Delivering health insurance through informal financial groups: Evidence on moral hazard and adverse selection

Moral hazard and adverse selection are potential explanations for missing health insurance in low-income countries. In recent years, informal financial institutions have attempted to complete health insurance markets by offering micro health insurance (MHI). We evaluate an MHI offered through informal financial institutions (Self-Help Groups) in Maharashtra, India. Exploiting random assignment of when villages were offered the MHI, we do not find support for MHI increasing health care utilization. In contrast, we do find evidence for adverse selection: enrollees are significantly more likely than non-enrollees to report poor health prior to the introduction of MHI. This adverse selection persists even when the MHI is offered as a group insurance to Self-Help Groups, as opposed to individual insurance. Our results suggest that MHI offered through informal financial groups may not suffer from moral hazard, but does fall short of eliminating adverse selection.