-pat

ient

-onl

y co

vera

ge r

equi

res

a m

echa

nism

to a

llow

clie

nts

to g

ain

hosp

ital

adm

issi

on e

ffic

ient

ly. R

isks

to

the

clie

nt, c

osts

, and

rel

atio

nshi

ps s

houl

d be

min

imiz

ed s

o th

at w

hen

they

nee

d ad

mis

sion

, the

y ca

n ob

tain

it w

ithou

t sig

nifi

cant

add

ition

al c

osts

. CID

R d

ocum

ents

not

ed th

at a

ppro

xim

atel

y on

e pa

tient

in th

ree

who

tr

avel

ed to

the

hosp

ital w

as a

ctua

lly a

dmitt

ed.

Man

agem

ent a

nd G

over

nanc

e

Gen

erat

e in

sura

nce

capa

city

To

mak

e m

icro

insu

ranc

e pr

ogra

ms

succ

essf

ul, m

anag

emen

t cap

acity

in in

sura

nce

is n

eces

sary

.

Star

t wit

h a

busi

ness

ap

proa

chA

lthou

gh m

anag

emen

t ski

lls a

nd e

xper

ienc

e ar

e cr

itica

l to

effe

ctiv

e m

anag

emen

t and

dev

elop

men

t of a

n in

sura

nce

prod

uct,

the

bias

or p

rior

ity o

f man

agem

ent a

nd th

e bo

ard

in fa

vor o

f dev

elop

men

t or b

usin

ess

obje

ctiv

es is

ano

ther

ke

y el

emen

t. In

fact

, bot

h of

thes

e pr

iori

ties

can

be fu

lfill

ed, b

ut it

see

ms

clea

r fro

m th

e ta

rget

inst

itutio

ns th

at a

bu

sine

ss a

ppro

ach

mus

t be

follo

wed

firs

t. T

hose

inst

itutio

ns th

at u

tiliz

e a

busi

ness

app

roac

h (M

ediP

lus

and

Mic

roca

re) s

how

a d

ecid

ed p

oten

tial f

or p

rofi

tabl

e in

sura

nce

oper

atio

ns w

hile

at t

he s

ame

time

serv

ing

the

low

-in

com

e m

arke

t. In

stitu

tions

that

are

mos

tly o

r ent

irel

y fo

cuse

d on

soc

ial d

evel

opm

ent (

CID

R, K

itovu

, CH

eaP)

are

ex

peri

enci

ng s

igni

fica

nt p

robl

ems

beca

use

of a

com

bina

tion

of p

rici

ng is

sues

and

man

ager

ial a

nd b

oard

obj

ectiv

es.

(Con

tinu

ed)

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762

App

endi

x A

(Con

tinu

ed)

Ope

ratio

ns a

nd A

ccou

ntin

g

Impr

ove

pric

ing

Pri

cing

of

mic

roin

sura

nce

prod

ucts

mus

t im

prov

e. I

nsur

ance

pri

cing

is a

tech

nica

l act

ivity

and

this

stu

dy r

esul

ts

sugg

est t

hat N

GO

mic

roin

sure

rs a

re n

ot d

oing

it w

ell.

Prof

essi

onal

act

uari

al a

ssis

tanc

e is

exp

ensi

ve. H

owev

er,

to b

e su

cces

sful

, mic

roin

sure

rs m

ust b

egin

usi

ng th

em to

mov

e to

war

ds c

harg

ing

prof

essi

onal

ly d

eriv

ed p

rem

ium

s.Si

mpl

ify

unde

rwri

ting

Und

erw

ritin

g ne

eds

to b

e si

mpl

e an

d ef

fici

ent f

or th

e lo

w-i

ncom

e m

arke

t. T

here

mus

t be

effi

cien

t, ea

sy-t

o-un

ders

tand

un

derw

ritin

g to

ols

and

polic

ies,

bot

h in

term

s of

ass

essi

ng in

divi

dual

ris

k, a

nd in

edu

catin

g pe

ople

to u

nder

-st

and

the

appl

icat

ions

. It i

s cl

ear

from

the

rese

arch

that

man

y lo

w-i

ncom

e cl

ient

s ha

ve d

iffi

culty

fill

ing

out

appl

icat

ions

whe

n th

ey a

re to

o de

taile

d.U

se o

pera

tiona

l dat

a in

man

agem

ent

deci

sion

s

Mic

roin

sure

rs n

eed

good

acc

ount

ing

syst

ems

and

timel

y ac

cess

to m

anag

emen

t dat

a. W

here

this

is th

e ca

se, m

an-

agem

ent a

ppea

rs m

uch

bette

r eq

uipp

ed to

mak

e de

cisi

ons.

How

ever

, cap

acity

to k

now

wha

t the

y ar

e se

eing

, an

d th

en w

hat t

o do

abo

ut it

, is

also

a c

ritic

al r

equi

rem

ent,

thou

gh ty

pica

lly la

ckin

g.U

se c

ompu

teri

zed

syst

ems

with

hea

lth

mic

roin

sura

nce

A c

ompu

teri

zed

syst

em m

ay b

e ex

pens

ive,

but

it c

an b

e ex

trem

ely

help

ful i

n tr

acki

ng h

ealt

h ca

re u

tiliz

atio

n th

at

is n

eces

sary

for

pro

per

pric

ing,

und

erw

ritin

g, r

isk

man

agem

ent,

corp

orat

e m

anag

emen

t, cl

aim

s, a

nd h

ealth

pr

even

tion

activ

ities

. With

out t

his

info

rmat

ion,

man

agem

ent d

ecis

ion-

mak

ing

is w

eake

ned,

and

the

chan

ce o

f ob

tain

ing

rein

sura

nce

is c

onsi

dera

bly

redu

ced.

Use

an

insu

ranc

e pr

ofes

sion

al in

any

m

icro

insu

ranc

e

The

se c

ases

hav

e sh

own

the

diff

icul

ty o

f m

anag

ing

mic

roin

sura

nce

espe

cial

ly w

ithou

t ins

uran

ce e

xper

tise.

An

inst

itutio

n th

at ta

kes

on th

e in

sura

nce

risk

sho

uld

have

sta

ff, m

anag

emen

t, an

d bo

ard

mem

bers

that

are

kno

wl-

edge

able

of

insu

ranc

e re

quir

emen

ts.

Mar

ketin

g

Dev

elop

str

ong

mar

ketin

g m

anag

emen

t

Mar

ketin

g m

anag

emen

t is

a cr

itic

al in

gred

ient

in c

reat

ing

an e

ffec

tive

com

mis

sion

ed m

arke

ting

team

, and

is

ofte

n ab

sent

fro

m h

ealth

mic

roin

sura

nce

prog

ram

s.

Dow

nloa

ded

by [

Ston

y B

rook

Uni

vers

ity]

at 0

3:29

02

Nov

embe

r 20

14

Page 29: Supplying Health Microinsurance: Lessons from East Africa

763

Impl

emen

t mar

ket

educ

atio

nSu

cces

sful

mar

ketin

g re

quir

es a

str

ong

com

pone

nt o

f m

arke

t edu

catio

n. I

n th

eir

push

to m

ake

the

sale

, mar

kete

rs

do n

ot a

lway

s in

form

peo

ple

prop

erly

abo

ut e

xclu

sion

s an

d lim

itatio

ns in

fav

or o

f pr

omot

ing

the

prod

uct.

Met

hodo

logi

es u

sed

by p

rogr

ams

like

the

Free

dom

fro

m H

unge

r “C

redi

t with

Edu

catio

n” m

ight

pro

ve to

be

effe

ctiv

e m

echa

nism

s fo

r pr

ovid

ing

mar

ket e

duca

tion.

Impr

ove

effi

cien

cies

an

d in

cent

ives

for

M

FI

MFI

s st

ill h

old

sign

ific

ant p

oten

tial a

s a

sale

s an

d se

rvic

e in

term

edia

ry f

or m

icro

insu

ranc

e pr

oduc

ts. H

owev

er,

ther

e is

stil

l wor

k to

be

done

to d

evel

op a

com

bina

tion

of e

ffic

ient

inpu

ts a

nd in

cent

ives

to h

elp

HM

Is b

ecom

e su

cces

sful

.

Ris

k M

anag

emen

t

Mai

ntai

n a

clos

e ph

ysic

al p

rese

nce

to

the

prov

ider

fac

ility

The

clo

ser

staf

f is

to th

e he

alth

car

e fa

cili

ty th

e ea

sier

it is

to m

anag

e co

ntro

ls. T

hose

with

sta

ff p

lace

d in

a p

ro-

vide

r fa

cilit

y to

wor

k w

ith c

lient

s ap

pear

to h

ave

min

imiz

ed th

e po

tent

ial f

or f

raud

, as

wel

l as

impr

oved

cos

t m

anag

emen

t.C

ontr

ol f

or a

dver

se

sele

ctio

nA

dver

se s

elec

tion

mus

t be

cont

rolle

d, e

spec

ially

in th

e lo

w-i

ncom

e m

arke

t. W

ith p

eopl

e w

ho h

ave

little

dis

pos-

able

inco

me

and

littl

e kn

owle

dge

of in

sura

nce,

the

firs

t pur

chas

ers

are

likel

y to

be

the

sick

who

are

con

fide

nt

that

they

will

ben

efit

from

thei

r pr

emiu

m. M

inim

um a

bsol

ute

num

bers

or

perc

enta

ges

of g

roup

s sh

ould

be

impl

emen

ted

and

enfo

rced

.T

he r

isk

take

r m

ust b

e w

ell c

apita

lized

The

par

tner

that

car

ries

the

risk

sho

uld

be w

ell c

apita

lized

and

will

ing

and

able

to lo

se s

ome

mon

ey w

hile

the

prod

uct i

s gr

owin

g. I

nstit

utio

ns w

ithou

t res

erve

s or

sig

nifi

cant

cap

ital a

re a

t ser

ious

ris

k an

d ul

timat

ely

may

lo

se th

e in

sure

d’s

mon

ey a

nd th

e in

stitu

tion’

s ca

pita

l, as

wel

l as

leav

e pr

ovid

ers

wit

h la

rge

unpa

id in

voic

es.

Follo

w th

e po

licie

sR

isk

man

agem

ent p

olic

ies,

like

the

requ

irem

ent o

f up

take

of

sixt

y pe

rcen

t of

a gr

oup

by K

PPS

and

CH

eaP,

mus

t be

fol

low

ed r

elig

ious

ly. S

ome

inst

itutio

ns h

ave

adeq

uate

pol

icie

s, b

ut f

or m

arke

ting

expe

dien

cy th

ey ig

nore

th

em a

nd a

lmos

t alw

ays

suff

er f

or th

at la

pse.

(Con

tinu

ed)

Dow

nloa

ded

by [

Ston

y B

rook

Uni

vers

ity]

at 0

3:29

02

Nov

embe

r 20

14

Page 30: Supplying Health Microinsurance: Lessons from East Africa

764

App

endi

x A

(Con

tinu

ed)

Prov

ider

/Ins

urer

/Int

erm

edia

ry R

elat

ions

Obt

ain

activ

e su

ppor

t fr

om M

FI m

anag

e-m

ent

Mic

rofi

nanc

e in

stitu

tions

hav

e be

en w

eak

part

ners

in m

icro

insu

ranc

e. B

efor

e th

ey w

ill m

ake

a st

rong

eff

ort,

MFI

m

anag

emen

t mus

t und

erst

and

and

appr

ecia

te th

e be

nefi

ts to

the

inst

itutio

n th

at s

houl

d ac

crue

fro

m a

mic

roin

-su

ranc

e pr

oduc

t. W

ithou

t act

ive

supp

ort f

rom

the

MFI

and

its

man

agem

ent,

mic

roin

sure

rs a

re fo

rced

to m

arke

t di

rect

ly to

MFI

clie

nts

and

whe

n th

is o

ccur

s th

e be

nefi

t of

the

effi

cien

cies

they

had

hop

ed to

gai

n is

lost

.Fo

rmal

ize

rela

tion

ship

sF

orm

al a

gree

men

ts b

etw

een

insu

rers

and

inte

rmed

iari

es a

re n

eces

sary

to r

educ

e co

nfus

ion

and

faci

litat

e ef

fici

ent

com

mun

icat

ions

and

tran

sact

ions

. Suc

h ag

reem

ents

with

par

tner

s al

low

all

part

ies

to b

e cl

ear

abou

t the

ir r

oles

.C

ondu

ct d

ue d

ilige

nce

Con

duct

due

dili

genc

e ex

erci

ses

on p

artn

ers.

The

se p

rogr

ams

can

go v

ery

wro

ng, a

nd a

goo

d in

stitu

tion

shou

ld

not b

ecom

e em

broi

led

in p

robl

ems

beca

use

of is

sues

wit

h a

part

ner.

Pro

blem

s w

ith th

e pr

ovid

er, t

he in

term

edi-

ary,

or

the

insu

rer

have

cre

ated

pro

blem

s fo

r th

e ot

hers

.L

ink

heal

th f

inan

cing

w

ith h

ealth

out

reac

h pr

ogra

ms

Coo

rdin

atio

n be

twee

n he

alth

mic

roin

sure

rs a

nd r

elat

ed h

ealth

info

rmat

ion

outr

each

pro

gram

s co

uld

prov

e an

ef

fici

ent a

nd e

ffec

tive

mea

ns o

f im

prov

ing

the

volu

me

and

qual

ity o

f he

alth

car

e in

form

atio

n ge

tting

to th

e in

sure

d cl

ient

s. B

ette

r kn

owle

dge

of p

reve

ntiv

e ca

re s

houl

d he

lp r

educ

e th

e cl

aim

s co

sts

in s

ome

area

s, a

nd

keep

mor

e pe

ople

hea

lthy.

Dow

nloa

ded

by [

Ston

y B

rook

Uni

vers

ity]

at 0

3:29

02

Nov

embe

r 20

14