Are the Poor Too Poor to Demand Health Insurance?

What factors, other than cost, affect demand for microinsurance by the poor?
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This paper provides a brief overview of community based microinsurance schemes. In particular, the paper looks at:

  • How institutional rigidities affect the demand for health insurance among the poor?
  • How insurance could potentially prevent poor households from falling into a poverty trap?
  • The role of public health interventions.

The paper examines whether the poor are too poor to afford health insurance. Using a simple analytical model, the paper demonstrates that lack of demand for insurance need not necessarily be the result of affordability. Institutional rigidities, such as (and in particular) credit or borrowing constraints, may prevent low-income households from demanding insurance that they can otherwise afford.

The paper also shows that the absence of insurance can increase a poor household's vulnerability, and push them into a poverty trap. However, the paper emphasizes that the findings are only applicable to low income households near or on the poverty line, who could fall into a poverty trap if they face a major health shock. For the poorest of the poor, affordability of insurance is still a major issue.Finally given these findings, the paper argues that the appropriate public intervention to generate demand for insurance may not be to subsidize premiums. Instead, the paper recommends that public intervention should remove institutional rigidities, for example, in labour, credit and product markets.

About this Publication

By Ahuja, R. & Jutting, J.