MILK Brief #26: The Business Case for Health Microinsurance in India: The Long and Winding Road to Scale and Sustainability

The MicroInsurance Centre’s MILK project studied a group of both private and publically-supported health microinsurance programs (HMIs) in India to determine if a business case is evolving. MILK found that without government subsidized benefits, even long established, private HMIs in India are struggling to achieve scale and sustainability. This MILK Brief analyzes four programs in depth and provides composite analysis on a larger group of HMIs.

We find that the emergence of RSBY (Rashtriya Swasthya Bima Yojna program), a government funded scheme for the poor, is having a competitive impact on private HMIs, forcing them to consider offering complementary services. RSBY and other older government supported schemes, such as Yeshasvini, achieve scale well beyond what the private HMIs have, and this scale appears to drive down unit costs. However, with or without public subsidy, Indian HMIs are struggling to find a workable business model. Individual voluntary enrollment does not lead to significant and sustained participation, and thus is not a viable strategy especially for private HMIs targeting relatively small populations. Increasing uptake requires a plan design that balances low premiums and attractive coverage, but given the particularly high costs of healthcare and the widespread presence of subsidized programs, private HMIs find it difficult to offer valuable products at affordable prices without subsidy.

Lack of scale in private programs constrains efficiencies that can control costs, and we see that expense ratio and not loss ratio is the primary driver of losses and lack of sustainability. However, the publically-supported programs appear to have higher loss ratios than those seen in nonsubsidized programs. In sum, RSBY is a game changer, and while private HMIs struggle to adapt, the ingredients for a business case for health microinsurance have not come together for either private or public HMIs to date.