Adverse selection in voluntary micro health insurance in Nigeria
This paper studies the determinants of uptake in a recently launched low-cost health insurance scheme in Nigeria. After explaining insurance uptake by a theoretical model, we analyze the binary insurance choice using empirical household survey data. This data is collected among a representative group of household members from small entrepreneurs in Lagos, the financial capital of Nigeria, to whom the insurance product has been marketed. The unique data includes socioeconomic and health data complemented with experimental data on risk preference, and health risk perceptions.
Low wealth, small household size, high-risk preference, health optimism, and underestimation of
health risks explain a lower uptake propensity. Household members from entrepreneurs operating in markets with higher product awareness were more likely enrolled. Ethnicity and religion appear to be important determinants in the insurance decision as well. Moreover, health risk occurrence and lower self-assessed health increases the propensity to be enrolled in the insurance significantly, strongly suggesting adverse selection. Our results provide insights in what factors explain enrollment of the poor in voluntary micro health insurance programs and the extent to which program design could potentially have influenced adverse selection.
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