This article is an excerpt from Issue 25 of Proparco’s Private Sector & Development Magazine. This issue looks at the opportunities and obstacles facing insurance in Africa and presents analyses prepared by a number of sector stakeholders (insurers, researchers, donors, etc.).
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In Africa, 60 to 70 % of health expenditure is paid by households directly (out-of-the-pocket expenditure) to healthcare providers, compared with an average of 46 % worldwide1. A serious accident affecting health may therefore involve “catastrophic” expenditure, forcing those households to sell their property, get into debt (Leive and Xu, 2008) or take their children out of school (Landmann and Frölich, 2013) to cover their medical costs (Kruk and coll., 2009). Each year, 6 % of the world’s population falls into extreme poverty for health reasons.
By spreading health costs over time using a prepayment mechanism and by mutualising the risk, insurance makes it possible to avoid these “catastrophic” health expenses. Unlike other products, health insurance is not limited to making payments to cover a loss or damage, but relies on a third party (healthcare providers) to give its beneficiaries access to treatment.
Consequently, the main risks linked to any insurance product (adverse selection, fraud and moral hazard) occur more acutely in health insurance2. An effective health insurance system essentially requires quality control of, and even investment in, healthcare provision.
In Africa, some governments have set up mandatory health insurance for the formal sector (civil servants or employees of the private sector) financed by contributions from employees and employers. However, covering workers of the informal sector (farmers, artisans, etc.), i.e. more than 70 % of the African population, remains a challenge. Several profit or non-profit private actors (insurance companies, mutual health funds, brokers, various distribution channels facilitating the identification of the insured, the collection of premiums and the payment of claims) can play a very important role.
Health insurance, a complex product
Health insurance products are more complex to develop than other types of insurance because of the range of treatments and services to be covered. While it is essential to include hospitalisation to avoid “catastrophic” health expenditure, cover for outpatient treatment on the other hand reduces the risk of medical complications resulting from postponing or cancelling health care treatment3. Decisions as to which services to include or exclude are central to achieving the social goals. By setting conditions for the pricing of the insurance product, they impact households’ ability to take out such insurance.
The extent of the costs to be covered is an essential consideration for both the insurer and the insured. Indirect costs (purchase of medicines, travel, etc.) may, for example, represent up to 65 % of hospitalisation costs. And some insurance policies also cover loss of earnings during treatment, which may represent a significant sum for self-employed workers who do not benefit from sick leave.
Likewise, the chosen health benefits payment system is closely related to the question of financial access to treatment. The third-party payment system presents the advantage for the insured person of not having to advance the costs since the healthcare provider is reimbursed by the insurer. This simplified financial access also reduces the likelihood of treatment being cancelled or postponed. In terms of management for the insurer, the two systems (third-party payment or reimbursement of the insured) each have their advantages and disadvantages – even if third-party payment may be less expensive in terms of management costs.
What insurance is available for informal workers ?
In Africa, health insurance coverage rates remain extremely low (map). While the mandatory health insurance offered by governments to civil servants and private-sector employees is beginning to achieve significant penetration, there is a very low take-up of voluntary insurance aimed at the informal sector. This can be explained mainly by informal workers’ limited ability to contribute, or the lack of understanding of insurance mechanisms, but is also due to a lack of trust in insurers, hospitals and health centers.
What is more, few insurance sector actors “venture” into these markets, because of the complexity of the product, a lack of understanding of the needs, the difficulty in collecting premiums and the risks of adverse selection (affiliation of persons most likely to have health issues). Providers that have entered this market, most frequently mutual funds or NGOs, struggle to extend their customer base to ensure their sustainability. Their challenge is to find the most efficient ways of encouraging the largest possible number of people to take up policies.
Tried-and-tested and expanded distribution channels (such as microfinance institutions, mobile network operators, etc.) have been approached to offer simple insurance products, on a compulsory basis coupled with other products such as credit, savings, mobile phone top-ups, etc. These forms of distribution have the advantage of diversifying the risk while providing a relatively broad and heterogeneous pool of customers who are already known. However, these products only have limited value for the insured and may be seen as equivalent to forced sale. Therefore, it is all the more important to measure, monitor and communicate the value of these insurance products that have become mandatory. To that end, the insurer must have standardised measurement and management tools (box Measuring performance in microinsurance). New distribution options have been tested, some of which are supported by AFD (box AFD Group and health insurance). One example is micro health insurance policies aimed at farmers, offered via organised income streams : microinsurance experts identify the health risks of the populations targeted, design suitable health insurance policies, select a network of health care providers appropriate to the patient base and train or recruit monitoring personnel.
This leads to the development of original partnerships between insurance companies or mutual health funds and farmers cooperatives, or even with commodity trading companies with an interest in partially co-financing the insurance premium in reward for loyalty from producers.
Governments have a key role to play in promoting health insurance in the informal sector by relying on private organisations (box Ghana : the success of a public-private system). This collaboration can take several forms : encouraging people to take up insurance, subsidizing insurance products, outsourcing the management of health insurance to private companies, oversight and supervision, reinsurance, etc.
Private health insurance actors, for profit or non-for-profit, have a role to play in national health insurance systems. These can play four diverse roles (Kimball et coll., 2013) : substitution, in areas where governments do not have the capacity to cover the entire population ; foundation, as in Ghana where most community mutual aid organisations became part of the national system ; partnership, as in Côte d’Ivoire or India where the governments haveoutsourced responsibilities to the private sector ; and lastly complementarity, as in France and in several emerging economies, where the private sector offers complementary health insurance.
Lastly, relevant and effective regulation of health insurance operators can enable the various actors to fulfil their role in the system so as to achieve universal health coverage, in line with the goals of solidarity, universality and sustainability.
Measuring performance in microinsurance
The value of health insurance products needs to be measured, monitored and explained clearly to insured persons. Several user-friendly tools have been developed by the industry which have the benefit of standardising measurement indicators.
These include the “Key Performance Indicators” devised by the Luxembourg NGO, ADA, and the Belgian Foundation, BRS, under the aegis of the Micro Insurance Network. Some of these financial and social Key Performance Indicators (ratio of losses incurred, retention rates, growth ratio, days of claims settlement, and claims rejection ratio) make it possible to measure the value of an insurance policy in a simple and comparable way.
Another useful tool is the “PACE” tool, developed by the International Labour Organization’s Impact Insurance Facility. It measures the four main value propositions of an insurance policy : its terms (risks covered, extent and quality of treatment), access (enrollment procedures, geographical accessibility, etc.), cost (premium or contribution in relation to the insured’s resources and level of losses) and experience (clarity of contracts, procedures, speed of claims settlements, etc.). This tool is more of a self-assessment and management tool for the insurer.
The value of health insurance is also based on the quality of care to which the insured have access. The insurer depends on the treatment offered locally, but can influence it by choosing which healthcare providers they will work with and designing the partnership arrangements. For example, some insurers assess the quality of their healthcare providers and link payment to performance. The setting-up of third party payment operators managing the relation between the healthcare facilities and the insured (call centers, monitoring committees, complaints procedures, etc.) provides accountability with regard to the insured. Representatives of the public health authorities may also be involved, which ensures complementarity between public systems (when they exist) and private initiatives.
AFD Group and health insurance
AFD supports the setting up, extension and reform of health insurance systems, in compliance with the principles of universality (cover for the entire population), solidarity (contribution according to resources and not according to consumption of care) and sustainability (sustainable financing mechanisms of the system).
To achieve these objectives, AFD follows the WHO recommendations : mandatory participation, prepayment of contributions, broadest possible mutualisation of risks, and contribution on the basis of resources, including being free of charge for the poorest. Occasionally, AFD supports private initiatives from profit or non-profit actors (insurance brokers, NGOs, funds, foundations etc.).
The Agency has a variety of tools, ranging from subsidy to sovereign loan, and including investment in insurance companies or funds via PROPARCO or its Investment and Support Fund for Businesses in Africa (FISEA).
Ghana : the success of a public-private system
The Ghanaian public health insurance system, called the National Health Insurance Scheme (NHIS), is based on pre-existing community mutual health schemes. To extend health care coverage to all Ghanaians, in particular to the informal sector and the rural communities, the government defined a reference package of health care (outpatient and inpatient) and invited mutual health funds to become affiliated to the national system in exchange for financial support, or to remain independent, provided they did not compete with the national scheme. Most of the mutual funds joined the system. More than 70 % of the NHIS financing comes from a 2.5 % tax on goods and services, and over 20 % comes from by social security contributions. The remainder is financed by the premiums paid by the beneficiaries and by donor contributions.
The alliance with the community mutual schemes has enabled the rate of coverage of the Ghanaian population toincreasefrom 1 % in the 1990s to more than 40 % today.
The Ghanaian model illustrates a public health insurance system relying on private actors. In addition, their expertise may prove useful to governments, particularly regarding the purchase of healthcare provision, local skills training and establishing accountability and transparency frameworks for healthcare facilities.
The opinions expressed on this blog are those of the authors and do not necessarily reflect the official position of their institutions or of AFD.
1 “Out-of-pocket expenditurees/total private expenditure” ratio, World Bank, 2010-2014.
2 Fraud may represent up to 20 % of health insurance premiums in developing countries.
3 Due to their fear of spending money on medical care, many households prefer to cancel or postpone treatment. This often leads to health complications, with major financial and human consequences
Leive, A. and Xu, K., Coping with out-of-pocket health payments : empirical evidence from 15 African countries, Bulletin of the World Health Organisation, n°86, 2008.
Kruk, M.E., Paczkowski, M., Mbaruku, G., De Pinho, H., and Galea, S., Women’s Preferences for Place of Delivery in Rural Tanzania : A Population-Based Discrete Choice Experiment, 2009.
Landmann, A. and Frölich, M., Can Microinsurance help prevent child labor ? An impact evaluation from Pakistan, Research Paper n°32, International Labour Organisation, 2013.
Kimball, M., Phily, C., Folsom, A., Lagomarsino, G., Holtz, J., Leveraging health microinsurance to promote universal health coverage, Microinsurance Paper, n°23, Microinsurance Innovation Facility and International Labour Organization, 2013.
Preker and coll. (2010).
Barroy and coll. (2015).