Green health insurance for urban areas: Willingness to pay
The rapid escalation in the cost of healthcare services in terms of both medical and non-medical cost and heavy Out-of-Pocket (OOP) expenditure on healthcare are major areas of concern, especially for the economically weaker families. The heavy burden of healthcare cost, especially for the economically weaker households, can lead to debt. Increasing incidence of rising environmental and lifestyle diseases, ineffectual treatments, neglect of health and other requirements of the people in the cities perpetuate the need for financial management. Therefore, health insurance is seen as a promising option of healthcare financing across the world. It reduces the financial burden for the payment of healthcare services at the time of actual need.
Pre-payment for healthcare financing may take different forms; this can be broadly classified as compulsory or statutory and voluntary. Compulsory health service is one in which legislations define the population, benefits covered, eligibility and source of funding for the scheme. An example would be health insurance that offers tax benefits, that is, premiums paid for health insurance policies are eligible for tax deductions under Section 80D of the Income Tax Act. In the voluntary scheme, people who are able and willing to pay may join the scheme. Community-based health insurance is a voluntary type of insurance that has gained popularity among the people in many developing countries. It is presumed that health insurance through community participation can bring in more to pay for better use of health services by all. In this way, more people can use health services through health insurance, leading to reduced burden on public health facilities. Moreover, if the government joins hands with the community to pay for a viable health insurance scheme, it would help the government to provide quality healthcare services without any undue financial burden (Bhat and Babu, 2003).
The aim of this study is to estimate the willingness to pay (WTP) for health insurance, coined as ‘Green Health Insurance’, in order to finance the treatment of diseases caused due to environmental pollution. It recommends payment of green insurance by households in Delhi as part of a health insurance program and to understand the factors that contribute towards households' WTP for health insurance.
Willingness to pay – Methodology
WTP is a widely applied measure in the valuation of health benefits. It is consistent with the principles of welfare economics and cost-benefit analysis. WTP is the maximum amount a person would be willing to pay, sacrifice or exchange, in order to receive goods or services or to avoid something undesirable, such as diseases related to pollution. WTP questions can be used in the analysis of both private and public decision making (Gafni, 1991).
The WTP technique requires each of the subjects to respond to hypothetical and conditional questions. What is the maximum amount a person would be willing to pay to access a service? Such a question elicits a monetary valuation of the merit, worth or benefit which each subject associates with the specific services under consideration. In actual markets, individuals make a purchasing decision based on the relationship between the prevailing market price and the services offered. In existing markets, no inference of valuation needs to be made, because valuations are implicit in purchasing decisions and are revealed by consumer behaviour. In circumstances where markets do not yet, or will never exist, stated WTPs can therefore be interpreted as shadow reservation prices. The use of the WTP demand curve to predict the variations in the rates of intervention taken up to different level of charges and based on the costs of provision, thereafter estimates the required degree of public subsidy to ensure the pre-specified minimum take- up levels. Much of the WTP analysis in developing countries appears to be undertaken specifically to inform price-setting; for example, studies of reproductive healthcare programmes (Foreit and Foreit, 2008), community- based insurance (Dong et al., 2003).
Contingent valuation method
In the present study, Contingent Valuation Method (CVM) has been applied to study the WTP by the people of Delhi for the proposed Green Health Insurance Programme. The CVM circumvents the absence of the market by presenting consumers with a hypothetical market in which they have an opportunity to buy the good in question, therefore providing information of how much they are willing to pay to obtain the good (Mitchel and Carson, 1989). Therefore, it is one of the non-market valuation methods
Figure 6.1 Individuals’WTP for an improvement in health status from U0 to U, while still maintaining the same level of well-being.
Source: Johannesson, M. et al., (1996) commonly used to find the economic value of a non-market environment commodity. Survey questions can be used to elicit people’s preference for public goods for finding out what they are willing to pay for specified improvement in them. In this study, the questions are in hypothetical form because the goods in the focus are not normally traded in the market and because actual payments are not made. Consequently, they have no actual market value.
Unlike other commodities, one cannot obtain valuation of WTP for health directly; hence, the CVM is applied to measure healthcare financing. A study by Johannesson, M., et al. (1996) discussed the improvement in utility in WTP for health with the help of Figure 6.1.
In the above figure, Johannesson showed that the maximum amount of WTP for the improvement in the health status of an individual is measured as Y0-Y,. The curve U0 denotes the original level of health status and U, denotes the improvement in health status. By paying health insurance, an individual will be at the higher utility curve U„ which reflects an improvement in the health status from U0 to U,, still maintaining the same level of well-being. If the individual pays higher than the amount Y0-Yt, then the loss in income will be more than offset the increase in well-being. This implies that the WTP amount for an individual determines the level at which the individual values the health in relation to the income and how serious the case of ill health may be (Johannesson, M., et al., 1996).
The CVM study involves finding the individual’s WTP for insurance by constructing a hypothetical market. The CVM circumvents the absence of the market by presenting the consumer with a hypothetical market in which they have the opportunity to buy the good, therefore providing information about how much they are willing to pay to obtain the good (Haab and McConnall, 2002). The WTP technique is used to obtain information when goods and services are not available in the market; therefore, there is seldom actual data regarding cost and sales. The respondents are asked to reveal their preferences, which are contingent upon the hypothetical market presented in the survey. The CVM may be used for assessing WTP for private and public goods and services, and produced estimates might be included in market analysis, cost - benefit analysis and judicial processes (Portney, 1994; Diener et al., 1998; Kling et ah, 2012; Tawab, 2005; Tenkorang, 2001).
The following points should be taken into consideration while using the CVM:
- • A hypothetical description of the terms under which the services are to be offered should be discussed with the respondents in detail.
- • The respondents are asked questions to determine how much they are willing to pay in order to obtain the service under specified terms.
- • The response validity should be tested by relating the WTP response to the respondent’s socio-economic and demographic characteristics.
The CVM information can be analysed in three different ways to determine the WTP:
- • Examining the frequency distributions of the responses to the valuation questions.
- • Analysing the cross tabulations between the WTP of the respondents and socio-economic characteristics of the respondents.
- • Using the multivariate statistical technique to estimate a valuation function relating the respondents’ answers to their socio-economic characteristics.
These analyses are used to see if the respondent’s answers are consistent with the theory and to establish statistical relationships that can be used in the aggregation of sample responses to the overall population under study.
The current study aims to find out the WTP for green health insurance and the variables or factors that affect the WTP of the people. The basic idea behind the study of WTP for healthcare services is to determine innovative methods of financing the healthcare services and reduce the one-time heavy OOP expenditure of the household on healthcare services. It aims to get the maximum benefit of healthcare services without facing financial burden. Thus, the study employs the CVM to elicit the individual’s preferences for green insurance. Respondents are asked to pay insurance premiums on a periodical basis to obtain financial support from the available health insurance schemes in the given hypothetical situation.
Contingent valuation survey
A primary survey was conducted in the nine administrative divisions of Delhi. Prior to answering the questionnaire, the respondents were provided basic information concerning various benefits. The respondents were briefed about the hypothetical market for a green insurance scheme, its advantages, the scheme administration and the service providers, that is, an agency or an organisation. The scheme would have a provision to finance the treatment of diseases caused due to environmental pollution or change of season. An insurance premium would be charged at regular time intervals on the basis of the individual’s WTP for financing their total cost of healthcare service in the form of green insurance. CVM was applied to create a hypothetical market for the services. Respondents were then asked to state their maximum WTP for green insurance scheme.
Primary survey of Delhi
For conducting the primary survey, a total of 900 households were interviewed, taking 100 households from each nine zones or administrative divisions of Delhi, on the basis of random sampling by taking into consideration the different socio-economic background of the respondents. Since the sample size was not based upon any pre-hoc power calculations, this was a sample of convenience.
The questionnaire included various questions on age, socio-demographic and economic background. The questions in the survey consist of both multiple-choice and open-ended form. The questionnaires were given to the educated respondents, while illiterate respondents were asked to give the answers verbally. Respondents were given 15-20 minutes to answer the questions. The content of the questionnaire was common for all the samples. The form was configured in a way that made it impossible to move on to the next question if the previous question was left unanswered. This made it possible to acquire completely valid responses with no missing data in all the samples. One of the relevant sections of the questionnaire was based on healthcare cost, health insurance and WTP study. All the answers were kept confidential, processed statistically and used only for scientific study.
There are number of ways to obtain the respondents’ WTP, using the CVM, such as a bidding game, payment cards and open-ended questions. The method chosen for this study was a bidding game and open-ended question. Valuations using the bidding format (BID) were elicited by face-to-face negotiations. All respondents were asked whether they would be prepared to pay at least some amount (payment principle question). Those who responded positively were asked to state the maximum amount they would be WTP per month on the basis of the BIDS given to them. In the present study, five WTP BIDS were given for purchasing green insurance - bids of Rs. 200, Rs. 500, Rs. 1,000, Rs. 2,000 and Rs. 2,500. Total 900 questionnaire was equally divided into five WTP BIDS, that is, each WTP BID had 180 questionnaire to be answered. Respondents were faced with one bid value to which they could respond with either a ‘Yes’ to accept their WTP the proposed amount or ‘No’ to indicate their refusal to pay the proposed amount. Each individual was given one bid chosen randomly. Responses were discrete for this dichotomous-choice question was applied. In this case, Logit model was used for computational ease. Such discrete choice models can be used to derive estimation of the economic value of the good and find out the socio-economic determinants influencing the individual WTP. Information provided by WTP surveys improves the accuracy of predicting responses to price change.
In case of ‘No’ where they refuse to pay the bid amount given to them randomly, respondents were then directly asked to state their maximum WTP to get the benefit, by using an open-ended question. In the study, the open-ended questions give a continuous measure of WTP for the good or services in question. The validity of the WTP estimate in response to the open-ended question can be checked by using regression analysis, by taking into account the monthly WTP as the dependent variable and finding the direction and magnitude of the determinant WTP by using multiple regression analysis.