WillingnesstoPayforHealthInsurance:AnAnalysisofthe PotentialMarketforNewLowCostHealthInsuranceProductsin Namibia

AbayAsfaw CenterforDiseaseControlandPrevention\NationalInstituteforOccupationalHealth&Safety(USA) EmilyGustafssonWright JacquesvanderGaag AIIDRS0801/2

Abstract: Thisstudyanalyzesthewillingnesstopayforhealthinsuranceandhencethe potentialmarketfornewlowcosthealthinsuranceproductinNamibia,using double bounded contingent valuation (DBCV) method. The findings suggest that87percentoftheuninsuredrespondentsarewillingtojointheproposed health insurance scheme and on average are willing to insure 3.2 individuals (around 90 percent of the average family size). On average respondents are willing to pay NAD 48 per capita per month and respondents in the poorest income quintile are willing to pay up to 11.4 percent of their income. This implies that private voluntary health insurance schemes, in addition to the potentialforprotectingthepooragainstthenegativefinancialshockofillness, maybeabletoserveasareliableincomeflowforhealthcareprovidersinthis setting.

IntroductionandBackground
Inaworldofplenty,itbecomesincreasinglyunacceptablethatpeopledieorsuffer because they have no access to even the most basic of medical care. Equally as distressing is when poverty is the result of large or catastrophic health expenditures. Evidence from surveys which cover 89 percent of the worlds population suggests that 150 million people globally suffer financial catastrophe everyyearduetooutofpockethealthexpenditures. 1 Anotherpotentialscenariois perpetualpovertyduetotheinabilitytoworkbecauseofpoorhealthdespitesuch expenditures. This downward spiral of impoverishment and ill health could be slowed through improved health financing mechanisms. Constrained government budgetsforhealth,however,areaseriousprobleminmanydevelopingcountries. Offering lowcost health insurance to lowincome households is one innovative method through which to finance health care provision and to avoid catastrophic outofpocket health expenditures. Currently, private health expenditures are a major source of revenues which are being crowded out by government expenditures. 2 Thesuccessofthisapproachdependsontheeffectiveandsustained demandforthesevoluntary(private)prepaidinsuranceschemes.Determiningthe demand or willingnesstopay for health insurance is crucial in ascertaining the feasibilityofsuchschemes,establishingprices,andsettingpotentialsubsidylevels. In the absence of real world experience, economists gauge the willingnesstopay (WTP) for health insurance in low income countries by means of contingent valuation (CV) methods which elicit directly what individuals would be willing to pay for a hypothetical health insurance package. This study analyzes the willingnesstopayforhealthinsuranceandhencethepotentialmarketfornewlow costhealthinsuranceproductsinNamibiausingCVmethod.Longtermexperience withsuchschemesisstilllimited,butagrowingliteratureonthewillingnesstopay forhealthinsurancesuggeststhatthemarketforsuchschemesislarge,evenamong thepoor.

HealthExpendituresandInsuranceinNamibia
In the Greater Windhoek Area of Namibia, about 44 percent of households are enrolled in health insurance (covering about 28 percent of individuals) which is highforaSubSaharanAfrican(SSA)country.Whileinsuranceenrollmentratesare high, there are great disparities between the rich and poor. Only 4 percent of individuals in the poorest consumption quintile are enrolled in health insurance while67percentofindividualsintherichestquintilehaveinsurancebenefits.More educatedindividualsaremorelikelytohavemedicalinsurance.Thirtyonepercent of individuals who live in maleheaded households are insured compared to 21 percentofindividualslivinginfemaleheadedhouseholds.Nonetheless,overallonly
1 2

Ke et al. 2007. van der Gaag 2008 and references therein.

about14percentoftotalhealthcarecostsarecoveredforindividualswhoreported anacuteillnessorinjury.About65%ofthosewhoreportachronicillnessreceive no reimbursement from health insurance. Almost 70 percent of hospitalization costs are not covered at all by any type of insurance. For insured individuals, 55 percent of hospitalization costs are fully covered, 36 percent are partially covered and 9 percent of costs are not covered. 3 The implications of this are that despite relativelyhighinsurancecoverage,outofpocketexpendituresstillrepresentalarge financialburdenparticularlyforlowincomehouseholds.Inrecentyears,newlow costhealthinsuranceproductshavecomeonthemarketinWindhoek.Weexamine thewillingnesstopayforthesetypesofproducts.

ReviewoftheRelatedLiterature
Establishing a price for a product is not always as straightforward as finding the intersection point of the supply and demand curves as taught in Microeconomics 101. One may run into particular difficulties when attempting to price a product whichisapublicornonmarketgood.Numerousmethodshaveattemptedtosolve this problem e.g. hedonic pricing, costbenefit analysis, travel cost and cost effectivenesstonameafew. 4 MuchofthecurrentWTPliteratureusesCVmethod which elicits directly what individuals would be willing to pay for a particular productorgood. Inthispaper,theCVmethodisusedtostudythedemandfornewlowcosthealth insuranceproductsinNamibia.Despiteitsapparentbenefits,someresearchersand policymakersareskepticaltoCVmethodsduetovariousreasons.Thefirstconcern is related to the tangibility of the CV results since both the markets and the preferences are hypothetical. As quoted by Kristrm (1990), the CV method is considered to be based on hypothetical answers to hypothetical questions. This creates a psychological barrier to relying on such results. The second reason revolves around the methodological issues ranging from designing and administratingthequestionnairetotheestimationtechniques.Itisusuallyassumed that the CV results are highly affected by measurement errors and this minimizes thereliabilityandvalidityoftheresults. 5 Mostresearchers,however,agreethatif prevailed preferences or market situations cannot be directly observed or if the item under consideration is not traded in a real market, CV methods are the best alternative to assess the value of public or nontraded goods and services. It is arguedthatinspiteofthefactthattheCVmethodshavetheirownlimitations,there isnosufficientevidencetorejecttheresultsofcarefullydesignedandexecutedCV experiments and the results can be proven to be consistent with economic theory and other requirements (Kristrm 1990, Hanemann, et al. 1991, Cameron 1991, NeumannandJohannesson1994,Randall1997,Carson1997).
3 4

Republic of Namibia Okambilimbili Survey (2008). Asfaw and von Braun (2005). 5 For a critical review of the CV method, see Hausman (1993) and McFadden (1994).

Contingent valuation is increasingly being used to evaluate the willingness to pay (WTP) for health insurance in developing countries. In Ethiopia, a country very different from Namibia, a CV based study (Asfaw and von Braun, 2005) finds evidencesupportingthefeasibilityofintroducingcommunitybasedheathinsurance schemes (CBHIS). 6 In Asfaw and von Braun (2004), the authors investigate the potentialofsuchschemestomitigatetheimpactsofhealthshocksduetoeconomic reformsonpoorruralhouseholds.Theirfindingssuggestthatsuchschemesindeed wouldbehelpfulinprotectingthepooragainstshocks.AsensoOkyereetal.(1997) found, in Ghana, that almost 64% of respondents were willing to pay about Cedi 5000orUS$3.00permonthforahouseholdoffiveforaNationalHealthInsurance schemeaimedattheinformalsector. Barnighausenetal.2007examineWTPamonginformalsectorworkersinWuhan, China.InformalworkershaveaWTPthatishigherthantheestimatedcostofCBHIS basedonpasthealthexpenditures.Droretal.(2007)useunidirectionalbiddingina CVsurveytoobtainestimatesofWTPforhealthinsuranceinIndia.Theyfindthat thepoorarewillingtopayahigherpercentageoftheirincomeonhealthinsurance premiums compared to higher income groups. Asgary et al. 2004 examine willingnesstopay for health insurance in rural Iran finding that households are willingtopayonaverageUS$2.77permonthforhealthinsurance. 7 Whilelevelsare not necessarily comparable across countries and differing products, this evidence demonstratesthatindividualsinavarietyoflowincomecountrieswouldbewilling topayforlowcosthealthinsuranceschemes.

DataSourceandMeasurementofVariables
The data used for this study come from a largescale household survey the RepublicofNamibiaOkambilimbiliSurvey2008(RNOS2008). 8 Thissurvey,based on the World Bank Living Standards Measurements Surveys (LSMS) methodology, provides socioeconomic data for the Greater Windhoek Area of Namibia. 9 The surveyincludessectionsonhealth,employmentincome,healthinsurance(accessto andWTPfor),housing,householdassetsandothersourcesofincome,consumption expenditures on food and nonfood items, deceases, and credits and loans. The target population of the study consists of private households living in the Greater Windhoek Area of Namibia. The sample was designed as a stratified twostage probability sample, constituting a random sample of the Greater Windhoek population.ItusedthenationalsamplingframefromtheCentralBureauofStatistics ofNamibia.Stratificationwasdoneoverthreesocioeconomicgroups:low,middle andhighincomegroups.Inpractice,theequaldistributionofWindhoekhouseholds
6 7

In Ethiopia 78% of private health expenditures are out-of-pocket compared to 18% in Namibia. The study doesnt consider per member WTP. 8 The survey was conducted by staff of the Multidisciplinary Research and Consultancy Centre (MRCC) at the University of Namibia, and the National Institute of Pathology (NIP), in cooperation with the Amsterdam Institute for International Development (AIID), and PharmAccess. 9 Grosh and Glewwe (2000).

over the three socioeconomic groups makes it unnecessary to correct for the stratification in terms of weights and error terms. In the first stage, 100 Primary Sampling Units (PSUs) were selected from the three socioeconomic groups proportional to population size. PSU selection was done in proportion to the numberofhouseholdsperclusterfromtheCensus2001.Totheextentthatrelative populationsizeshaveremainedapproximatelythesameinthepastfiveyears,this makesthesampleaselfweighted,equalprobabilitysampleofGreaterWindhoek.In the second stage, 20 households per PSU were selected, based on the lists from a household identification exercise. The final sample contained 1,172 households including4407individuals. The section on health insurance access and WTP for health insurance provides a rich set of information allowing us to analyze the potential market for health insurance.Thissectionofthesurveyisbasedonthetraditionalcontingentvaluation surveys. A CV survey should contain some basic common components. To begin with, a CV survey must present a description of the situation for which the individualwouldhypotheticallypay.Inthissurvey,theintervieweesarepresented withaninsurancecarddescribingapotentialinsuranceproducts.Thisinsurance schemeissimilartoonescurrentlybeingofferedthroughaDutchNGOledinitiative to provide insurance to the uninsured. 10 The insurance packages are lowcost so theyofferrelativelylimitedservices.Forexample,onepackageincludes:unlimited access to private nurse, six annual visits to private doctor, basic medicines, HIV treatment,limitedprivatehospitalization,(thedoctoronlyreferstothehospitalfor urgentmedicaltreatment),andmaternitybenefits. Second,theremustbeamechanismtoelicitthevaluefromtherespondent.There are several ways to structure this mechanism including openended questions (continuousformat),biddinggamesorreferendumformats(dichotomousformat). In this survey, a double bounded dichotomous choice elicitation method is used. Compared to most other elicitation methods, this procedure has significant statistical efficiency gains (Yoo and Yang, 2001). Under this method, each respondentisaskedifs/heiswillingtopaythefirstbid.Ifs/hesaysyestothefirst bid,asecondhigherbidwillbegivenandher/hiswillingnesstopayisasked.Ifs/he says no to the initial bid, a second lower bid will be provided. If s/he says no to boththefirstandthesecondbidsthens/hewillbeaskedtomentionthemaximum that s/he is willing to pay. Under this elicitation procedure, we have two discrete responsesfromeveryindividual(seeFigure1below).Onepotentiallimitationof contingentvaluationmethodisrelatedtothebiaswhichmaycomefromthestarting point of the bid. Evidence from one study showed that individuals in the highest startingbidgroupwerewillingtopaydoublethatofthoseinthelowest(Kartman
10

The Dutch NGO PharmAccess develops low-income health insurance products for a variety of lowincome workers in numerous African countries. The NGO started with workplace programs in large international companies, providing comprehensive health insurance for the workers, including HIV/AIDS counseling and treatment. Pilot projects of this kind are being developed and implemented in Namibia, Nigeria and Tanzania.

et al. 1996). In this study, this bias is reduced by using the four different starting bids (see Appendix 1). Individuals who are currently enrolled in any health insurance policy are not included in the analysis 11 . Finally, a CV survey should includequestionsregarding(socioeconomic)characteristicsoftherespondentsas wellasquestionswhichrelatetotheproductinquestion. 12 Thebasiccharacteristics ofthesampleandthedefinitionandmeanvaluesofdifferentvariablesusedinthe analysisarepresentedinAppendix2..

Methodology
Suppose that the indirect utility of an individual i depends on buying health insurance policy and on income y. Let q1 and q 0 represent the level of utility associated with and without health insurance respectively, WTP is the amount of moneyanindividualiswillingtopayasapremium,Xrepresentsthevectorofother factors (such as age, sex, education, health status, etc.) that may affect the preferences of individuals, shows the perceived probability of falling sick and capturesotherfactorsthatareunobservabletotheresearcher.Then,theWTPthat equatesthetwoindirectutilityfunctionswithandwithouthealthinsurancecanbe writtenas: v[(q 1 , y WTP, X , ) + 1 ] = v[(q 0 , y, X , ) + 0 ] . (1) where 1 and 0 areassumedtobei.i.dwithzeromean. Therefore, WTP = (q 1 , q 0 , y, X , , ) isthemaximumvalueindividualsarewillingto forgotoavoidmedicalexpensesassociatedwithillness.Therefore,individualswill buy the health insurance policy if v[(q1 , y WTP, X , ); 1 ] v[(q 0 , y, X , ); 0 ] and will not buy otherwise. This shows that the premium level affects the decision of individualstojointheproposedhealthinsurance. Thisisbasedontheassumptionthattheindividualscomparetheirutilityfromthe proposedhealthinsuranceschemewiththecurrentsituationanddecidewhetherto accept or reject the offered bid levels. This implies that the probability that individuals to buy the proposed health insurance policy can be expressed as the differenceoftheirutilityfunctionswithandwithouttheproposedhealthinsurance. Then,assumethatthetruewillingnesstopayofindividualiforthehealthinsurance productisgivenby: WTPi * = X 'i + i (2)
This is mainly because insured and non-insured individuals have different preferences for potential health insurance schemes. 12 Portney (1994).
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Where X is a vector of explanatory variables, is a vector of coefficients to be estimated, is a random error term assumed to be randomly and independently distributedwithmeanzeroandconstantvariance,2. In dichotomous choice specification, the WTP* value is not directly observed. However,weobservearangeofWTPvaluesfromthesurveyresponse.Aswehave shown above, we use double bounded dichotomous choice elicitation method 13 . Under this method, each respondent is given two bids, the first bid (Pf) and the secondhigher(Ph)orthesecondlower(Pl)bids,dependingwhethertheindividual responds yes or no to the first bid. This means that we have the following four possibleoutcomesforeachrespondent(seealsoFigure1). Di11=1ifrespondentisaysyesandyestothe1stand2ndhigherbids,respectively Di10=1ifrespondentisaysyesandnotothe1stand2ndhigherbids,respectively Di01=1ifrespondentisaysnoandyestothe1stand2ndlowerbids,respectively Di00=1ifrespondentisaysnoandnotothe1stand2ndlowerbids,respectively Then, the mean WTP is estimated by maximizing the following log likelihood function(CameronandQuiggin(1994)andHaab(1998) 14 .
N P h X 'i 11 ln L = { Di ln 1 i i =1

P h X 'i + Di10 ln i
l l

P X 'i i }

(3)

P X 'i P X 'i 01 + Di ln i i

P X 'i + Di 00 ln i

Where(.)isthestandardnormalcumulativedistributionfunctionandandare parameterstobeestimated. Iftheresponseofindividualstothesecondbidisindependentoftheirresponseto the first bid, each response can be estimated independently. However, various studieshaveshownthatthesecondresponseismorelikelytobedependentonthe first response (Cameron and Quiggin, 1994; An and Ayala, 1996; Asfaw and von Braun, 2005). Therefore, in a double bounded dichotomous choice approach, the bivariate normal probability density function is the appropriate specification to

We use multiple-bounded elicitation method instead of triple or quadruple methods because the additional efficiency gain from adding third or fourth follow up question is relatively small and it can increase the chance of inducing response effects (Hanemann and Kanninen, 1999; Cooper and Hanemann, 1995 Yoo and Yang, 2001). 14 This model can be estimated using standard econometrics packaged bivariate probit algorithms such as those offered in the LIMDEP software.

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estimateconsistentmeanvalues 15 .ThemeanWTPcanthenbecomputedbasedon the method suggested by Hanemann and Kanninen (1999), Kristrm (1990), Nyquist(1992)andJohannessonetal.(1993). From equation (1) we can derive that 0 1 1 0 0 1 < v[(q , y WTP, X , )] v[(q , y, X , )] . Define = and assume p represents the WTP variable, X collect all the variables in equation (4), and v( z, p ) v[(q 1 , y WTP, X , )] v[(q 0 , y, X , )] . Then, assume that y=1 if the respondent is willing to pay p and 0 otherwise. The probability of agreement is thereforegivenby Pr( y = 1) = [v( z, p )] whereisthedistributionof.Asshown by Hanemann and Kanninen (1999) and Richard, et al. (1997), mean WTP conditional on W is given by MWTP / z = [v(z , p )]dp which is equivalent to
0

p*

[v( z, p)]dp
0

where p* is some value that makes [v( z , p*)] = 0 . The mean WTP can also be calculated as

unconditional
z 0

MWTP = ( [ v ( z , p )]dp ) fz ( s ) ds where fz (.) isthejoindensityfunctionofz.

Tocorrectthepotentialsampleselectionbiasthatarisesfromestimatingthemean WTPfromthoseindividualswhoarewillingtobuythehealthinsurancepolicy,we useatwostageprobit(Heckman)selectionmodel,andtheloglikelihoodfunctionof thesampleselectionmodelcanbederivedfollowingtheprocedureshownbyvande VenandvanPraag(1981),MengandSchmidt(1985),andYooandYang(2001).

Results
Beforepresentingtheeconomicresults,adescriptiveanalysisonthewillingnessto join and pay is useful. Figure 1 provides the summary statistics of responses to doublebounded dichotomous choice questions. Out of 1,750 respondents (with completeanswers)whoareuninsured,1,518(86.74)arewillingtojoin,indicatinga very high willingness to join the new low cost health insurance. An average respondentiswillingtoinsure3.2individuals,whichisaround90%oftheaverage familysizeoftheuninsured.

In special cases where the correlation coefficient between the error terms of the first and the second response equations is zero, the two responses are independent and if the correlation is 1, the two responses are essentially the same. In both cases the bivariate probit specification is not appropriate.

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WTJ 1750 obs NO YES (86.74 %) (13.26 %) WTP first bid WTP first bid NAD 61 NO YES (57.75%) (42.25%) WTP 2nd lower bid WTP 2nd higher bid WTP 2nd WTP 2nd NAD 42 NAD 82 lower bid higher bid NO (D00) YES (D01) NO (D10) YES (D11) (54.11%) (45.89%) (54.11%) (48.59%) Max WTP Max WTP NAD 66 NAD 21 However,thishighrateofwillingnesstojoinisnottranslatedintohighwillingness topay.AsFigure1shows,only42%oftherespondentswhoarewillingtojointhe insurance scheme are willing to pay the firstbid, which on the average is NAD 61 per person per month. In the follow up questions, nearly 49 percent of the respondentswhoarewillingtopaythefirstbidarealsowillingtopaythesecond higherbid(averageNAD82)and46percentoftherespondentswhoarenotwilling topaythefirstbidarewillingtopaythesecondlowerbid(NAD42). Figure2representstheestimatedaggregatedemandcurvebasedontheresponseto the first bid question. The figure gives a wellbehaved downward sloping demand curve. This demonstrates that the response of respondents to the CV question is consistentwithstandardeconomictheory.Italsoshowsthattheinsurancescheme isanormalgoodandthepremium(bidvalue)isakeyvariableinaffectingdemand. As the graph clearly shows, as the bid level increases, the predicted probability of sayingyestothebidleveldeclines.

Figure1.SummaryStatisticstodoubleboundeddichotomouschoice questions

Figure2.Theaggregatedemandcurveforhealthinsurance
80 70 60 50 40 30 20 10 0 0 20 40 60 80 100 120 140 First bid/person/month in NAD

Aprobitmodelisestimatedtoexaminetheimpactofvariousfactorsthataffectthe willingness of respondentto join the proposed insurance scheme. The results are presentedinTable1.Thesecondcolumnshowsthecoefficientofvariousvariables thataffectthedecisionofhouseholdstojointhehealthinsuranceplan.Theyoung are more likely to join the scheme than the elderly. The income variable is statistically insignificant in explaining the decision of respondents to join the scheme.However,educationplaysastatisticallysignificantroleindeterminingthe decision of respondents to join the scheme. The marginal coefficient of the educationvariableshowsthataonegradeincreaseinthehighestgradecompleted will increase the probability of respondents to join the proposed scheme by 0.6 percent, ceteris paribus. Most of the health status indicator variables show the absenceofadverseselectionprobleminjoiningthescheme.Mostofthecoefficients of the occupation variables show no statistically significant differences across differentoccupations.

Percentage of respondents WTP the 1st bid

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 Table1.Determinantsofwillingnesstojoin Variables Sex(1male0female) Age Agesquare Highestgradecompleted Householdsize Lnincome(Measuredbypercapitaaggregate consumption) Jobcategory Unemployed(Ref.) Officeworkers Laborers Selfemployed Othergroups HHgotaloan HHboughtincredit Generalhealthstatus Excellent/verygood(Ref) Average Poor/bad Numberofmemberssick Weightloss Constant Observations PseudoR2 Waldchi2(16)(prob>chi2)

Coefficients 0.141 0.038** 0.001*** 0.032* 0.005 0.035 0.116 0.033 0.035 0.262* 0.062 0.175 0.325** 0.518* 0.028 0.467*** 1.274*

Robust standard error 0.094 0.019 0.000 0.019 0.014 0.060 0.198 0.198 0.116 0.146 0.205 0.134 0.134 0.284 0.091 0.163 0.729

1400 0.056 59.61(0.000)

***p<0.01,**p<0.05,*p<0.1 Wealsoexaminedtheimpactofvariouscovariatesonthewillingnessofhouseholds to pay and for the proposed health insurance using the double bounded model. Beforethedoubleboundedmodelisestimated,weexamineifthereisanyselection biasproblem.EstimatingWTPvaluesfromrespondentswhoareonlywillingtojoin theschemecanleadtobiasedandinconsistentresultsduetotwodifferentreasons (EklfandKarlsson,1997).First,theresponsecanbebiasedifrespondentswhoare willing to join the scheme have different observable characteristics compared to those who are willing to join (Whitehead, 1994; Mattsson and Li, 1994). Second,

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even if there is no significant difference in observed characteristics, the WTP can differ due to unobservable characteristics of respondents (Heckman, 1979). To address this problem we estimate a sample selection model 16 . In the first stage, a univariate(selection)modelisestimatedinthefullsampleandinthesecondstagea bivariate model is estimated in the selected sample in the way suggested by Heckman (1979). The Inverse Mills Ratio (IMR) variables in the bivariate probit models are not statistically significant (not reported) in both the first and second equationsindicatingtheabsenceofsampleselectionproblem.Therefore,themodel isestimatedwithouttheIMRvariableandtheresultsarepresentedinTable2. Table2.WTPfornewlowcosthealthinsuranceestimationresultsfor bivariateprobitmodel Variables Willingtopaythe1st Willingtopaythe2nd bid bid Coefficient Std.err. Coefficient Std.err. Firstbid 0.013*** 0.002 Secondbid 0.013*** 0.001 Sex(male=1,female=0) 0.158** 0.079 0.310*** 0.078 Age 0.041** 0.019 0.066*** 0.019 Agesquare 0.038 0.024 0.076*** 0.024 Highestgradecompleted 0.102*** 0.017 0.057*** 0.016 Householdsize 0.019 0.013 0.020 0.013 Lnpercapitaconsumption 0.136*** 0.052 0.172*** 0.052 Jobcategory Unemployed(Ref.) Officeworkers 0.107 0.151 0.201 0.150 Selfemployed 0.176 0.171 0.124 0.169 Laborers 0.068 0.103 0.113 0.101 Othergroups 0.481*** 0.111 0.283*** 0.108 HHgotaloan 0.029 0.170 0.212 0.172 HHboughtincredit 0.174* 0.105 0.058 0.104 Generalhealthstatus Excellent/verygood(Ref) Average 0.193 0.14 0.092 0.136 Poor/bad 0.017 0.243 0.159 0.222 Numberofmemberssick 0.149* 0.081 0.004 0.076 Weightloss 0.031 0.2 0.082 0.185 Constant 1.027 0.666 0.608 0.653 athrho 0.266*** (0.064) Rho 0.26
The log-likelihood function of the sample selection model in the case of double bounded model can be found in Yoo and Yang (2001).
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Likelihoodratiotestofrho=0: Observations WaldChi2 Prob>chi2

(0.059) chi2(1)=18.0473Prob>chi2=0.0000 1236 307.97 0.0000

Standarderrorsinparentheses Significantat10%;**significantat5%;***significantat1% Coefficientsandstandarderrorsmultipliedby100forthesakeofpresentation. Outof1,518respondentwhoarewillingtojoin,wehavecompletesocioeconomicinformation onlyfor1,236respondents. Source:ComputedfromtheRepublicofNamibiaOkambilimbiliSurvey(2006).

Before interpreting the results of Table 2, let us see the appropriateness of our specification.Thevalueof(thecorrelationcoefficientbetweentheerrortermsof the first and second response equations) is large and statistically significant. As showninthetable,thelikelihoodratiotestof=0isrejectedatlessthan1percent level. This indicates that the second decision is endogenous in the system and estimating individual probit models will give inefficient results. This supports our bivariate probit specification. The Wald statistics also reveal that the variables included in the model are jointly statistically significant in explaining the WTP decisionofrespondents. Inadditiontothebidlevels,allvariablesthataffecttheWTJdecisionofrespondents are included in the WTP equations. The results show that male respondents are morewillingtopayboththefirstandsecondbidscomparedtofemalerespondents. Youngrespondentsweremorewillingtopayboththefirstandthesecondbidsas shown by the negative and positive coefficients of the age and the age square variables.Educationpositivelyaffectstheprobabilityofrespondentstoacceptboth the first and the second bids. Family size and job category variables do not have significant impact on WTP decisions. Most of the health status and health expenditureindicatorvariablesdonotaffectthedecisionofrespondentstopaythe first and the second bids. Income has a positive, consistent, and statistically significant impact on the willingness of households to pay both the first and the secondhigherbids.Aonepercentincreaseinpercapitaincomeislikelytoincrease the probability respondents to pay the first and the second higher bid by 5.5 percent. Finally, as expected, the coefficients of the bid values take the expected negativesignsandarehighlysignificant. One of the basic objectives of CV studies is to provide a summary measure of the WTPofrespondents.Aswehaveseenabove,inthediscretechoicemodels,thistask maynotbestraightforwardsincetheamountrespondentsarewillingtopayisnot directly observed. We estimate the mean and standard deviation of WTP of

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respondentsusingthemethodsuggestedbyHanemann(1984)andtheresultsare presentedinTable3 17 . Table3:MeanWTPforLowCostHealthInsurancebyincome quintile WTP/person/month WTPas (inNAD) percentageof Mean Standard meanpercapita consumption Incomequintile deviation Quintile1 Quintile2 Quintile3 Quintile4 Quintile5 Total 32.85 34.60 50.80 65.50 84.45 47.50 11.88 9.37 9.42 18.68 30.16 5.83 11.40 5.92 5.24 3.65 1.22 2.25

Source:CalculationsandEstimationsbasedonRepublicofNamibiaOkambilimbili Survey(2008). Note:AttimeofstudyexchangerateequaledNAD7.20toUS$1.00.

On average, an uninsured individual in the Greater Windhoek Area of Namibia is WTP47.50NADorUS$6.60percapitapermonth.Thisshowsthatrespondentsare WTPonaverage2.25%percentoftheirincomefortheproposedhealthinsurance. AscanbeseeninTable3,significantvariationisobservedinthemeanWTPvalues across different income quintiles. The richest quintile is willing to pay more than double that of the poorest quintile. As income increase, the mean WTP value also increases. However, despite the mean WTP value of respondents in the poorest quintile is small (NAD 33/person/month), they are willing to pay more than 11 percentoftheirincome.Respondentsintherichestquintilearewillingtopayonly 1.22percentoftheirincome.

Discussion
Indevelopingcountries,resourcesforhealthcarearescarceandalargeproportion ofthoseresourcesareprivate.Donoraidshouldbedesignedinsuchawaythatthe privateresourcesstayinthehealthsystem,ratherthanbeingcrowdedout.Private voluntary health insurance may provide a mechanism to achieve this. Potentially, the demand for suitably designed lowcost private health insurance is large, even amongthepoor.Inthisstudyadoubleboundeddichotomouschoiceformatisused toexaminethewillingnessofhouseholdstopayforanewlowcosthealthinsurance product. This elicitation method gives results which are consistent with economic
The mean WTP is computed by restricting the coefficients of the biprobit model to be equal across the two equations.
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theoryasshowninFigure2.Thedownwardslopinggraphclearlyshowsaninverse relationshipbetweenpriceanddemand.Italsoshowsthattheinsuranceschemeis anormalgoodandthepremium(bidvalue)isakeyvariableinaffectingdemand. Thefindingsofthestudydemonstratethat87percentoftheuninsuredrespondents arewillingtojointheproposedhealthinsuranceschemeandmorethanhalfofthem are willing to pay either the first (NAD 61/person/month) or the second (NAD 59/person/month) proposed bids. Those respondents who are not willing to pay thefirstandthesecondbidsarewillingtopayontheaverageNAD21perperson permonth(halfofthesecondlowerbid).Thisimpliesthataninsurancepremiumof around NAD 20 per person per month would guarantee coverage of around two thirdoftherespondentswhoarewillingtojoin. We also examine factors that affect the willingness of respondents to join the proposed insurance product. More educated and young respondents show more interest in joining the scheme. Interestingly, however, income and health status indicatorvariablesdonotaffectthedecisionofrespondentstojointhescheme.This impliesthatifboththepoorandthericharemorelikelytojointheproposedhealth plantherewouldbenoseriousadverseselectionproblem. A bivariate probit model is also estimated to examine factors that affect the willingness of respondents to pay for the proposed health insurance scheme, and theirmeanwillingnesstopay.Theresultsindicatethatmaleandyoungrespondents aremorelikelytosayyesforboththefirstandthesecondbidscomparedtofemale and old respondents. Education does not only affect the decision of respondent to jointheproposedhealthinsuranceschemebutalsoaffectstheWTPdecisions.The marginal coefficient of the education variable shows that, ceteris paribus, a one gradeincreaseinthehighestlevelofeducationachievedincreasestheprobabilityof acceptingthefirstbidby10.5percentandthesecondbidby5.6percent.Mostofthe health status indicator variables such as health expenditure, general health status, weightloss,etc.,donotaffectthedecisionofrespondentstopayneitherthefirstnor thesecondbids.Theseresultsagainindicatethattheproblemofadverseselection maynotbeaseriousconcerninthesampledarea. Despite the fact that income does not have a statistically significant impact on the WTJ decision of respondents, it has a statistically significant impact on the WTP decisions.Toexaminetheimpactofincomeonthewillingnessofrespondentstopay thefirstandsecondbids,weplotitsimpactontheprobabilityofrespondentstosay yes,yes,yes,no,no,yes,andno,notothefirst,secondhigher,andsecondlower bids.TheresultsareshowninFigure3.Asthefiguresclearlyshow,relativelyrich respondentsaremorelikelytosayyestoboththefirstandthesecondhigherbids compared to poor respondents. Income also positively affects the probability respondents to say yes to first and no to the second bids. Generally, the probability of rich respondents to say no to either the first or the second bids is relatively low as shown by the negative slope of the fitted values in the last two figures.

15

Figure3.PredictedimpactofincomeontheWTPdecisionofrespondents

Pr(wtp 1st bid=1,wtp 2nd higher bid=1)

.8 P r(D 1 0 = 1 ) 0 .1 .2 .3 .4 .5 6 8 10 12 Ln Income Fitted values 14 P r(D 1 1 = 1 ) .2 .4 .6

Pr(wtp 1st bid=1,wtp 2nd higher bid=0)

10 12 Ln Income Fitted values

14

Pr(wtp 1st bid=0,wtp 2nd lower bid=1)

.6 P r(D 0 0 = 1 ) .2 .4 .6 .8 6 8 10 12 Ln Income Fitted values 14 0 P r(D 0 1 = 1 ) .2 .4 1

Pr(wtp 1st bid=0,wtp 2nd lower bid=0)

10 12 Ln Income Fitted values

14

Source:CalculationsandEstimationsbasedonRepublicofNamibiaOkambilimbiliSurvey(2008).

Consistentwithourhypothesisanddescriptiveresults(seeFigure2),thecoefficient ofthebidvaluesarenegativeandstatisticallysignificant.Themarginalcoefficients ofthebidvaluesshowsthataoneNADperpersonpermonthincreaseinthefirst bidvalueislikelytodecreasetheprobabilityofrespondentstoacceptthefirstoffer by 1.30 percent, ceteris paribus. All other things remaining constant, a one NAD increase in the second bid value also decreases the probability of respondents to acceptthesecondbidby1.27percent.

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We also computed the mean WTP of respondents for the proposed lowcost insuranceproduct.OntheaveragerespondentsarewillingtopaynearlyNAD48per personpermonth(NAD576orUS$80perpersonpermonth)orslightlymorethan 2 percent of their income. Respondents in the poorest quintile are willing to pay NAD 33 per member per month, which is equivalent to more than 11 percent of their income. Respondents in the richest quintile are willing to pay NAD 85 per memberpermonth(1.22percentoftheirincome). Toconclude,thesetypesoflowcosthealthinsuranceschemescanbewellaccepted in developing countries like Namibia and have the potential to protect the poor againstthenegativefinancialshockofhavingtofacelargehealthcareexpenditures. AsshownbytherelativelyhighmeanWTPvalues,suchschemesmayalsoprovidea reliable and sustainable income flow for health care providers and guarantee reliable and easy access to high quality care. In addition to this, in the absence of prevailed preferences and insurance market data in developing countries, policy makers, health care providers, and insurance companies can benefit greatly from input based on the type of willingnesstopay evaluations demonstrated in this study.

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Appendix1.Thebidstructure
TABLEOFRANDOMIZEDHEALTHINSURANCE MONTHLYAMOUNTS NUMBEROFPERSONSCOVERED

GroupI

1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

A 117 202 272 341 410 479 549 618 687 757 A 83 143 192 241 290 339 388 437 486 535

B 94 162 217 273 328 384 439 494 550 605 B 50 86 115 145 174 203 233 262 292 321

C 211 364 489 613 738 863 988 1,112 1,237 1,362

CIRCLEHHNUMBERANDNO.OFPERSONSCOVERED

01 05 09 13 17 21

Group II

TABLEOFRANDOMIZEDHEALTHINSURANCE MONTHLYAMOUNTS NUMBEROFPERSONSCOVERED

LASTTWODIGITSOFTHE HOUSEHOLDNUMBER

LASTTWODIGITSOFTHE HOUSEHOLDNUMBER

SECONDHIGHERBID

SECONDHIGHERBID

SECONDLOWERBID

GroupIII

03 07 11 15 19 23

59 101 136 170 205 240 274 309 344 378 A 42 72 96 121 145 170 194 219 243 268 59 B

23 40 54 68 82 96 110 124 137 151 C 8 14 19 24 29 34 39 44 49 54 23

82 142 190 239 287 336 384 433 481 530 A 50 86 115 145 174 203 233 262 292 321 82

59 101 136 170 205 240 274 309 344 378

GroupIV

C 133 229 307 386 464 542 621 699 778 856

02 06 10 14 18 22

04 08 12 16 20 24

42 72 96 121 145 170 194 219 243 268 59

SECONDLOWERBID

INITIALBID

INITIALBID

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Appendix2.Descriptivestatisticsofbasicindicators Variable Mean(%) Sex(male=1,female=0) Age Highestgradecompleted Householdsize Percapitaconsumption Jobcategory(%) Unemployed(Ref.) Officeworkers Selfemployed Laborers Othergroups HHgotaloan HHboughtincredit Generalhealthstatus(%) Excellent/verygood(Ref) Average Poor/bad Numberofmemberssick Weightloss(1yes,0 otherwise) Completesamplesize 0.452 34 9 5.134 17244 60.74 13.23 3.09 13.04 9.90 0.06 0.19

Standard deviation 0.498 11.846 2.750 3.684 63258.790

0.231 0.395

90.59 7.34 2.07 0.21 0.02 1235

0.553 0.127

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