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Is There a Market for Voluntary Health Insurance in Developing Countries?


  • Mark Pauly
  • Fredric E. Blavin
  • Sudha Meghan


In many developing countries the proportion of health care spending paid out of pocket is about half of all spending or more. This study examines the distribution of such spending by income and care type, and the variation in spending about its expected value, in order to see whether voluntary private health insurance that reduces variation in spending might be able to be supplied. Using data from the World Health Survey for 14 developing countries, we find that out of pocket spending varies by income but that most spending usually occurs in income quintiles below the topmost quintile. We use estimates of the variance of total spending, hospital spending, physician spending, and outpatient drug spending about their means to generate estimates of the risk premia risk averse consumers might pay for insurance coverage. For hospital spending and total spending, these risk premia as a percent of expenses are generally larger than reasonable estimates of private health insurer loading as a percent of expenses, suggesting that voluntary insurance might be feasible. However, the strong relationship between spending and income suggests that insurance markets may need to be segmented by income.

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  • Mark Pauly & Fredric E. Blavin & Sudha Meghan, 2008. "Is There a Market for Voluntary Health Insurance in Developing Countries?," NBER Working Papers 14095, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:14095
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    References listed on IDEAS

    1. Garber, Alan M. & Phelps, Charles E., 1997. "Economic foundations of cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 16(1), pages 1-31, February.
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    Cited by:

    1. Bernal Lobato, N., 2014. "Essays in applied microeconomics," Other publications TiSEM 9b638b3d-2f83-452a-b2c8-c, Tilburg University, School of Economics and Management.
    2. Grant Miller & Diana Pinto & Marcos Vera-Hernández, 2013. "Risk Protection, Service Use, and Health Outcomes under Colombia's Health Insurance Program for the Poor," American Economic Journal: Applied Economics, American Economic Association, vol. 5(4), pages 61-91, October.
    3. repec:eee:pubeco:v:154:y:2017:i:c:p:122-136 is not listed on IDEAS
    4. Bernal, Noelia & Carpio, Miguel A. & Klein, Tobias J., 2017. "The effects of access to health insurance: Evidence from a regression discontinuity design in Peru," Journal of Public Economics, Elsevier, vol. 154(C), pages 122-136.
    5. Rebecca L. Thornton & Laurel E. Hatt & Erica M. Field & Mursaleena Islam & Freddy Solís Diaz & Martha Azucena González, 2010. "Social security health insurance for the informal sector in Nicaragua: a randomized evaluation," Health Economics, John Wiley & Sons, Ltd., vol. 19(S1), pages 181-206, September.
    6. Annear, Peter Leslie & Ahmed, Shakil & Ros, Chhun Eang & Ir, Por, 2013. "Strengthening institutional and organizational capacity for social health protection of the informal sector in lesser-developed countries: A study of policy barriers and opportunities in Cambodia," Social Science & Medicine, Elsevier, vol. 96(C), pages 223-231.

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    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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