Health insurance is no longer a foreign terminology to many of us in Bangladesh. Nonetheless, if you probe people around you, asking them whether they have health insurance, it is highly unlikely that you will find many people who have any form of health insurance coverage. At best, a small number of people might say they are covered, but if you probe further, you will find that they are covered by their employers. We categorize this as coverage through a B2B business model, where large employers sign up with insurance providers to cover the employees of those firms as part of their benefits package. A B2C-model for health insurance, where a person or a household can sign up directly with an insurance provider, is practically non-existent in Bangladesh. While several NGOs have launched a variety of micro health insurance programs (largely to protect their micro-credit borrowers), collectively, this segment too is very small. Despite 15 years of existence, health insurance only accounts for 0.2% of total healthcare expenditure. As of late 2013, only 12 out of 62 insurance companies offered some basic forms of health insurance (predominantly using the B2B model), covering less than 500,000 individuals, i.e. a meager 0.3% of the population.
While the per capita income of Bangladesh has been growing at an impressive rate of 6%, per capita healthcare expenditure is mounting at a rate of over 11%. As a result, 4.7 million people are pushed back into poverty, every year due to health shocks alone, a 2005 EQUITAP paper reports. While individual savings can create opportunities to weather such crises or emergencies, it does not come easy for many people; especially when expenditure grows at a higher rate in relation to income. Bangladesh spends 3.4% of its GDP on health, of which, public health spending comprises less than 1%. In countries with low government spending on health, private out-of-pocket (OOP) spending tends to dominate; likewise in Bangladesh, OOP payments (at point of service) account for a good 2.2% of the GDP. Still, the main source of financing for health expenditure is OOP spending by households (64%) , followed by government spending (26%), and external resources (8% ).
In terms of per capita healthcare expenditure, Bangladesh ranked 183rd ($26) amongst the 191 countries assessed by WHO in 2011. While the statistics are quite dismal, the quality of care is even worse. Over 70% of the rural population in Bangladesh secure a significant proportion of their outpatient medical care from ‘informal’ providers working outside a formal regulatory framework. The term ‘informal’ includes a variety of providers who routinely undertake activities for which they do not possess the required medical certification (such as practitioners of healing traditions and village quacks). This leaves health seekers at substantial risk of costly, poor quality, inappropriate and sometimes potentially dangerous medical care.
The demand for health insurance remains weak at the individual level, since the majority of buyers today are corporate institutions. Also most of the health insurers only cover in-patient care, an insufficient offering that further impedes market demand. On the supply side of the equation, the inadequate risk pooling results in high claims ratio, and thus low profitability, a major deterrent for new health insurance ventures.
To understand the health insurance mechanism better, let us dig deeper into the dynamics. There are three major groups of stakeholders that control the market for insurance: (i) End Users; (ii) Service Providers and (iii) Insurers. To start with, the mechanism must identify end users with respect to the target market it plans to serve. Though people from lower income groups are more vulnerable to health shocks and in need of health insurance, their willingness and ability to pay premiums is considerably low ($15), perhaps not enough to ensure profitability for a private sector provider.
Next, we have service providers: doctors, physicians, hospitals, clinics. Unfortunately, the sheer scarcity of quality healthcare providers (0.3 physicians, 0.28 nurses and 0.4 hospital beds per 1,000 population) hinders the overall service delivery mechanism. The lack of adequate resources has resulted in higher utilization rates leading to a dip in quality. A study of 19 private hospitals revealed that the average bed occupancy rate is around 90% despite deplorable quality of care.
The third actor in the equation is the insurer. The system works because insurers have a strong incentive to control losses (for instance, by offering discounted annual medical checkups) in order to lower their eventual claims cost. However, the system ‘fails’ due to performance gaps in the form of mis-selling, misrepresentation and the propensity to over-promise and fall short on delivery. A joint Brac University School of Public Health and pi STRATEGY study shows that the time-killing behavior of most insurance companies (as a result of lengthy claims procedure and inefficient regulatory policies) reduces the ‘trust’ that customers place in the system. Only a handful of insurance companies in Bangladesh have been able to crack the market and operate with credibility.
The current state of affairs in the health insurance market segment that is depicted above should not dishearten us. In fact, if anything, it should instill a sense of vigor in identifying the right approach forward to build a well-functioning health insurance mechanism in Bangladesh. The fact that this sector is still at an embryonic stage of development really presents opportunities in disguise. The health insurance puzzle is albeit a hard problem. Like other hard problems, it is multi-faceted and requires a concerted effort across all key dimensions to materialize the benefits. Just as improved health coverage and reduction in OOP expenses are critical from the consumer perspective, so are improved risk pooling and structured referral systems from the insurer perspective. Moreover, if we do not have sufficient number of service providers with adequate levels of quality of service, we really will not have a compelling value proposition for any party.
We firmly believe that there is sufficient opportunity for a market-based B2C model for health insurance in Bangladesh today. This can co-exist with the public sector based and NGO-based models that already exist today.
This article was written in 2015.
pi STRATEGY