Promoting sustainability for micro health insurance: a risk-adjusted subsidy approach for maternal healthcare service

  • Yi Yao
  • Joan Schmit
  • Julie ShiEmail author


Micro health insurance is an important way to finance health expenditure for low-income people, and maternity care is a key component of relevant coverage. We propose a risk-adjusted subsidy provided by the government to microinsurers as a method to enhance micro health insurance for maternity benefits. Using a large data set from a micro health insurance programme in Pakistan, we apply various econometric models to predict maternity-related expenses and to calculate an appropriate risk-adjusted subsidy from the government to microinsurer. This allows us to further simulate the microinsurers’ financial results. We find that the risk-adjusted subsidy could significantly improve the loss ratio by almost 40%, and the Ordinary Least Squares model is preferred among the four model forms we test. We contribute to the literature by demonstrating that this method is feasible, and further, by illustrating the potential effect of such a subsidy on micro health insurer outcomes. If successful, such a payment model could improve efficiency and extend affordable maternity care to low-income women in developing regions.


Micro health insurance Risk adjustment Maternity healthcare 



We are grateful to the anonymous referee, and also to Wei Zheng, Nannan Zhang, Ruo Jia, Richard Butler and the participants in the APRIA and EGRIE 2017 Conference for their helpful comments. This research was supported by the National Natural Science Foundation of China (NSFC) (71503014), the research seed fund of the School of Economics at Peking University, and Insurance Society of China (ISCKT2017-N-1-4). We are grateful to research assistant Yunlong Wang for his excellent work. All errors are our own.


  1. Alexander, D. 2016. How do doctors respond to incentives? Unintended consequences of paying doctors to reduce costs. Working Paper.
  2. Ankrah, O.E., P. Akweongo, B. Yankah, F. Asenso-Boadi, and I. Agyepong. 2013. Sustainability of recurrent expenditure on public social welfare programmes: Expenditure analysis of the free maternal care programme of the Ghana National Health Insurance Scheme. Health Policy and Planning 29 (3): 271–279.Google Scholar
  3. Basu, A., and W.G. Manning. 2009. Issues for the next generation of health care cost analyses. Medical Care 47 (7): 109–114.Google Scholar
  4. Beck, K., M. Trottmann, and P. Zweifel. 2010. Risk adjustment in health insurance and its long-term effectiveness. Journal of Health Economics 29 (4): 489–498.Google Scholar
  5. Biener, C., and M. Eling. 2011. The performance of microinsurance programs: A data envelopment analysis. The Journal of Risk and Insurance 78 (1): 83–115.Google Scholar
  6. Brown, J., M. Duggan, I. Kuziemko, and W. Woolston. 2014. How does risk selection respond to risk adjustment? New evidence from the Medicare Advantage program. American Economic Review 104 (10): 3335–3364.Google Scholar
  7. Buntin, M.B., and A.M. Zaslavsky. 2004. Too much ado about two-part models and transformation? Comparing methods of modeling Medicare expenditures. Journal of Health Economics 23 (3): 525–542.Google Scholar
  8. Clement, O.N. 2009. Asymmetry information problem of moral hazard and adverse selection in a national health insurance: The case of Ghana national health insurance. Management Science and Engineering 3 (3): 101–106.Google Scholar
  9. Cole, S. 2015. Overcoming barriers to microinsurance adoption: Evidence from the field. The Geneva Papers on Risk and Insurance—Issues and Practice 40 (4): 720–740.Google Scholar
  10. Dafny, L.S. 2005. How do hospitals respond to price changes? American Economic Review 95 (5): 1525–1547.Google Scholar
  11. Desai, S., T. Sinha, and A. Mahal. 2011. Prevalence of hysterectomy among rural and urban women with and without health insurance in Gujarat, India. Reproductive Health Matters 19 (37): 42–51.Google Scholar
  12. Duan, N., W.G. Manning, C.N. Morris, and J.P. Newhouse. 1983. A comparison of alternative models for the demand for medical care. Journal of Business & Economic Statistics 1 (2): 115–126.Google Scholar
  13. Duggan, M. 2004. Does contracting out increase the efficiency of government programs? Evidence from Medicaid HMOs. Journal of Public Economics 88 (12): 2549–2572.Google Scholar
  14. Dumont, A., P. Fournier, M. Abrahamowicz, M. Traoré, S. Haddad, and W.D. Fraser. 2013. Quality of care, risk management, and technology in obstetrics to reduce hospital-based maternal mortality in Senegal and Mali (QUARITE): A cluster-randomized trial. Lancet 382 (9887): 146–157.Google Scholar
  15. Eggleston, K., and A. Bir. 2009. Measuring selection incentives in managed care: Evidence from the Massachusetts state employee insurance program. The Journal of Risk and Insurance 76 (1): 159–175.Google Scholar
  16. Eling, M., R. Jia, and Y. Yao. 2017. Between-group adverse selection: Evidence from group critical illness insurance. The Journal of Risk and Insurance 84 (2): 771–809.Google Scholar
  17. Ellis, R.P. 2008. Risk adjustment in health care markets: Concepts and applications. In Financing health care: New ideas for a changing society, ed. M. Lu. Edmonton and Alberta: Wiley.Google Scholar
  18. Ettner, S.L., R.G. Frank, T.G. McGuire, J.P. Newhouse, and E.H. Notman. 1998. Risk adjustment of mental health and substance abuse payments. Inquiry 35 (2): 223–239.Google Scholar
  19. Frimpong, J.A., S. Helleringer, J.K. Awoonor-Williams, T. Aguilar, J.F. Phillips, and F. Yeji. 2014. The complex association of health insurance and maternal health services in the context of a premium exemption for pregnant women: A case study in northern Ghana. Health Policy and Planning 29 (8): 1043–1053.Google Scholar
  20. Geruso, M., and T.G. McGuire. 2016. Tradeoffs in the design of health plan payment systems: Fit, power and balance. Journal of Health Economics 47 (1): 1–19.Google Scholar
  21. Glazer, J., and T.G. McGuire. 2000. Optimal risk adjustment in markets with adverse selection: An application to managed care. American Economic Review 90 (4): 1055–1071.Google Scholar
  22. Gruber, J., and M. Owings. 1996. Physician financial incentives and cesarean section delivery. RAND Journal of Economics 27 (1): 99–123.Google Scholar
  23. Jones, A.M. 2000. Chapter six: Health econometrics. In Handbook of health economics, eds. A.J. Cuyler, and J.P Newhouse, Vol. 1, Part A, 265-344, Elsevier.Google Scholar
  24. Jones, A.M., J. Lomas, and N. Rice. 2014. Applying beta-type size distributions to healthcare cost regressions. Journal of Applied Econometrics 29 (4): 649–670.Google Scholar
  25. Jones, A.M., J. Lomas, P.T. Moore, and N. Rice. 2016. A quasi-Monte-Carlo comparison of parametric and semiparametric regression methods for heavy-tailed and non-normal data: An application to healthcare costs. Journal of the Royal Statistical Society Series A 179 (4): 951–974.Google Scholar
  26. Kautter, J., G.C. Pope, M. Ingber, S. Freeman, L. Patterson, M. Cohen, and P. Keenan. 2014. The HHS-HCC risk adjustment model for individual and small group markets under the Affordable Care Act. Medicare & Medicaid Research Review 4 (3): 16.Google Scholar
  27. Leibowitz, A., J.L. Buchanan, and J. Mann. 1992. A randomized trial to evaluate the effectiveness of a Medicaid HMO. Journal of Health Economics 11 (3): 235–257.Google Scholar
  28. Liu, X., H. Yan, and D. Wang. 2010. The evaluation of ‘safe motherhood’ program on maternal care utilization in rural western China: A difference in difference approach. BMC Public Health 10 (1): 1–6.Google Scholar
  29. Maciejewski, M.L., C.F. Liu, and S.D. Fihn. 2009. Performance of comorbidity, risk adjustment, and functional status measures in expenditure prediction for patients with diabetes. Diabetes Care 32 (1): 75–80.Google Scholar
  30. Manning, W.G., and J. Mullahy. 2001. Estimating log models: To transform or not to transform? Journal of Health Economics 20 (4): 461–494.Google Scholar
  31. Manning, W.G., C.N. Morris, J.P. Newhouse, L.L. Orr, N. Duan, E.B. Keeler, L. Leibowitz, K.H. Marquis, M.S. Marquis, and C.E. Phelps. 1981. A two-part model of the demand for medical care: Preliminary results from the health insurance study’. In Health, Economics, and Health Economics, Proceedings of the World Congress on Health Economics, Leiden, The Netherlands, September 1980, eds. J. van der Gaag, and M. Perlman, 103-123, North Holland.Google Scholar
  32. McQuestion, M.J., and A. Velasquez. 2006. Evaluating program effects on institutional delivery in Peru. Health Policy 77 (2): 221–232.Google Scholar
  33. McWilliams, J.M., J. Hsu, and J.P. Newhouse. 2012. New risk-adjustment system was associated with reduced favorable selection in Medicare Advantage. Health Affairs 31 (12): 2630–2640.Google Scholar
  34. Mihaylova, B., A. Briggs, A. O’Hagan, and S.G. Thompson. 2011. Review of statistical methods for analysing healthcare resources and costs. Health Economics 20 (8): 897–916.Google Scholar
  35. Mullahy, J. 1998. Much ado about two: Reconsidering retransformation and the two-part model in health econometrics. Journal of Health Economics 17: 247–281.Google Scholar
  36. Okusanya, B.O., A.A. Roberts, O.J. Akinsola, and B.A. Oye-Adeniran. 2015. Birth plans and health insurance enrolment of pregnant women: A cross-sectional survey at two secondary health facilities in Lagos, Nigeria. The Journal of Maternal-Fetal & Neonatal Medicine 29 (16): 2602–2606.Google Scholar
  37. Pope, G.C., J. Kautter, R.P. Ellis, A.S. Ash, J.Z. Ayanian, L.I. Iezzoni, M.J. Ingber, J.M. Levy, and J. Robst. 2004. Risk adjustment of Medicare capitation payments using the CMS-HCC model. Health Care Financing Review 25 (4): 119–141.Google Scholar
  38. Radermacher, R., S. Srivastava, M. Walsham, C. Sao, and F. Paolucci. 2016. Enhancing the inclusion of vulnerable and high-risk groups in demand-side health financing schemes in Cambodia: A concept for a risk-adjusted subsidy approach. The Geneva Papers on Risk and Insurance—Issues and Practice 41 (2): 244–258.Google Scholar
  39. Schokkaert, E., and C. Van de Voorde. 2003. Belgium: Risk adjustment and financial responsibility in a centralized system. Health Policy 65 (1): 5–19.Google Scholar
  40. Shen, Y., and R.P. Ellis. 2002. Cost-minimizing risk adjustment. Journal of Health Economics 21 (3): 515–530.Google Scholar
  41. Smith, K.V., and S. Sulzbach. 2008. Community-based health insurance and access to maternal health services: Evidence from three West African countries. Social Science and Medicine 66 (12): 2460–2473.Google Scholar
  42. Tsai, C.L., S. Clark, A.F. Sullivan, and C.A. Camargo Jr. 2009. Development and validation of a risk-adjustment tool in acute asthma. Health Services Research 44 (5p1): 1701–1717.Google Scholar
  43. Van de Ven, W.P.M.M., and R.P. Ellis. 2000. Risk adjustment in competitive health plan markets. In Handbook of health economics, ed. A.J. Culyer and J.P. Newhouse. North-Holland: Elsevier.Google Scholar
  44. Wang, H., L. Zhang, W. Yip, and W. Hsiao. 2006. Adverse selection in a voluntary rural mutual health care health insurance scheme in China. Social Science and Medicine 63 (5): 1236–1245.Google Scholar
  45. WHO, UNICEF, UNFPA, The World Bank and the United Nations Population Division. 2014. Trends in maternal mortality: 1990 to 2013. Google Scholar
  46. Wipf, J., and D. Garand. 2008. Performance indicators for microinsurance: A handbook for microinsurance practitioners, ADA, BRS and CGAP working group on microinsuranceGoogle Scholar
  47. Yao, Y. 2013. Development and sustainability of emerging health insurance markets: Evidence from microinsurance in Pakistan. The Geneva Papers on Risk and Insurance—Issues and Practice 38 (1): 160–180.Google Scholar
  48. Yao, Y., Y. Chen, and J. Shi. 2017a. Payment reform of medical insurance payment: Commentary of international and domestic research progress and China’s practice. China Health Economics 4: 36–39.Google Scholar
  49. Yao, Y., J.T. Schmit, and J.R. Sydnor. 2017b. The role of pregnancy in micro health insurance: Evidence of adverse selection from Pakistan. Journal of Risk and Insurance 84 (4): 1073–1102.Google Scholar
  50. Zhang, L., and H. Wang. 2008. Dynamic process of adverse selection: Evidence from a subsidized community-based health insurance in rural China. Social Science and Medicine 67 (7): 1173–1182.Google Scholar

Copyright information

© The Geneva Association 2018

Authors and Affiliations

  1. 1.School of EconomicsPeking UniversityBeijingChina
  2. 2.School of BusinessUniversity of Wisconsin at MadisonMadisonUSA

Personalised recommendations