Kicking off a series of blog contributions throughout this year to complement the European Microfinance Award 2021 on ‘Inclusive Finance and Health Care’, Craig Churchill and Lisa Morgan from the International Labour Organization advocate not just a productive but a protective role of financial services, through increasing access to affordable and quality health care. Over the coming months, we’ll be publishing more in this series from our members and other experts in the field. Watch this space!
Five to thrive! Embedding health in financial services
We laud e-MFP and the other European Microfinance Award organisers for highlighting, via this year’s Award, the potential impact that financial inclusion can have on health care. This is indeed a critical issue.
For low-income households and microentrepreneurs, ill health can be financially catastrophic – eroding savings, depleting working capital, causing loan repayment defaults and exacerbating indebtedness. Health related financial risks are a primary driver of impoverishment. The WHO estimates that about 150 million people around the world suffer financial catastrophe each year from out-of-pocket expenditure on health services, while 100 million people fall below the poverty line.
It is also important to consider the gender dimension to the realms of wealth and health. Overall, women are more likely to be poor than men; less than half of all eligible women are able to participate in the labour force compared to 75% of men; and 56% of all those without a bank account are women. Discrimination, based on gender (or anything for that matter), has implications for the most basic aspects of self-determination, dignity and freedom, with serious implications for both financial inclusion and access to health care, amongst other things.
While there is a tendency to think primarily about the role of financial services for productive purposes – such as to support the growth of microenterprises – we argue that the protective role of financial services should receive equal attention. For example, unless people can manage their health effectively, the impact promised by access to finance will be limited. For low-income households to avert poverty, they need family members who are healthy enough, for long enough, to be sufficiently economically active to accumulate wealth and thus financial resilience. The consequences for low-income households of not attaining financial resilience can be devastating, with long-term implications, for example where children fall out of the education system to contribute to family income. If the breadwinners run or work in small enterprises, those MSEs likewise need a healthy workforce to profit, remain sustainable and grow.
From the viewpoint of financial service providers (FSPs), keeping clients healthy makes business sense. Healthy and economically active clients are less likely to default on loan repayments, and may earn and save more. In addition, they may have greater financial resources to consider purchasing other services, including risk management solutions.
However, it is not easy to design and deliver financial services that can help to finance health care. To provide some insights and guidance on this issue, drawing on a Social Finance Working Paper we published a couple of years ago, we want to highlight five issues that financial service providers can consider when designing such products.
1) Understand all of the costs associated with a health event: When someone becomes ill, they incur a range of different expenses. Some are reasonably small, like transport to the clinic. Others might be quite expensive, such as surgeries. Some expenses are one-offs, while others are recurring. Government health care programmes might cover some costs. In fact, the pursuit of universal health coverage (UHC) is one the Sustainable Development Goals, and where possible, FSPs should endeavour to register their clients with the government schemes. Yet even the most generous programmes will have some gaps, and those gaps represent an opportunity for FSPs. What are the most significant health care costs not covered by other sources, and can the FSP finance and/or insure those costs?
2) Savings is the most versatile: Health savings accounts, which are semi-liquid and can be accessed when people have a health expense, are the most flexible option from the client’s perspective – and the most affordable. FSPs should consider offering a higher interest rate on this account to make it more attractive for clients to deposit funds in their health savings account. These accounts are particularly relevant for smaller expenses that occur more frequently.
3) Consider integrated solutions: When low-income households have savings, they often prefer not to deplete them because that would exhaust one of their last coping mechanisms. Consequently, they might prefer to borrow money, using the savings as collateral. Plus, for larger expenses that incur infrequently and are not covered by the government health scheme, insurance would be an appropriate solution. Clever FSPs are finding ways of combining all three – savings, credit and insurance.
4) Hospital cash: One of the most common insurance products is hospital cash, which pays a per diem for each day that the client is in the hospital. This is particularly relevant for workers in the informal economy, such as microentrepreneurs or day labourers, who do not get paid sick leave when they are away from their occupation.
5) Don’t forget about prevention: As Benjamin Franklin once said, an ounce of prevention is worth a pound of cure. In some environments, preventable illnesses are still quite common, so FSPs can consider providing basic health tips and guidance to encourage good hygiene and healthy behaviours. This approach can be positioned as a value-added service that is provided to clients who open health savings accounts, for example.
Given the recent COVID-19 pandemic, this is an opportune time for FSPs to be thinking about embedding health solutions in their services. It is likely that there is an increase in the demand for health related services such as, but not limited to, telemedicine. FSPs not only stand to benefit from having healthy customers, but also, within limits, have an opportunity to contribute to better global health.
Photo 1:Lord R. / ILO
Photo 2: Marcel Crozet / ILO
Craig has more than two decades of microfinance experience in both developed and developing countries. In his current position as Chief of the ILO's Social Finance Programme, he focuses on the potential of financial services and policies to achieve social objectives. He serves on the governing board of the Access to Insurance Initiative and was the founding Chair of the Microinsurance Network. Craig holds an MA from Clark University and a BA from Williams College, both in Massachusetts, USA.
Lisa provides expertise on insurance and other risk management solutions in the public and private sectors. She has more than 20 years of actuarial and related experience in Europe, Africa and Asia. Her experience includes pricing, reserving and budgeting for private and national health insurance schemes, as well as developing and managing inclusive insurance projects. Lisa is a qualified health actuary and Fellow of the Institute and Faculty of Actuaries in the UK. She has a diploma in actuarial management from Cass Business School, London and a B.S. in actuarial science from the University of the Witwatersrand, South Africa.
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