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Health insurance, a friend in need? Impacts of formal insurance and crowding out of informal insurance

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  • Geng, Xin
  • Janssens, Wendy
  • Kramer, Berber
  • van der List, Marijn

Abstract

Health insurance can improve health-seeking behaviors and protect consumption from health shocks but may also crowd out informal insurance. This paper therefore examines whether impacts of health insurance depend on households’ access to informal insurance, as proxied for by mobile money usage. Based on high-frequency financial diaries data collected in rural Kenya, we find that households with weaker access to informal insurance cope with uninsured health shocks by lowering subsequent non-health expenditures by approximately 25 percent. These same households are able to smooth consumption when health shocks are insured, due to lower out-of-pocket health expenditures. In contrast, households with access to informal insurance are able to smooth consumption even in the absence of formal health insurance. For this latter group, health insurance increases healthcare utilization at formal clinics and does not crowd out gifts and remittances during weeks with health shocks. These findings provide guidance for insurance schemes aiming to target the most vulnerable populations.

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  • Geng, Xin & Janssens, Wendy & Kramer, Berber & van der List, Marijn, 2018. "Health insurance, a friend in need? Impacts of formal insurance and crowding out of informal insurance," World Development, Elsevier, vol. 111(C), pages 196-210.
  • Handle: RePEc:eee:wdevel:v:111:y:2018:i:c:p:196-210
    DOI: 10.1016/j.worlddev.2018.07.004
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    2. Hample, Kelsey C, 2021. "Formal insurance for the informally insured: Experimental evidence from Kenya," World Development Perspectives, Elsevier, vol. 22(C).
    3. Will, Meike & Groeneveld, Jürgen & Lenel, Friederike & Frank, Karin & Müller, Birgit, 2023. "Determinants of Household Vulnerability in Networks with Formal Insurance and Informal Risk-Sharing," Ecological Economics, Elsevier, vol. 212(C).
    4. Jenny Aker & David A Carroll, 2022. "The State of Digital Financial Services in Francophone West Africa," Working Papers hal-03642499, HAL.
    5. Wendy Janssens & Menno Pradhan & Richard de Groot & Estelle Sidze & Hermann Donfouet & Amanuel Abajobir, 2020. "The short-term economic effects of COVID-19 and risk-coping strategies of low-income households in Kenya: A rapid analysis using weekly financial household data," Tinbergen Institute Discussion Papers 20-040/V, Tinbergen Institute.
    6. Meike Will & Jürgen Groeneveld & Karin Frank & Birgit Müller, 2021. "Informal risk-sharing between smallholders may be threatened by formal insurance: Lessons from a stylized agent-based model," PLOS ONE, Public Library of Science, vol. 16(3), pages 1-18, March.
    7. Pia, Medrano, 2022. "Insurance and Poverty Reduction: Evidence from Philippine Urban and Rural Households," MPRA Paper 112399, University Library of Munich, Germany.
    8. Yongmin Luo & Shenqi Ding & Qiyuan Li & Min Gao, 2024. "Adding insult to injury: Living in a remote location increases the burden of gift expenses among the rural poor in China," Journal of International Development, John Wiley & Sons, Ltd., vol. 36(5), pages 2229-2251, July.
    9. Grimm, Michael & Hartwig, Renate & Reitmann, Ann-Kristin & Bocoum, Fadima Yaya, 2021. "Inter-household transfers: An empirical investigation of the income-transfer relationship with novel data from Burkina Faso," World Development, Elsevier, vol. 144(C).
    10. Osabutey, Ellis L.C. & Jackson, Terence, 2024. "Mobile money and financial inclusion in Africa: Emerging themes, challenges and policy implications," Technological Forecasting and Social Change, Elsevier, vol. 202(C).
    11. Janssens, Wendy & Pradhan, Menno & de Groot, Richard & Sidze, Estelle & Donfouet, Hermann Pythagore Pierre & Abajobir, Amanuel, 2021. "The short-term economic effects of COVID-19 on low-income households in rural Kenya: An analysis using weekly financial household data," World Development, Elsevier, vol. 138(C).
    12. Raymond Elikplim Kofinti & Josephine Baako-Amponsah & Prince Danso, 2023. "Household National Health Insurance Subscription and Learning Outcomes of Poor Children in Ghana," Child Indicators Research, Springer;The International Society of Child Indicators (ISCI), vol. 16(1), pages 357-394, February.
    13. Dai Baozhen & Minkah Andrews Yaw & Osei-Assibey Mandella Bonsu & Agyemang Fredua Sylvester Prempeh, 2019. "Assessing Factors Affecting the Patronage of Health Insurance Schemes: An Evidence of Ghana," Journal of Public Administration and Governance, Macrothink Institute, vol. 9(1), pages 73-91, March.

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    More about this item

    Keywords

    Health insurance; Informal insurance; Financial diaries; Africa; Kenya;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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