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Adverse selection in a community-based health insurance scheme in rural Africa: implications for introducing targeted subsidies

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  • Parmar, Divya
  • Souares, Aurélia
  • de Allegri, Manuela
  • Savadogo, Germain
  • Sauerborn, Rainer

Abstract

Background Although most community-based health insurance (CBHI) schemes are voluntary, problem of adverse selection is hardly studied. Evidence on the impact of targeted subsidies on adverse selection is completely missing. This paper investigates adverse selection in a CBHI scheme in Burkina Faso. First, we studied the change in adverse selection over a period of 4 years. Second, we studied the effect of targeted subsidies on adverse selection. Methods The study area, covering 41 villages and 1 town, was divided into 33 clusters and CBHI was randomly offered to these clusters during 2004–06. In 2007, premium subsidies were offered to the poor households. The data was collected by a household panel survey 2004–2007 from randomly selected households in these 33 clusters (n = 6795). We applied fixed effect models. Results We found weak evidence of adverse selection before the implementation of subsidies. Adverse selection significantly increased the next year and targeted subsidies largely explained this increase. Conclusions Adverse selection is an important concern for any voluntary health insurance scheme. Targeted subsidies are often used as a tool to pursue the vision of universal coverage. At the same time targeted subsidies are also associated with increased adverse selection as found in this study. Therefore, it’s essential that targeted subsidies for poor (or other high-risk groups) must be accompanied with a sound plan to bridge the financial gap due to adverse selection so that these schemes can continue to serve these populations.

Suggested Citation

  • Parmar, Divya & Souares, Aurélia & de Allegri, Manuela & Savadogo, Germain & Sauerborn, Rainer, 2012. "Adverse selection in a community-based health insurance scheme in rural Africa: implications for introducing targeted subsidies," LSE Research Online Documents on Economics 46664, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:46664
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    References listed on IDEAS

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    1. Gnawali, Devendra Prasad & Pokhrel, Subhash & Sié, Ali & Sanon, Mamadou & De Allegri, Manuela & Souares, Aurélia & Dong, Hengjin & Sauerborn, Rainer, 2009. "The effect of community-based health insurance on the utilization of modern health care services: Evidence from Burkina Faso," Health Policy, Elsevier, vol. 90(2-3), pages 214-222, May.
    2. Pia Schneider & Kara Hanson, 2006. "Horizontal equity in utilisation of care and fairness of health financing: a comparison of micro‐health insurance and user fees in Rwanda," Health Economics, John Wiley & Sons, Ltd., vol. 15(1), pages 19-31, January.
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    Cited by:

    1. Mebratie, A.D. & Sparrow, R.A. & Alemu, G. & Bedi, A.S., 2013. "Community-Based Health Insurance Schemes," ISS Working Papers - General Series 568, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    2. Hillebrecht, Michael & Klonner, Stefan & Pacere, Noraogo A., 2020. "Dynamic Properties of Poverty Targeting," Working Papers 0696, University of Heidelberg, Department of Economics.
    3. Mussa, Essa Chanie & Otchere, Frank & Vinci, Vincenzo & Reshad, Abduljelil & Palermo, Tia, 2021. "Linking poverty-targeted social protection and Community Based Health Insurance in Ethiopia: Enrolment, linkages, and gaps," Social Science & Medicine, Elsevier, vol. 286(C).
    4. Mebratie, A.D. & Sparrow, R.A. & Debebe, Z.Y. & Alemu, G. & Bedi, A.S., 2014. "Dropping out of Ethiopia’s Community Based Health Insurance scheme," ISS Working Papers - General Series 76960, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    5. Hillebrecht, Michael & Klonner, Stefan & Pacere, Noraogo A., 2023. "The dynamics of poverty targeting," Journal of Development Economics, Elsevier, vol. 161(C).
    6. Parmar, Divya & Williams, Gemma & Dkhimi, Fahdi & Ndiaye, Alfred & Asante, Felix Ankomah & Arhinful, Daniel Kojo & Mladovsky, Philipa, 2014. "Enrolment of older people in social health protection programs in West Africa – Does social exclusion play a part?," Social Science & Medicine, Elsevier, vol. 119(C), pages 36-44.

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    More about this item

    Keywords

    community-based health insurance; ddverse selection; subsidy; Burkina Faso; fixed effects;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I10 - Health, Education, and Welfare - - Health - - - General

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