Health Risks in Bangladesh: Can Microinsurance Prevent Vulnerability to Poverty?

Health risks are unpredictable as to occurrence, as to the severity of impairment, and in terms of the costs these inflict on the victims (both in terms of medical care and foregone earnings) and society at large (i.e., via health externalities). In spite of advances in microcredit and evolving societal institutions, the effective coping mechanism for the poor is often to rely on self-insurance, leading to exhaustion of savings (cash or in kind) or loss of capital. Consequently, health shocks can trap vulnerable households indefinitely into poverty cycles. Using recent household survey data, the present study analyzes the common health shocks faced by the poor, and how they meet these challenges, and the type and extent of expenditure they incur in the absence of market insurance. It then examines whether in principle these shocks can be efficiently spread by the provision of market insurance. Several well-known pilot type health insurance plans are analyzed for their log run viability, and finally, the paper puts forward a number of proposals which may overcome the standard issues of moral hazard and informational asymmetries in designing a feasible micro health insurance contract relevant in a developmental context. This is done using where possible experience and data drawn from Bangladesh and India.