Milliman Research Report Prepared for: International Congress of Actuaries 2010 Cape Town, South Africa Prepared by: Lisa Morgan John D. Meerschaert, FSA, MAAA February 2010 Health Microinsurance: Healthcare and Incidence Rate Questionnaire A Tool for Technical Advisors Health Microinsurance: Healthcare and Incidence Rate Questionnaire Lisa Morgan and John D. Meerschaert February 2010 Health Microinsurance: Healthcare and Incidence Rate Questionnaire Lisa Morgan and John D. Meerschaert February 2010 Milliman Research Report TABLE OF CONTENTS List OF ABBREViatiONS 2 ACKNOWLEDGMENTS 2 EXECUTIVE SUmmarY 3 The Difficulty of Pricing Health Microinsurance 3 A New Template for Health Microinsurance Pricing 4 BacKGROUND: MICROINSURANCE FOR HEalthcarE 5 Introduction 5 Demand and Supply of Health Microinsurance 5 The Health Microinsurance Market 6 SamplE MARKET RESEARCH HIR QUESTIONNairE RESUlts AND THEir USE IN SEttiNG INcidENCE RatES 8 The Hypothetical Pricing Project 8 Actual Market Research Done for the Hypothetical Pricing Project 9 Sample Survey Results 9 MONITOriNG INcidENCE RatE EXPEriENCE 15 AppENDIX A: BacKGROUND ON MICROINSURANCE BENEfit DEsiGN 16 Typical Benefit Designs 16 AppENDIX B: SOURCES OF PriciNG Data 18 AppENDIX C: CONsidEratiONS FOR MARKET RESEARCH DEsiGN 21 Design of Market Research Studies 21 Identifying the Target Market 21 Designing the Survey 22 Data Collection Methods 23 Understanding Cost/Benefit Trade-offs 23 Example: LIMS Survey 24 AppENDIX D: SamplE HEalth AND INcidENCE RatE QUESTIONNairE 25 Questionnaire 25 Assessing Heath Insurance Needs in South Africa 25 (A) - Basic Information 26 (B) - Demographic Characteristics & Household Composition 26 (C) - Economic Characteristics 28 (D) - Risks and the Impact of Risks 31 (E) - Interviewer’s Declaration 33 AppENDIX E: OVERVIEW OF PriciNG METHODOLOGY: SOME GUidEliNES 34 General Comments 34 Calculation Methodology for Schemes Offering Healthcare Benefits 34 Calculation Methodology for Schemes Offering Cash Benefits for Healthcare Risk Events 36 AppENDIX F: BENEfit DEsiGN COmparisON 37 Scheme Benefit Design Study 1: Yeshasvini Trust, India 38 Scheme Benefit Design Study 2: Vimo SEWA, India 40 Scheme Benefit Design Study 3: Grameen Kalyan, Bangladesh 43 ENDNOTES 47 Health Microinsurance: Healthcare and Incidence Rate Questionnaire 1 Lisa Morgan and John D. Meerschaert February 2010 Milliman Research Report LIST OF ABBREVIATIONS AIDS: Acquired immune deficiency syndrome BDT: Bangladeshi taka CBO: Community-based organisation CHA: Community health assistant EPI: Expanded Programme on Immunisation EUROSTAT: Statistical Office of the European Communities GP: General practitioner GBP: United Kingdom pounds HC: Health centre HIR: Healthcare and incidence rate HIV: Human immunodeficiency virus ILO: International Labour Organization INR: Indian rupees LIMS: Low-income medical scheme MBBS: Bachelor of Medicine, Bachelor of Surgery MFI: Microfinance institution NGO: Non-governmental organisation OECD: Organisation for Economic Co-operation and Development OOP: Out of pocket PPP: Private public partnership RPI: Retail price inflation TB: Tuberculosis USD: United States dollars UNDP: United Nations Development Programme UNICEF: United Nations Children’s Fund WHO: World Health Organization WTP: Willingness to pay ZAR and R: South African rands ACKNOWLEDGMENTS The authors would like to thank Milliman for providing the funding for this paper and the market research conducted by Millward Brown, and Quindiem Consulting in South Africa for their input into the questionnaire. The authors would also like to thank the team of peer reviewers appointed by the International Congress of Actuaries, which includes internationally known experts in the health microinsurance field. Finally, the authors express their gratitude to Alex Hoffman of Milliman’s Milwaukee office for providing analytical support during the writing of this report. Health Microinsurance: Healthcare and Incidence Rate Questionnaire 2 Lisa Morgan and John D. Meerschaert February 2010 Milliman Research Report EXECUTIVE SUMMARY In order to launch new health microinsurance products, actuaries and other healthcare professionals will be involved at the pricing stage as technical advisors. In this paper, we provide technical advisors In this paper, we provide with some guidelines and a tool for collecting healthcare pricing data where none exists or where technical advisors with what exists is unreliable. These tools are provided to the reader as a set of appendices. some guidelines and a tool for collecting healthcare To date, health microinsurance products are not prevalent, despite recognition that microinsurance pricing data where none can help provide healthcare in countries where it might not otherwise be accessible. Why? exists or where what exists The difficulty in pricing health microinsurance products is one of the major barriers to entry. The is unreliable. value of our guidelines and tools is that they can help to lower this barrier and thereby simplify the establishment of these potentially helpful products in countries that need another layer of healthcare financing. The Difficulty of Pricing Health Microinsurance One of the most challenging aspects of pricing health microinsurance is obtaining appropriate One of the most challenging incidence rate data. Population and average healthcare cost information is usually more easily aspects of pricing health obtainable than incidence rate data—for certain populations, appropriate incidence rate data does microinsurance is obtaining not exist. In this instance, technical advisors usually make best-estimate assumptions or adjust appropriate incidence rate data. datasets from similar populations (if that data is available). Using datasets of other populations is not ideal, as this data will not exactly reflect the situation of the target population. Given time and budget constraints, making assumptions about missing data by using general knowledge from healthcare providers or using adjusted data from similar populations may be the only possible approach. This is very risky, as the incidence rates derived through these two approaches are likely to be only tenuously credible. Those who wish to launch a successful scheme may have the budget and time to commission the market research necessary to obtain missing incidence rate and other data, and thereby launch their products with a more realistic up front pricing structure. Although doing one’s own market research Although doing one’s own means an initial investment expense up front, it could mean the difference between success and market research means an failure in the medium to long term. Having to make major adjustments in the repricing of insurance in initial investment expense any market is problematic and is likely to be met with hostility by those affected. up front, it could mean the difference between success It is important to note that any incidence rate information reflects past patterns of healthcare and failure in the medium to utilisation. Health microinsurance pricing should also consider efforts to reduce the incidence of long term. preventable diseases through patient and provider education as well as efforts to work with providers to ensure high-quality efficient care that may be lacking in the current environment. Technical advisors should work with the programme sponsor and the microinsurer to understand how past utilisation experience may change after the implementation of the microinsurance programme and adjust pricing models accordingly. Health Microinsurance: Healthcare and Incidence Rate Questionnaire 3 Lisa Morgan and John D. Meerschaert February 2010 Milliman Research Report A New Template for Health Microinsurance Pricing This paper focuses on the This paper focuses on the process of conducting one’s own market research to derive basic, highly process of conducting one’s relevant incidence rate data for a given population. own market research to derive basic, highly relevant Aside from the analysis of health microinsurance benefit designs and advice on data sources, pricing, incidence rate data for a and market research design, we also enclose a copy of our healthcare and incidence rate (HIR) given population. questionnaire as Appendix D. The detailed benefit design analysis should also be helpful for technical advisors involved in the product design stage of a new product. It is hoped that the HIR questionnaire used in our research and analysis may be reused as a template and amended to fit other situations by technical advisors who wish to conduct their own market research. In order for those living in poverty to engage in meaningful economic activity, access to healthcare is vital. It should therefore be of utmost importance that those who make pricing decisions for health microinsurance schemes are responsible and base their calculations on the best possible data so as to avoid scheme failure, playing their part in bringing forth sustainable healthcare financing solutions. Health Microinsurance: Healthcare and Incidence Rate Questionnaire 4 Lisa Morgan and John D. Meerschaert February 2010 Milliman Research Report BACKGROUND: MICROINSURANCE FOR HEALthcARE Introduction Demand and Supply of Health Microinsurance1 Together with the risk of losing a household income earner, low-income households in developing countries consistently identify the risk of sickness as their greatest concern. This is illustrated in Figure 1. Of all microinsurance products, health microinsurance is therefore usually