Das Do 2023 JEP Health Insurance LMICs-review

Journal of Economic Perspectives—Volume 37, Number 2—Spring 2023—Pages 123–152
The Prices in the Crises: What We Are

Learning from 20 Years of Health
Insurance in Low- and Middle-Income
Countries
Jishnu Das and Quy-Toan Do
B
y the late 1990s, health systems in most low-income countries provided
subsidized care at public clinics funded through general taxation. Although
there was wide variation in how often public clinics were used for primary care
(ranging from very little in India to almost exclusively in many Latin American coun-
tries), for hospitalization and inpatient care the public sector consistently accounted
for 50–80 percent of health care provision across multiple countries, a share that has
remained remarkably stable over time (World Health Organization 2020; Grépin
2016). Perhaps surprisingly, this wide availability of subsidized public clinics coex-
isted with high out-of-pocket expenditures. Indeed, two decades ago out-of-pocket
expenses amounted to 50 percent of total health expenditure in low-income coun-
tries, with households frequently unable to insure themselves against large health
shocks and the related loss of income (Gertler and Gruber 2002). Summarizing the
situation at the turn of the twenty-first century, Pauly et al. (2006) observed: “Virtually
every developing country with a functioning government uses publicly-funded and
managed systems for third-party payment for medical care. . . . [but] in many devel-
oping countries, this system has failed to provide adequate financial protection for its
citizens and adequate access to care. The gap shows up in the form of private out-of-
pocket spending for services that ‘universal insurance’ cannot or does not supply.”
■ Jishnu Das is Professor, McCourt School of Public Policy & Walsh School of Foreign Service,
Georgetown University, Washington, DC. He is also a Faculty Research Associate, National
Bureau of Economic Research, Cambridge, Massachusetts. Quy-Toan Do is a Lead Econo-
mist, Development Research Group, World Bank, Washington, DC. Their email addresses are
Jishnu.das@georgetown.edu and qdo@worldbank.org.
For supplementary materials such as appendices, datasets, and author disclosure statements, see the
article page at https://doi.org/10.1257/jep.37.2.123.
124 Journal of Economic Perspectives
In response, governments in many low- and middle-income countries have

moved towards some form of dedicated health insurance, which they believed
would provide the instruments needed to address problems related to the financing
and provision of healthcare. Insurance premiums would provide a dedicated source
of funding for healthcare, while simultaneously reducing out-of-pocket expendi-
tures and providing much-needed financial protection for citizens. Furthermore,
governments postulated that insurance products would improve health outcomes
by altering the behavior of patients and providers. By subsidizing the cost of
visiting private sector providers, health insurance would expand patient choice and
increase visits to participating private sector clinics, where the quality was thought
to be higher. By redesigning how public and private providers were reimbursed,
health insurance would also increase the incentives to provide higher-quality care,
especially in the public sector. The transition in how providers were reimbursed,
referred to as the shift from passive to “strategic purchasing” in the health literature
(World Health Organization 2000; Hanson et al. 2019), would then improve the
quality and cost effectiveness of health service delivery (Londoño and Frenk 1997).
In this essay, we evaluate the experience with health insurance in low-
and middle-income countries over the last 20 years, where health insurance is
provided by a specific scheme that is additional to the subsidized care available
through public clinics. We start by documenting the transition to health insur-
ance, drawing on data from 100 Demographic and Health Surveys conducted
across 62 countries between 1989 and 2019. Using country-level examples and a
review of existing evaluations, we describe how governments have structured their
health insurance schemes and how these schemes have functioned in practice.
Our conclusion from this review is that health insurance schemes have success-
fully increased financial protection and utilization, but there is little evidence
(yet) of improvements in health outcomes. Further, there has been little demand
for health insurance among households, even when it is heavily subsidized.
We then discuss—and rule out—the possibility that health insurance has not
improved health outcomes because of systemic constraints in the delivery of health-
care. Instead, we believe that health insurance triggered behavioral responses
among providers that have systematically undermined the objectives of insurance
schemes. These responses have led to prices that are higher than those mandated
under the program, an increase in unnecessary care, and new sources of uncer-
tainty as insured patients do not know whether the insurance will be honored or
whether they will be correctly treated.
While such behavioral responses—sometimes called “provider moral hazard”—
are also a concern in high-income countries, health insurance schemes in these
countries typically work with a variety of institutions that seek to curb these forms
of physician excess, including review boards, professional norms, public reporting,
and punitive enforcement through courts.1 However, nonprice incentive systems in
1
For examples of provider moral hazard in a US context, see Gruber and Owings (1996) on the use of
C-sections, Baker (2010) on how doctors prescribe more magnetic resonance imaging after buying an
Jishnu Das and Quy-Toan Do 125
low- and middle-income countries are poorly developed and have not been used
successfully in combination with health insurance schemes, which can create social
tensions in which patients take matters into their own hands; as one example, there
were an estimated 17,000 attacks and agitations against doctors in China in 2010
alone (Tussing, Wang, and Wang 2014)
We conclude that the first 20 years of experience with health insurance
schemes in low- and middle-income countries shows that it is impossible to divorce
the quality of care that health insurance offers from the financial protection it
affords. Insurance is realized as a subsidy to patients when they seek care, and the
flip side of that subsidy is a payment to providers. But providers respond to the
financial incentives created by how those payments are structured and therefore the
value of the insurance is critically tied to the nature of these responses. The lack of
nonprice mechanisms combined with the difficulties of structuring price incentives
for appropriate care imply that health insurance could prove to be a very expensive
tool for improving financial protection that actually lowers the quality of health care
in low- and middle-income countries.
How are Health Insurance Schemes Structured in Low- and Middle-

Income Countries?
We start by mapping the overall coverage of health insurance across low- and
middle-income countries using data from the Demographic and Health Surveys,
which are nationally representative health-related surveys that target women aged
15–49 and their children under the age of five in low- and middle-income countries,
with a traditional focus on maternal and child health. Questions on health insur-
ance coverage were sporadically included in the late 1990s for some countries, like
Bolivia, Jordan, Peru, and Turkey, and a standard question (v481) was introduced
in 2003. Of 426 surveys ever fielded, 100 surveys in 62 countries have health insur-
ance data available as of April 2022. We compiled all the health insurance questions
to create a single database of just under five million observations, representative of
countries with a total population of about 3.5 billion people (for additional details,
see online Appendix A). When combined with OECD health insurance data (Scheil-
Adlung 2014), our DHS-based data allow us to present a unified picture of health
insurance coverage and its correlates across multiple countries, adding to previous
studies that have focused on single or small groups of countries (for example, Amu
et al. 2022; Barasa et al. 2021; Wang, Temsah, and Mallick 2014; National Popula-
tion Commission and ICF International 2014).
For low- and middle-income countries where data were available from either
the Demographic and Health Surveys or the OECD, close to half of the total popu-
lation now reports that they have health insurance, as shown in Table 1. Coverage
MRI machine for their clinic, and Clemens and Gottlieb (2014) on how treatment choices depend on
reimbursement rates.
Table 1
Health Insurance Coverage across Countries and over Time
First Latest First Latest
measured measured measured measured
coverage rate coverage rate coverage rate coverage rate
Country (%), Year (%), Year Country (%), Year (%), Year
(1) (2) (3) (1) (2) (3)
Afghanistan 0.11 (2015) Kenya 7.15 (2008) 7.21 (2014)
Albania 23.31 (2008) 29.88 (2017) Kyrgyzstan 88.28 (2012)
Angola 5.32 (2015) Lesotho 8.74 (2009) 1.65 (2014)
Armenia 0.76 (2010) 7.82 (2015) Liberia 3.58 (2013) 3.69 (2019)
Azerbaijan 1.17 (2006) Madagascar 1.88 (2008)
Bangladesh 0.18 (2017) Malawi 1.37 (2015)
Benin 1.4 (2011) 1.09 (2017) Maldives 4.86 (2016)
Bolivia 20.07 (1989) 26.57 (2008) Mali 2.51 (2012) 4.76 (2018)
Burkina Faso 0.51 (2010) Moldova 54.91 (2005)
Burundi 13.63 (2010) 23.18 (2016) Mozambique 3.08 (2011) 2.97 (2015)
Cambodia 13.61 (2010) 14.57 (2014) Myanmar 0.96 (2015)
Cameroon 1.64 (2011) 2.17 (2018) Namibia 15.77 (2006) 17.73 (2013)
Chad 0.3 (2014) Niger 3.58 (2012)
Comoros 5.4 (2012) Nigeria 1.79 (2008) 2.67 (2018)
Congo 2.01 (2011) Pakistan 2.57 (2017)
Congo, Democratic Rep. 4.13 (2013) Papua New Guinea 3.93 (2016)
Cote d’Ivoire 2.82 (2011) Peru 26.57 (2003) 58.05 (2012)
Dominican Republic 56.5 (2013) Rwanda 41.04 (2005) 83.22 (2019)
Egypt 11.78 (2005) 9.88 (2014) Sao Tome and Principe 1.8 (2008)
Ethiopia 0.89 (2010) 4.2 (2016) Senegal 5.11 (2010) 5.7 (2016)
Gabon 54.03 (2012) Sierra Leone 2.12 (2008) 3.47 (2019)
Gambia 2.13 (2013) 2.17 (2019) South Africa 6.31 (2016)
Ghana 41.7 (2008) 65.95 (2014) Swaziland 5.31 (2006)
Guam 12.5 (2014) Tanzania 4.9 (2009) 8.13 (2015)
Guinea 1.44 (2018) Togo 4.55 (2013)
Guyana 16.33 (2009) Turkey 56.23 (1998) 88.58 (2013)
Haiti 1.59 (2005) 2.24 (2016) Uganda 1.61 (2011) 1.29 (2016)
Honduras 8.19 (2005) 7.66 (2011) Yemen 1.77 (2013)
India 5.9 (2005) 17.86 (2015) Zambia 7.16 (2007) 1.86 (2018)
Indonesia 40.71 (2012) 61.36 (2017) Zimbabwe 8.77 (2005) 12.21 (2015)
Jordan 70.32 (2017)
Source: See online Appendix B for documentation of the data used for this analysis.
Notes: The table reports health insurance coverage rates using the Demographic and Health Surveys
dataset for surveys from the year 2000 or later. When data is available for only one year, no information
is reported in column 2. Countries in bold are those referred to in the text.
is near-universal for several countries in East and Central Asia and Latin America
and middling in India and some sub-Saharan countries (Namibia, Rwanda, and
Ghana). Other countries in sub-Saharan Africa and South Asia are still below
5 percent coverage. Interestingly, most of the growth in health insurance coverage
is relatively recent: in Rwanda, an increase from 41 percent in 2005 to 83 percent by
2019; in Turkey, from 56 percent in 1998 to 88 percent in 2013; and in Indonesia,
from 40 percent in 2012 to 61 percent in 2017. In historical context, this expansion
is quite rapid, given that European countries typically took 60–70 years to expand
health insurance coverage from 10 to 20 percent around the turn of the twentieth
century to above 75 percent in 1975 (Tanzi and Schuknecht 2000; Ortiz-Ospina and
Roser 2017).
Lessons from 20 Years of Health Insurance in Low- and Middle-Income Countries 127
The architecture of these health insurance schemes encompasses two features:

how this coverage is financed and how providers are reimbursed.2 We document
that health insurance schemes that have emerged in low- and middle-income coun-
tries during the last two decades are similar when it comes to financing, but differ
substantially in how they compensate physicians.
Financing
To provide a concrete example, we anchor our discussion around the federal
health insurance scheme that India introduced in 2008, called the Rashtriya
Swasthya Bima Yojana or RSBY (“National Health Insurance Scheme”). Before
2008, public health care for Indians was free or subsidized, but most people still
chose to visit private sector facilities where, lacking health insurance, they were
charged market-determined prices. Consequently, out-of-pocket expenditures
were the main source of health financing, and rising healthcare costs were identi-
fied as a key factor driving households into debt. The government subsequently
introduced the RSBY, under which households below the poverty line could enroll
into the scheme by paying the nominal amount of ₹30 in Indian rupees (about
$0.40 in US dollars) for a maximum of five members per household (Palacios,
Das, and Sun 2011). Once enrolled, they could use their insurance for a range
of inpatient services free of charge in participating private or public hospitals up
to an annual limit of ₹30,000 per household, subsequently increased to ₹500,000
($6,500) in 2018, when the scheme was also renamed PM-JAY (The Prime Minis-
ter’s People’s Health Scheme). To administer the scheme, every participating
state solicited bids annually from insurance companies in the form of a per-house-
hold premium, and winning companies were paid according to the number of
households that they enrolled by the federal and state governments in a 75/25
cost-sharing agreement. The per-household premium that emerged through
the bidding process ranged from ₹500 to ₹600 ($6.60 to $8) in the initial years.
Insurance companies contracted independently with participating hospitals and
reimbursed them using administrative prices that were determined by the state.
India’s RSBY program is similar to health insurance schemes that have emerged
in other low- and middle-income countries in two important ways. First, by the time
RSBY was implemented, it was clear from the experience of other countries as
well as pilot insurance schemes within India that the demand for unsubsidized
2
A third feature of health insurance schemes is what is covered and to what extent. A rich tradition
going back to Spence and Zeckhauser (1971) discusses the optimal design of coverage schemes to trade-
off incentives against insurance. A large empirical literature in the United States exploits features of
these schemes to better understand the impact of deductibles and coverage limits. While the analysis of
coverage determination and its consequences constitutes a research agenda on its own, we do not pursue
this line of inquiry here beyond acknowledging the wide heterogeneity across countries in coverage
scale and scope. This partly reflects the state of the literature—we have not found studies that examine
the consequences of coverage schemes on the outcomes we study, which reflects the early stages of
health insurance in these countries. It also reflects our understanding that the questions of financing
and reimbursement discussed here would remain relevant if policymakers were to consider expanding
the scope of insurance coverage.
insurance among poor households was very low. Therefore, India’s government
subsidized the premium from the very beginning using funds collected through a
variety of direct and indirect taxes. This reliance on taxes rather than premiums
to fund health insurance is now common in most low- and middle-income coun-
tries. For instance, in 1993, Colombia’s Law 100 led to universal health insurance
financed through mandatory payroll contributions in a contributory regime and
general taxation in a subsidized regime, with the beneficiaries in the latter identi-
fied through a proxy-means test (Escobar et al. 2009). Ghana’s health insurance
scheme is financed through a combination of value-added taxes (70 percent) and
social security taxes (23 percent), with premiums accounting for another 5 percent
(Blanchet, Fink, and Osei-Akoto 2012). In Vietnam, the government tried at first
to collect funds through premiums, but has since moved to financing based on
general taxation or mandatory contributions (Somanathan et al. 2014). Kenya,
where the National Health Insurance Fund established in 1966 was designed to
provide coverage for formal sector workers financed by mandatory contributions,
is now moving towards expanding coverage through a health insurance subsidy
program for the poor (Barasa et al. 2018). In fact, across low- and middle-income
countries, voluntary purchases of private health insurance in 2012 covered less
than 1 percent of the population in 49 of 138 countries and 1–5 percent in another
39 countries (Drechsler and Jütting 2005; Pettigrew and Mathauer 2016).3
Second, India’s RSBY was not new insurance. Instead, it was layered on top of
existing access to free or highly subsidized care through public clinics, themselves
financed through general taxation. This new layer was designed to improve health-
care by reducing the cost of using private facilities, where quality was believed to be
higher, and by moving to a system where money follows the patient—with the hope
of providing incentives for quality improvements in both public and private health
facilities. Both of these features—health insurance layered on existing networks of
subsidized public care and health insurance used as a mechanism for improving
quality—are again common across low- and middle-income countries. Of course,
the relative importance of these two mechanisms depends on the context. In Latin
America, for instance, the share of the private sector is smaller, and insurance
schemes tried to address differences in quality between clinics run by the social
3
The ubiquity of public subsidies for financing raises the important question of whether coverage differs
by household characteristics. Household wealth and education are two widely-used markers of socioeco-
nomic status in low- and middle-income countries, the former measured by an index of asset ownership
and the latter by completion of different levels of schooling. We estimated correlations of insurance
coverage and wealth, as well as insurance coverage and education for 61 countries using the latest avail-
able round of Demographic and Health Surveys data, and plot these coefficients in online Appendix
Figure A1, with data and details available in the line index. In most countries, health insurance coverage
is regressive, with higher coverage for those with greater education and more wealth. This pattern reflects
both household demand for insurance and policy choices. In some countries, particularly those in Latin
America, health insurance has always been available for government employees and was then extended
to those in the formal sector with mandatory contributions, which explains the regressive pattern. In
contrast, India’s health insurance scheme is targeted to those below the poverty line, and the correlation
of coverage with education and wealth is close to zero in the DHS data.
security system (accessible only to those employed in the public sector) and those
run by the public health system, rather than between private and public care.
Provider Reimbursements
Interestingly, the convergence that we see across countries in how health insur-
ance is financed breaks down when we look at how providers are reimbursed. The
RESYST (“Resilient and Responsive health systems”) study from the London School
of Hygiene and Tropical Medicine documents 19 different purchasing mechanisms
in 10 low- and middle-income countries (Hanson et al. 2019). These include, among
other things, fee-for-service (the hospital is reimbursed for each service given as part
of the stay), capitation (physicians agree to a fixed amount per patient under their
care for a given duration), diagnostic-related groups (bundle all goods and services
for one hospitalization episode into a single price depending on patient charac-
teristics), line-item budgeting (health ministry pays for each item according to a
budget), and global budgeting (a hospital signs a contract for a sum over a period
to cater to the population in its catchment), used either by themselves or in combi-
nations. Prices may be set through individual negotiations, group negotiations or
administratively. Administrative prices themselves vary in their degree of sophistica-
tion, ranging from average accounting costs of procedures to more sophisticated,
risk-adjusted marginal cost pricing.4
Reimbursement rates often seem to involve political processes and large discon-
tinuous jumps. In Kenya, prices paid to hospitals for surgeries were revised upward
by 50 to 100 percent in some cases in 2016 (Barasa et al. 2018). In Vietnam, hospitals
are reimbursed according to a predetermined fee-for-service schedule. Tien et. al
(2011) note that, at the time of their article, the price of services on the original list
had not been updated since 1995, although an additional 992 services were added in
2006. In Ecuador, prices have not been updated since 2012, even in nominal terms.
In Colombia, prices for essential services are determined administratively rather
than by the market, but the government is required to cover procedures outside
the essential group if mandated by a court. From 2005 to 2010, the reimbursements
for these additional procedures increased from 0.1 to 2.4 trillion pesos (about
$607 million in US dollars), leading to a financial emergency in 2011, following
which “reference pricing” was introduced for medicines to reduce the fiscal burden
(Romero 2014; Inter-American Development Bank 2015; Giedion and Uribe 2009).
Thus, while the paths that countries have taken to reach this point have been
very different, low- and middle-income countries have now arrived at a point where
most subsidize their health insurance schemes and recognize that reimbursements
for healthcare providers are integral to the scheme, even if there is no consensus
on how these reimbursements should be structured. We stress that multiple features
of these schemes are different from what economists typically think of as a text-
book insurance system. First, these schemes complement preexisting and heavily
4
Barber, Lorenzoni, and Ong (2019) document similar variation in remuneration schemes for providers
in their study of OECD countries, along with Thailand and Malaysia.
subsidized public systems, which paradoxically are not referred to as health insurance
even though the financing is identical. Second, an important implication of the fact
that the premiums are now publicly financed is that the issue of adverse selection
in health insurance is less relevant. Private insurance companies must make positive
profits from the insurance product and thus are not viable if only the sickest patients
subscribe. Such concerns do not apply with publicly subsidized insurance, as the
government can always cover any financing gap in the insurance scheme through
taxes. In the Indian RSBY for instance, for a given premium, the scheme is cheaper
for the government when only the sickest patients participate. Third, the health
insurance schemes often cover preventive care, which is not risky and therefore is
unrelated to the “insurance” part of health insurance. These differences lead us to
believe that it may be better to think of health insurance schemes in low- and middle-
income countries as contracting mechanisms that modify reimbursement schemes for
public providers and expand existing networks to private providers. Nevertheless, in
the interest of maintaining current convention, we continue to label these schemes as
“health insurance.” Our caution is that intuition about “insurance” can be misleading
in this context, to the extent that it leads us down the path of demand-side failures
and adverse selection rather than supply-side questions of contracting and provider
incentives.
How Have Health Insurance Schemes Performed?
To study the effects of the expansion in health insurance, we now review the
research that examines the link between health insurance coverage, financial protec-
tion, utilization, and ultimately health outcomes. We then discuss whether these
findings are consistent with what we know of the demand for health insurance among
households.
The main methodological challenge that studies of health insurance face is that
the demand for health insurance and the benefits that accrue to households are likely
to be correlated with underlying health status: patients with higher expected demand
for health care should also be the ones most likely to take-up the insurance product,
use it, and benefit from it (Wagstaff et al. 2016; Thornton 2021; Spenkuch 2012). The
studies that we discuss all take exceptional care in addressing this fundamental iden-
tification challenge, either by using randomized experiments that incentivize take-up
or by exploiting natural experiments that generate variation in eligibility across space
and over time. As specific examples, King et al. (2009) choose a random sample of
communities in Mexico to implement a health insurance scheme a year earlier than
expected, Fink et al. (2013) randomize the rollout of a community-based social health
insurance scheme in Burkina-Faso, and Sood and Wagner (2018) leverage a stag-
gered roll-out of a social insurance scheme in the Indian state of Karnataka.5
5
We exclude several observational studies that use difference-in-differences approaches, as recent work
highlights the importance of weighting and functional form in such studies and the literature precedes
Financial Protection
Does health insurance achieve its primary stated goal of reducing household
out-of-pocket expenses? The answer is an unambiguous yes: out-of-pocket healthcare
expenditures decline with health insurance in low- and middle-income countries, as
does the variability of such expenditures. This robust result holds across studies that
use different measures of financial protection and across countries where insurance
products differ in terms of coverage and benefits.
Bauhoff, Hotchkiss, and Smith (2011) document that Georgia’s Medical Insur-
ance Program for the poor led to a 50 percent decline in out-of-pocket expenses
over a 30-day recall period, which the authors attribute to a 20 percent lower likeli-
hood of incurring any health expenditure at all. The declines are quite remarkable
as the program does not cover the cost of medicines, which account for 50 percent
of total health care expenditures. Powell-Jackson et al. (2014) report a 27 percent
decline in total health expenditures for the insured in Ghana, again using a four-
week recall period. The insurance scheme in Ghana covers basic care (preventive
care and medicines) as well as secondary care procedures, all of which add to the
free care already available in public facilities. King et al. (2009) study Seguro Popular,
Mexico’s universal coverage insurance scheme, which covers 266 health interven-
tions, 312 medicines, and a federal fund for catastrophic health expenditures for
certain diseases. Using a ten-month recall period, the authors find an 85 percent
decline in out-of-pocket expenditures and a 75 percent lower probability of cata-
strophic expenditures, the latter defined as cases where out-of-pocket expenditures
exceeded 30 percent of a subsistence income level.
Defining catastrophic expenditures as a fraction of household income rather
than a standard subsistence income level yields similar results. Celhay et al. (2019)
report a 15 percent decline in the likelihood of such events in the Philippines when
catastrophic events are defined as those where expenditures exceeded 10 percent
of income; Fink et al. (2013) find a 30 percent decreased likelihood when the cutoff
is defined at 5 percent in Burkina Faso. Yet another metric, adopted by Levine, Poli-
meni, and Ramage (2016), focuses on absolute thresholds of annual expenditures
above US$250 or more than US$100 paid for a single event as well as instances
of indebtedness due to health care payment obligations. They find a 20 percent
these econometric developments, making it harder for us to assess the validity of the estimates (Roth
et al. 2022). Unfortunately, this includes results concerning India’s RSBY program and China’s New
Cooperative Medical Scheme. As these are important programs and cover close to half of the world’s
population in low- and middle-income countries, we mention the findings from relevant studies here.
For India, Karan, Yip, and Mahal (2017) show that the RSBY had zero impact on financial protection, a
null result that has also been shown for state-level samples from the state of Chattisgarh (Garg, Bebarta,
and Tripathi 2020) and for the three southern India states of Andhra Pradesh, Karnataka, and Tamil
Nadu (Garg, Chowdhury, and Sundararaman 2019). For China, several studies have looked at the impact
of the New Cooperative Medical Scheme that provides health insurance to the rural population. There
is little consensus in this literature and results seem sensitive to the exact specification, controls, and esti-
mation techniques used. As Liang et al. (2012) highlight in their systematic review: “[I]ndividual studies
indicated that NCMS had positive, negative, or no effect on health outcomes and/or the incidence of
catastrophic health payments.”
decline in the likelihood of catastrophic out-of-pocket health expenditures. The

authors attribute this to the free health services and drugs made available by the
insurance scheme at public facilities, suggesting that the public sector is used as
an alternative to the private sector for large expenditures, especially when these
involve taking on debt.
Utilization and Health Outcomes

Access to health insurance also seems to increase utilization for a variety
of health services. Evidence of increased utilization has been documented for
preventive care (in Colombia, Camacho and Conover 2013; in India, Malani et
al. 2021; in Peru, Bernal, Carpio, and Klein 2017), outpatient visits for acute or
chronic diseases (in Nigeria, Fitzpatrick and Thornton 2019), and inpatient visits
including surgeries (in India, Sood and Wagner 2018; Malani et al. 2021).6 Consis-
tent with the idea that health insurance can lead patients to choose higher-quality
facilities, Thornton et al.’s (2010) study in Nicaragua and Levine, Polimeni, and
Ramage’s (2016) study in Cambodia do find that patients substituted away from
public and non-networked private facilities towards networked hospitals. Moreover,
Powell-Jackson et al. (2014), using data from Ghana, Sood and Wagner (2018) from
India, and Celhay et al. (2019) from Argentina document that these kinds of substi-
tutions can increase the quality of care. No study to date looks at the impact of
health insurance using facility-specific measures of quality; thus, it is possible that
the studies that do not find any change in aggregate utilization are still missing
changes on this margin.
In contrast to the widespread evidence of increased health care utilization,
the impacts of health insurance on health outcomes have been mixed at best.
Even when a comprehensive benefit package is offered, as in Mexico with the
Seguro Popular program, King et al. (2009) fail to detect differences in health
outcomes as measured by nine different self-assessments.7 This basic result of
zero to small impact resonates across a number of studies. Levine, Polimeni, and
Ramage (2016) report zero impacts from Cambodia; Bauhoff, Hotchkiss, and
Smith (2011) report zero results from Georgia; and Fink et al. (2013) report the
same from Burkina Faso. Similarly, Powell-Jackson et al. (2014) do not find any
health impacts in Ghana, and Miller, Pinto, and Vera-Hernández (2013) did not
find significant effects of insurance on health outcomes in Colombia, whether
these are self-reported health assessments, symptoms (like fever, cough, diarrhea,
6
A few studies do not find that health insurance increases utilization: King et al. (2009) in a study of
Mexico; Raza et al. (2016) in rural India; and Bauhoff, Hotchkiss, and Smith (2011) in Georgia. Of
course, these findings would also explain why health insurance in these countries does not improve
health outcomes.
7
King et al.’s (2009) assessment came ten months after the inception of Seguro Popular, which may be
too short a time period for impacts on health outcomes to emerge. Although their study cannot exploit
the original randomization, Cohen and Dechezleprêtre (2022) find that three to four years after the
insurance scheme was introduced, mortality rates appear to have reduced.
or blood pressure), or summary outcomes such as weight (including low birth-

weight), height, and mortality.
In the handful of studies that do find a positive causal impact on health
outcomes, it is usually associated with the increased utilization of higher quality,
especially preventive care. Sood and Wagner (2018) investigate the impact of a
social health insurance program for the poor in the Indian state of Karnataka and
find that it reduced mortality from heart conditions and cancer; they argue that
insurance coverage led patients to seek early diagnosis. Likewise, in Camacho and
Conover (2013), Balsa and Triunfo (2021), and Celhay et al. (2019), health insur-
ance schemes in Colombia, Uruguay, and Mexico, respectively, are found to lead to
reduced infant mortality, which is mostly attributable to increased use of preventive
prenatal care.
The Demand for Health Insurance

The result that health insurance increases utilization but not outcomes is trou-
bling, because it suggests that spending is increasing without anything to show for
it. That drastic conclusion, though, must be modified both because the statistical
power to detect impacts for relatively rare outcomes like mortality requires very
large sample sizes that are often unavailable, and because studies to date may not
have measured the health outcomes that improved, such as mental health. An alter-
native approach is to focus on demand and ask whether households are willing to
purchase health insurance in the first place. Interestingly, and to the extent that
demand is an appropriate measure of value in this case, households appear not to
value health insurance very highly.
Several studies recover the demand for health insurance by experimentally
varying financial and nonfinancial incentives for enrollment. The studies show
that insurance take-up is low in the first place and large financial subsidies are
required to increase enrollments significantly. Only in studies that offer govern-
ment health insurance for free and on a continuing basis do we see significant
increases in enrollments. However, even these steep discounts fail to achieve
100 percent enrollment rates, and enrollment drops as soon as subsidies cease.
In an early example, Thornton et al. (2010) conducted a randomized controlled
trial in Nicaragua that incentivizes informal sector workers to enroll in the Nica-
raguan Social Security Institute’s health insurance program, varying information
on the program, the premium subsidy, and the type of insurance sales agents.
Thornton et al. (2010) reported a 20 percent increase in enrollment when the
premium is fully subsidized, followed by a 90 percent dropout rate at the end of
the subsidy period. In the Philippines, Capuno et al. (2016) encouraged enroll-
ment in a social health insurance program by experimentally varying information
on the scheme, a financial incentive (up to a 50 percent premium subsidy), and
administrative assistance. They find a 3 percentage-point increase in enrollment
when a subsidy of 50 percent was offered, from a baseline rate of 8 percent. Subse-
quent interventions have been similar in spirit, with some variations. For instance,
Banerjee et al. (2021) offer full and partial subsidies for insurance premiums in
Indonesia to examine whether household behavior changes when the price is a

small positive amount rather than an exact zero. They find that a full premium
subsidy increases enrollment to 19 percent from a baseline of 8 percent with reten-
tion rates 4.6 and 3.9 percentage points higher in the subsidized group at three
and eight months after the subsidies ended. Other studies find similar results:
Levine, Polimeni, and Ramage (2016) in rural Cambodia; Wagstaff et al. (2016) for
informal sector workers in Vietnam; and Banerjee, Duflo, and Hornbeck (2014)
among microfinance borrowers in India.
All these studies suggest that households do not value health insurance
highly, which is consistent with the lack of evidence on the link between health
insurance and health outcomes. The wrinkle that remains is that this finding is
not automatically consistent with the evidence that health insurance improves
financial protection. If other constraints hold back demand, it becomes difficult
to interpret the price-elasticity as a measure of value. Poor information is a first
possibility, but interventions that include an information component typically find
little impact on health insurance take-up (Capuno et al. 2016; Wagstaff et al. 2016;
Thornton et al. 2010; Banerjee et al. 2021; Malani et al. 2021; Das et al. 2016).
A second possibility is that there are nonprice barriers to take-up, such as admin-
istrative burdens arising from eligibility requirements. Interventions that offer
administrative assistance with enrolling in health insurance indeed find that take-up
increases, with an effect size equivalent to that of premium subsidies for six months
(Capuno et al. 2016; Thornton et al. 2010; Banerjee et al. 2021; Malani et al. 2021).
This effect is sufficiently large that a simple explanation rooted in the opportunity
cost of time is unlikely. As of yet, no consensus has emerged on the extent to which
low demand reflects low expected value rather than administrative burdens; this
remains very much at the frontier of the research on health insurance.
Why Has Health Insurance Not Improved Health Outcomes: Supply

Constraints
The most obvious explanation for why health insurance has not improved
health outcomes is that there is little capacity for quality improvement to begin
with; for example, doctors are overworked, do not have the right equipment, and
may not have the right skills. In this section we will show that, in contrast to this
view—and despite severe deficits in quality—there is in fact considerable room for
improvement. In the next section, we then consider what we view as a more likely
possibility—that government health insurance in low- and middle-income countries
has had an adverse effect on provider incentives, ultimately undermining the objec-
tives of these schemes in a way that can worsen the quality of healthcare.
Quality of Health Care in Low- and Middle-Income Countries

The quality of health care in low- and middle-income countries can be very poor.
Das et al. (2012) present one example of how standardized patients—that is, healthy
people recruited from the local community and then extensively trained to present
the same case to multiple providers—are treated in the Indian state of Madhya
Pradesh when they present with crushing chest pain the night before and extreme
anxiety.8 After appropriate questioning, the doctor should refer this patient to a
hospital, suggest an electrocardiogram, and give the patient aspirin. Das et al. (2012)
show that the average interaction for this standardized patient lasts 3.5 minutes, with
doctors asking three questions and completing 1.5 examinations. Das et al. (2012)
suggest that a minimally correct treatment would require the doctor to complete at
least one of these actions, but would not penalize the doctor for additional unneces-
sary tests and medicines, even if they are contraindicated or harmful. Standardized
patients in their study receive such a minimally correct treatment in 31.2 percent of
interactions and unnecessary or harmful treatment in 55.2 percent.
Figure 1 shows that the significant deficits in care uncovered in Das et al. (2012)
hold for multiple conditions and study sites. For each study, the top bar shows the
share of patients receiving the minimally correct treatment, and the bottom bar
the share who received an antibiotic, which was inappropriate for all the condi-
tions represented in the figure and is therefore a measure of an unnecessary
and potentially harmful treatment. Across these studies, 40–90 percent of stan-
dardized patients are incorrectly treated, which means that they are treated for
entirely the wrong thing —for instance, asthma or pneumonia instead of a heart
attack. More stringent definitions that penalize the use of unnecessary medicines
or require providers to administer all the required components of the treatment
reduce the fraction correctly treated to less than 5 percent (and for many condi-
tions 0–1 percent). Banerjee et al. (2023) use data from five standardized patient
studies to show that one consequence of these deficits in care is that 70–85 percent
of all out-of-pocket expenditures can be attributed to incorrect care or overtreat-
ment. Interestingly, 52–78 percent of this avoidable medical expenditure is due
to misdiagnosis and incorrect care rather than over treatment based on a correct
diagnosis—a conclusion that holds equally for healthcare providers in the salaried
public sector and in the fee-for-service private sector.
8
Like “audit studies” in the economics of discrimination, the standardized patient approach is
frequently regarded as the gold standard for measuring quality, at least for primary outpatient care.
It allows researchers to abstract from omitted variable bias due to unobserved patient- and case-mix
across providers and mitigates the possibility that health care providers act differently when they know
they are being observed (Leonard and Masatu 2006). Most importantly, researchers can compare the
physician’s treatment with evidence-based clinical guidelines and evaluate the accuracy of treatment
decisions even in cases where the condition is misdiagnosed, a task that is difficult to accomplish even
with well-maintained patient charts as researchers do not know the true underlying illness of the patient.
Studies across multiple countries and tracer conditions have shown that standardized patients can be
deployed in large samples, leading to valid and reliable results with low detection rates and provider
behavior consistent with the belief that they were dealing with a real patient. See Das et al. (2012) and
Kwan et al. (2019).
Figure 1
Correct Management Proportions across Standardized Patient Studies
Correct treatment
Birbhum 24%
Multiple Inappropriate antibiotics
Das et al. (2016) 33%
China 36%
Multiple
Banerjee et al. (2022) 51%
Delhi 11%
Tuberculosis
Das et al. (2015) 54%
India-Bihar Diarrhea and 6%
Mohanan et al. (2015) pneumonia 85%
Indonesia
TB and URI 69%
Wulandari et al. (2021)
Kenya (2)
Multiple 60%
Kwan (2020)
Kenya 52%
Multiple
Daniels et al. (2017) 55%
Madhya Pradesh 30%
Multiple
Das et al. (2012) 35%
Mumbai 29%
Tuberculosis
Kwan et al. (2018) 57%
Nigeria 55%
Tuberculosis
Rosapep et al. (2022) 50%
Patna 31%
Tuberculosis
Kwan et al. (2018) 68%
Senegal
Tuberculosis 61%
Kovacs et al. (2022)
South Africa TB and 63%
Boffa et al. (2021) TB-HIV 76%
Tanzania 37%
Multiple
King et al. (2021) 63%
0 25 50 75 100
Percent
Source: Data sources listed in online Appendix C.

Notes: This figure shows the average share of standardized patients in each of 14 study sites who either (1)
received at least minimal correct treatment according to study definitions; or (2) received an unnecessary
antibiotic. Correct treatment was generally defined as at least one medication or test that would manage
the case or advance an accurate diagnosis, regardless of whether it was completed and regardless of
whether additional unnecessary or harmful tests or medications were also offered. Antibiotics are
inappropriate in all cases, with the exception of diarrhea in a child (generally not measured) and a
standard HRZE anti-TB antibiotic regime in a diagnosed TB case (all other antibiotics are still considered
inappropriate). Bar labels show proportions of interactions with the indicated management outcome.
Capacity Constraints
Three types of capacity constraints have been evoked to explain these defi-
cits: overcrowding, lack of equipment, and lack of adequate medical training. We
consider each in turn.
Figure 2
Outpatient Capacity Utilization in 12 Low- and Middle-Income Countries
100
Share of providers seeing X patients daily
c.d.f. of India
75 c.d.f. of Kenya
c.d.f. of Madagascar
c.d.f. of Malawi
(percent)
c.d.f. of Mozambique
50 c.d.f. of Niger
c.d.f. of Nigeria
c.d.f. of Sierra Leone
c.d.f. of Tanzania
25 c.d.f. of Togo
c.d.f. of Uganda
c.d.f. of Vietnam
0
X =1 2 5 10 20 40 80 160
Source: The data are from Das et al. (2022) for India, World Bank and Health Strategy and Policy Institute
(2016) for Vietnam, and Daniels, Das, and Gatti (2022) for the sub-Saharan African countries.
Notes: This figure shows the cumulative density functions (CDF) of health care provider daily outpatient
caseloads based on facility-reported data from several studies. In each case, the per-provider-day caseload
is calculated by taking the daily facility caseload and dividing by the number of providers practicing at
each clinic. The CDF plots illustrate the percentage of providers in each site who are estimated to see at
least the number of patients indicated on the horizontal axis each day.
Overcrowding. The World Health Organization (2016) raises frequent alarms

about doctor shortages resulting in an excessive workload for health care providers
in low- and middle-income countries. We are sympathetic to this explanation for
certain conditions and contexts. For instance, Andrew and Vera-Hernández (2022)
show that in areas with low capacity in India, demand-side incentives for women to
deliver in health facilities increased infant mortality because the resulting congestion
worsened outcomes for women with high-risk pregnancies. But taken as a whole,
the utilization and capacity numbers simply do not add up to a picture of massive
overcrowding.
Figure 2 shows the cumulative density functions of outpatient capacity utiliza-
tion among providers in twelve low- and middle-income countries. In the country
with the highest capacity utilization (Vietnam), the bottom 50 percent of providers
in the patient-load distribution still see fewer than ten patients each day. In five of
twelve countries, half of all providers see fewer than five patients per working day;
in Nigeria, 75 percent of healthcare providers see fewer than two patients a day. In
none of these countries do more than 25 percent of healthcare providers work an
estimated full day. It would take unreasonably high estimates of the amount of time
spent with each patient, or of the number of administrative and inpatient duties
providers also must do, to reduce estimates of idle outpatient capacity significantly.
Not surprisingly, studies that have directly examined the link between patient load
and quality of care all find zero impact (Mæstad, Torsvik, and Aakvik 2010; Kovacs
and Lagarde 2022; Kwan et al. 2019).9 Indeed, given the overall data on staffing and
patient loads, the real challenge here would be to explain how there could possibly
be a causal impact of patient load when even the busiest doctors spend less than
half a day (and most spend less than a couple of hours in the day) seeing patients.
Lack of equipment. A second potential explanation is the lack of infrastructure
in the form of adequate facilities or medical equipment. Clearly, certain types of
equipment are necessary to perform key medical functions—doctors cannot listen
to a patient’s heartbeat without a stethoscope. However, there have been substan-
tial improvements in infrastructure and the availability of medical equipment in
the past two decades, and it is now increasingly clear that while structural improve-
ments are necessary for better quality care, they are far from sufficient. Multiple
studies find that the correlation between the availability of medical equipment/
infrastructure and quality of care is either zero or strikingly low across a range
of quality measurements and in different settings. For example, Leslie, Sun, and
Kruk (2017) find very low correlations between observed clinical quality with real
patients and facility infrastructure for family planning, antenatal care, sick-child-
care, and labor and delivery for Haiti and seven countries in sub-Saharan Africa.
Similarly, Bedoya et al. (2017) report low correlations for patient safety and Das et
al. (2012) for clinical quality in a standardized patient study.
Lack of medical knowledge. The third potential explanation for the poor
quality of care is that healthcare providers do not have the knowledge they need
to diagnose accurately and thus to treat the conditions presented to them. This
explanation seems the most powerful of the three, given that studies consistently
find a positive association between a doctor’s quality of clinical practice and their
knowledge of the case. Early contributions showed that knowing what questions
to ask and examinations to perform increased the likelihood of completing these
items in the clinic by 20–25 percent (Das and Hammer 2007; Das and Hammer
2014; Leonard, Masatu, and Vialou 2007; Das, Hammer, and Leonard 2008).
Banerjee et al. (2023) combined tests of knowledge with standardized patients
to show that knowing how to correctly manage a patient increased the likeli-
hood of actually doing so by 22–40 percent, depending on the sample and after
accounting for measurement error in measures of knowledge. At the level of
associations, increasing medical knowledge improves clinical performance, but
a coefficient significantly below one implies that only about one-third to one-half
of improvements in clinical knowledge are then reflected in improved clinical
9
To address the problem that demand is likely correlated with quality, Mæstad, Torsvik, and Aakvik
(2010) use the size of the catchment area in Tanzania as an instrument for the clinics’ caseloads, while
Kovacs and Lagarde (2022) and Kwan et al. (2019) combine standardized patients with within-facility
variation in caseload.
practice. Thus, medical knowledge may not be the binding constraint on quality
of clinical care. In contrast, provider behavior conditional on medical knowledge
might bethis constraint—an observation we turn to next.
Provider Behavior and Market Allocation

Instead of capacity constraints in terms of patient load, poor equipment, or low
clinical knowledge, two sources of inefficiency stand out as the leading explanations
for poor health care quality in low- and middle-income countries. These are that
doctors do not do the right thing despite knowing what to do and that the distribu-
tion of doctors and patterns of provider choice are such that patients do not visit the
doctors who could provide them with better quality care.
The know-do gap. Das, Hammer, and Leonard (2008) first asked whether doctors
practiced at their knowledge frontier and found that they did not, a phenomenon
they labelled the “know-do” gap. In Figure 3, we present the accumulated evidence
from more recent studies where researchers have sent a standardized patient and
later assessed the provider’s knowledge of the same case. Every study (except for
that of pneumonia in Bihar) finds large know-do gaps ranging from 5 to 80 percent,
confirming the original findings of Das, Hammer, and Leonard (2008) across
multiple countries and tracer conditions. Providers who know how to correctly treat
a patient are less likely to do so in practice, and providers who (correctly) say they
would avoid prescribing antibiotics (as an example of unnecessary care) are more
likely to do so in practice. The know-do gap increases with medical knowledge,
implying that closing the gap would offer an opportunity to significantly improve
quality without investing in expensive training.
As economists would predict, the know-do gap is larger in the salaried public
sector, where price incentives to provide effort are minimal. Indeed, the gaps in
the public health care sector in India are so large that healthcare providers without
formal training in the private sector provided similar care to fully trained doctors
in the public sector, and the same doctor working in a private clinic is 42 percent
more likely to treat a standardized patient correctly compared to when they are
working in their public clinic (Das et al. 2016). Despite the importance of incen-
tives, whether pay-for-performance can reduce the know-do gap remains unclear;
while there were promising early results from Rwanda (Basinga et al. 2011), these
have failed to replicate in a broader set of countries (for an overview of 59 studies,
see Diaconu et al. 2021). In addition, research into the “know-do” gap is new, with
open questions regarding the relative importance of financial incentives versus
patient expectations (Currie, Lin, and Meng 2014), doctors’ beliefs about patients
(Banerjee et al. 2021), and behavioral biases among physicians (Groopman 2007;
Mullainathan and Obermeyer 2022; Kovacs, Lagarde, and Cairns 2020) in contrib-
uting to this gap.
Patient-doctor mismatch. A second subtle source of inefficiency arises from the
misallocation of patients to doctors. If there is considerable variation in doctor
quality, but a low correlation between market share and quality, then the average
quality received by patients will increase by inducing more visits to higher-quality
Figure 3
Know-Do Gaps between Medical Vignettes and Standardized Patients
Vignette knowledge
4%
Diarrhea SP performance
Bihar 0%
Mohanan et al. (2015) 9%
Pneumonia
13%
Birbhum 44%
Multiple
Banerjee et al. (2020) 24%
Avoid 70%
China antibiotics 58%
Sylvia et al. (2017) 76%
TB
32%
Delhi 77%
TB
Das et al. (2015) 10%
Kenya 75%
Multiple
Kwan (2020) 63%
Madhya Pradesh 70%

Multiple
Das et al. (2012) 30%
51%
Multiple
Senegal 36%
Kovacs et al. (2020) 81%
TB
68%
55%
HIV
South Africa 37%
Boffa et al. (2021) 80%
TB
43%
Uganda 70%
Neonatal
Rokicki et al. (2021) 45%
0 25 50 75 100
Percent
Source: Data sources listed in online Appendix C.

Note: This figure illustrates “know-do gaps” estimated from several studies that used both medical
vignettes and standardized patients with similar (or the same) samples of providers and conditions.
“Vignette knowledge” is defined as the share of providers who said they would offer the patient in the
indicated case scenario at least minimal correct treatment according to study definitions, regardless of
what else they did (in the “Avoid antibiotics” case it is the percentage of providers who said they would
not give antibiotics). “SP performance” is the proportion of providers who did the same when presented
with an actual standardized patient with the same case scenario.
providers. This possibility has been explored by Daniels, Das, and Gatti (2022) for
eleven sub-Saharan African countries and by Das et al. (2022) for Indian states
using tests of medical knowledge (which understates the variation in clinical
practice).
Two results stand out in the research on this area. First, there is indeed
considerable variation in medical knowledge as measured by clinical vignettes. A
general pattern is that a one standard deviation increase in a standardized index
of medical knowledge increases the likelihood of knowing how to correctly treat
any given vignette scenario by 10 percentage points. Thus, the difference in the
general knowledge of correct treatment between a provider at the 5th percentile
of the quality distribution and the 95th percentile is 40 percentage points. About
80 percent of this variation in competence is within-country or within-state. Second,
the correlation between workload and clinical competence is weak. Across eleven
countries in sub-Saharan Africa, against a mean of seven patients per provider per
day, higher-knowledge providers have higher caseloads only in Tanzania (two addi-
tional patients per standard deviation in competence) and in Kenya and Sierra
Leone (one additional patient). In Mozambique and Malawi, each additional stan-
dard deviation of provider competence is associated with two fewer patients per day.
The remaining countries all exhibit effectively no relationship between provider
knowledge and outpatient caseload.
Daniels, Das, and Gatti (2022) use data from sub-Saharan Africa and India to
present a mechanical calculation of the potential gains from relocating doctors,
whereby the highest quality doctors are posted to the busiest clinics, the second-
highest to the second-busiest and so on, always ensuring that the relocations are
within country (or state in India) and sector. They find that patient-weighted quality
could increase by 0.75 standard deviations in the sub-Saharan Africa sample and
by 0.5 standard deviations in the Indian sample, which corresponds to increases
between 5 and 8 percentage points in the likelihood of correctly treating cases. To
put the potential gains in context, they are similar to the difference in correct treat-
ment rates for providers with and without formal training in India (3–7 percentage
points) and statistically indistinguishable from a range of successful and well-
powered behavioral interventions reported in Rowe et al.’s (2018) systematic review
of quality improvement interventions in low- and middle-income countries.10
In conclusion, despite the considerable evidence that quality of health care is
poor in these countries, the evidence that supply constraints are the fundamental
barrier to improved health outcomes is less conclusive. Quality deficits reflect
providers practicing below the knowledge frontier and allocations that result in
high quality providers being underused, to the extent that they may be seeing only
two to three patients a day.11
10
For high-income countries, Chandra et al. (2016), show that reallocation towards higher-quality
hospitals was responsible for one-third of the decline in heart attack mortality in the United States, and
Dahlstrand (2022) shows that telemedicine allows doctors who are skilled at triaging to see more patients
at high risk of avoidable hospitalizations in Sweden, leading to a 20 percent reduction in avoidable
hospitalizations.
11
Sparse data on hospital quality has restricted our focus to primary care, but the data that do exist suggest
similar patterns. In terms of quality deficits, post-operative infections are two to three times higher in
low- and middle-income countries compared to OECD countries (GlobalSurg collaborative) and, a short
while after a cataract operation, patients were legally blind in 36 percent of cases (Singh, Garner, and
Why Has Health Insurance Not Improved Health Outcomes:

Provider Responses?
Instead of limited capacity, we believe that the keys to understanding the

uneven performance of health insurance in low- and middle-income countries
is the provider side of health care.12 Two sorts of problems arise. The first set of
problems, like fraud and dispute, arise in all insurance schemes (not just health)
because there are multiple transactions, each of which comes with its own poten-
tial problem. Patients must be diagnosed and treated correctly; hospitals need to
submit claims and be reimbursed. Hospitals may charge false bills or overcharge for
what was provided, and insurance companies may then refuse to honor the claim.
In a cascading effect, insurance payment delays may lead to hospitals denying care
to patients, lowering the value of insurance in the first place.
A second set of problems arises because, while physicians and hospitals may
correctly charge for what they actually do, they might not perform or recommend
the appropriate procedure, despite knowing what that is: the know-do gap. Health
insurance alters the relative price of different procedures, potentially influencing
provider behavior in a way that could result in lower health care quality.
Insurance Fraud and Administration

Health insurance fraud ranges from 3 to 15 percent of program costs in
OECD countries and 3 to 10 percent in the United States (Morris 2009). It probably
accounts for a larger fraction of program costs in low- and middle-income countries,
as periodic reports (Ngetich 2021; Begue 2018) and audits suggest, but program-
wide estimates are difficult to come by. Most countries have not made their health
insurance claims data public.
Two problems that may be more salient in low- and middle-income coun-
tries are denial of care and “surprise” or double billing. Denial of care refers
to a situation where insurance cards are not honored at participating hospitals.
Dercon, Gunning, and Zeitlin (2019), who were the first to study this issue, show
that denial of care is frequent in their setting in Kenya. Denial of care has two
important implications. First, the decision to participate in the health insur-
ance scheme depends on trust in the insurance system. Second, because denial
introduces a new risk of the insurance not being honored, the overall risk with
insurance may be higher than without—there is a state of the world in which the
Floyd 2000). In terms of quality variation, a study of hospital maternity wards within the single geographic
area of Nairobi, Kenya, found wide variations (Siam et al. 2019). And, in terms of low capacity utilization,
Colombia’s National Hospitals Study in 1986 showed that the occupancy rate was 74.8 percent among
Level 3 hospitals, but only 40.4 percent among Level 1 hospitals (Glassman et al. 2009).
12
A stated objective of health insurance schemes in some countries was to allow patients to choose
higher-quality providers, often in the private sector. We have documented above the existing evidence
on substitution towards the private sector. However, in the light of substantial variation in quality within
public and private providers, any claim on reallocation towards higher-quality providers requires facility-
based measures of quality that are so far absent in the literature.
individual has paid the premium without receiving compensation when the bad
state occurs. If individuals are forward-looking, this possible outcome implies that
less risk-averse individuals will be more likely to take the insurance. By combining
lab measures of trust and risk aversion with take-up decisions for an insurance
product, Dercon, Gunning, and Zeitlin (2019) show that both predictions hold in
their data.
Surprise or double billing is a situation whereby healthcare providers charge
the insurance company the reimbursable amount, but then levy additional (and
illegal) top-ups from patients. Rather than providing an administratively mandated
price for a procedure, insurance reimbursements are then better regarded
as a partial subsidy for the service, with pricing determined both through the
usual considerations of supply and demand elasticities, but also possibly price
discrimination and the special characteristics of health care markets. Again,
there are no nation-level studies of double billing, because it requires surveys
of insurance beneficiaries in addition to claims data. One of the few studies
to combine administrative data and household surveys is Jain (2021), who
studies double billing in the Indian state of Rajasthan. We will discuss this study
further below.
Health Insurance and the Know-Do Gap

Do health insurance schemes affect the know-do gap? We are not aware of
any studies to date in low- and middle-income countries that causally link health
insurance to supply responses among providers, at least for inpatient care, where
the bulk of the money is spent. It is difficult to use administrative claims data to
come to any conclusion regarding quality in these settings; for discussion, see
Morton et al. (2016) on how claims data are recorded. Nevertheless, we will offer an
educated guess based on a collage of evidence from newspaper reports, audits, and
related studies on how doctors respond to price changes in low- and middle-income
countries.
As one example, media reports and field investigations from the Indian states
of Andhra Pradesh, Gujarat, and Chattisgarh, shortly after the introduction of the
national health insurance program RSBY, showed that many women were getting
hysterectomies based on rudimentary diagnostics and for conditions such as heavy
menstrual bleeding that could be medically managed. As reported by Averill and
Dransfield (2013):
A study by a non-profit organization, AP Mahila Samatha Society, in 2009 of

over 1,000 women in Andhra Pradesh found an increase of 20 percent in
hysterectomy cases since July 2008. They also reported that doctors had told
30 percent of the women that they would die if they did not have the opera-
tion. A few months ago, the Chhattisgarh State Health Department initiated
action against 22 nursing homes, which were carrying out hysterectomies with-
out legitimate medical reasons in order to claim money from the national
health insurance scheme, Rashtriya Swasthya Bima Yojana (RSBY).
Subsequent research indeed confirms much higher rates of hysterectomies in the

states of Gujarat, Bihar, and Andhra Pradesh, but also cautions that causal claims
on the impact of insurance are harder to establish (Desai, Sinha, and Mahal 2011;
Desai et al. 2019).
Cataract surgery seems to be another area with sharp increases after the arrival
of health insurance. For instance, Rana (2017) reports that in the Indian state of
West Bengal:
Private facilities were found to concentrate mainly on easy-to-handle services,

like cataract surgery, and commission agents recruited patients for this sur-
gery, often without indication that the patient even needed the surgery. From
the 1,090 procedures performed under RSBY, I found that the actual treat-
ment done by the private hospitals occurred not to provide health care for
patients, but instead to profit for health care facilities. It also involved a huge
informational asymmetry, as it seemed to be impossible for the patient to keep
track of as to which of the 1,090 procedures covered by RSBY was performed
on him or her.
Jain (2021) is the first study from a low- or middle-income country that looks at
hospital pricing and coding systematically in the context of an insurance scheme.
She combines administrative claims data with a large household survey for the
Indian state of Rajasthan, which allows her to better understand how hospitals react
to changes in administrative prices. Without the household survey, for instance,
it would have been impossible to determine how much households are asked to
pay out-of-pocket because the practice is illegal and therefore off-the-books. She
finds that providers do not respect administrative prices: 41 percent of patients paid
for their treatment even though the care was supposed to be free and the average
payments were $35, which is a large sum for poor households and represents a
37 percent increase over the insurance reimbursement rate.
Moreover, hospitals react rapidly to adjustments in reimbursement rates.
Jain (2021) finds that with every additional ₹100 in reimbursements, prices charged
to patients decreased—but only by ₹55. She also uses an event-study to show that
when the relative reimbursement rates within a category change (for instance,
childbirth with and without an episiotomy), so do the reported procedures. Within
a week of a price change, a 1 percent increase in the reimbursement rate induced a
0.4 percent increase in its claim volume. She suggests that this reflects “up-coding,”
whereby health care providers submit codes for more expensive care than actually
provided, but a bigger worry, which she does not rule out, is that hospitals changed
the treatments that patients received.
Other studies provide systematic evidence on differences in quality of care by
insurance status, at least for outpatient care. One set of studies finds that when
patients get health insurance, their satisfaction remains the same or worsens
(Bauhoff, Hotchkiss, and Smith 2011; Robyn et al. 2013). Two studies have used
standardized patients, varying their insurance status across visits. In South Africa,
Sripathy (2020) shows that clinical effort is higher for standardized patients with
insurance, but the proportion correctly treated does not change and the extent of
unnecessary and more expensive treatments increases. In China, Lu (2014) finds a
similar result, with the greater use of unnecessary antibiotics for insured patients,
but only when doctors have a direct financial incentive associated with the purchase
of the medicine. In the Philippines, Gertler and Solon (2000) find that because
hospitals do not charge the mandated administrative price, insured patients pay
86 percent of what the uninsured would pay, sharply limiting any financial protec-
tion offered by the scheme. Finally, in Burkina Faso, Fink et al. (2013) find that in
the context of a capitation-based payment system, quality of care was significantly
lower for insured patients in participating health facilities compared to those who
were not insured.
These studies are not cherry-picked; they constitute the full corpus of what we
have found in the literature on provider behavior in response to insurance in low-
and middle-income countries. The existence of so few studies on this key subject is
itself a cause for concern. The fact that every study showed that provider behavior
undermined the objectives of the scheme and contributed to an increase in the
know-do gap is an even bigger worry.
Discussion and Conclusion
A considerable literature from low- and middle-income countries over the last
two decades highlights several noteworthy features of health insurance schemes.
In terms of the structure, governments have converged on using public subsidies
for health insurance premiums, which are now nominally priced or free in most
countries. On the other hand, governments have diverged in how they reimburse
providers for services, using a wide range of payment mechanisms that are frequently
revised and overhauled. In terms of outcomes, the schemes have provided finan-
cial protection with a decline in out-of-pocket expenditures, but these gains have
not translated into demand for unsubsidized health insurance. Furthermore, these
schemes tend to increase utilization without a concomitant improvement in health
outcomes. Finally, the lack of consistent improvements in outcomes is not because
of supply constraints in terms of workload, equipment, or knowledge, but instead
due to behavioral responses on the part of providers. Health insurance does not
systematically improve the quality of existing providers, and often seems to make it
worse. There is also little evidence to show that health insurance allows patients to
visit higher-quality providers.
The phenomena of low demand, poor health outcomes and adverse behavioral
responses, while seemingly disparate, are consistent with an underlying framework
that recognizes the special features of healthcare. While adverse selection is tradi-
tionally regarded as the defining unique feature of health insurance, once insurance
premiums are tax-funded, it is less of a concern. Instead, what is germane here is the
“credence good” aspect of healthcare, whereby physicians know what patients need,
but patients (and health insurance companies) do not. This informational asym-
metry leads to overtreatment if patients are treated for serious problems when their
condition is mild, and undertreatment or incorrect treatment if patients are treated
for a mild condition when their condition is serious. Both are inefficient, as insur-
ance pays for unnecessary treatment in the case of overtreatment, and patients lose
the surplus from good health in the case of undertreatment. Because physicians
enjoy considerable latitude in choosing the treatment, they may distort treatment
decisions in a manner that is beneficial to themselves rather than to the patient.
Theoretically, the dual inefficiencies of over- and undertreatment can be allevi-
ated through a combination of price and nonprice incentives. The latter include
enhancing altruistic motives, professionalism, peer reviews, and a host of norms and
principles. Interestingly, even in the absence of nonprice mechanisms, price incen-
tives alone can deliver efficient outcomes in markets with credence goods under
certain conditions (Dulleck and Kerschbamer 2006).13 In practice however, accurate
price-setting requires a high degree of transaction and physician-specific informa-
tion, which is unlikely to be available for administrators in any insurance scheme.
Consequently, we see countries adjusting their pricing mechanisms as providers
exploit deficiencies in existing purchasing agreements; we see little improvement
in health outcomes despite increased utilization because of increasing unnecessary
care (cataracts, hysterectomies) and a possible decline in the quality of each interac-
tion; and we see systematic changes in provider behavior that undermine the stated
objectives of the insurance scheme.
This idea—that health insurance affects both demand for and supply of quality
health care—is not new; for example, Arrow’s article on healthcare six decades ago
dealt with the doctor-patient relationship and the problem of trust or credence
(Arrow 1963). More recently, Newhouse (2014) considers the role of provider
moral hazard in explaining why the US-based Rand Health Insurance Experiment
showed that more insurance led to increased utilization, but not improved health
outcomes—a result similar to what we have documented here. Newhouse wrote:
“[T]he odds that a service at the margin helped them were probably offset by the
odds that it hurt them. I have felt more confidence in this explanation over time
as evidence of medical error and poor quality of care has piled up . . .” Indeed, our
review uncovered multiple papers that sought to explain why insurance does not
improve health outcomes by pointing to the poor administration of the scheme or
unexpected departures from what the scheme was supposed to do.
Moving forward, in terms of the research, future studies using demand-side
data can still be insightful for several open questions. Does financial protection
alone provide sufficient justification for expanding health insurance (Finkelstein,
13
What disciplines doctors in this case is physician-specific pricing that equalizes the markups from
different treatments. This is because posted prices reveal information about the doctors’ strategy: if costs
are known, patients correctly infer that a physician will always choose the treatment plan that offers a
higher profit. This predictability in turn implies that there is no further information asymmetry and
therefore no incentive for the doctor to distort her behavior in order to extract surplus from the patient.
Hendren, and Luttmer 2019)? Does low demand reflect an actuarial calculation or
administrative burdens or other costs, perhaps linked to behavioral issues? Does
health insurance lead to improved health outcomes in studies with sufficiently large
sample sizes and a broad set of indicators?
But while these questions are important, where we desperately need new
evidence is instead on the supply side of the market where the major failures are
concentrated. If our diagnosis of the problems of health insurance in low- and
middle-income countries is correct, the key questions are (1) whether the arrival of
health insurance allows households to visit higher-quality facilities and (2) whether
the arrival of health insurance increases the quality of clinical interactions among
existing providers. We have not found any studies that causally link health insurance
to objectively-measured higher-quality choices (as opposed to proxy measures, such
as using “private” or “public” as measures of quality) or document supply responses
to the arrival of health insurance. Providing this evidence is admittedly not easy;
for example, data on post-hospitalization outcomes requires teams to track hospital
users to their homes months after their procedure. Yet these two questions are
where we will likely see the largest gains in our understanding of how (and whether)
health insurance can improve the health of populations in low- and middle-income
countries.
We cannot separate health insurance from the quality of care, nor can we sepa-
rate quality of care from specific reimbursement mechanisms. Consequently, the
issue at heart is not whether government subsidies should be channeled through
health insurance premiums or direct subsidies to public facilities. Instead, the ques-
tion is what specific payment structures and nonprice mechanisms can alter provider
behavior and patient choice to improve quality under any administrative regime.
■ We dedicate this paper to the memory of our colleague and friend, Adam Wagstaff, whose
work on health insurance presaged many of the developments presented here. We wish he had
been around to read and argue about this article. We thank Benjamin Daniels and Samikshya
Siwakoti for exceptional research assistance. We thank Jessica Cohen, Stefan Dercon, Shanta
Devarajan, Günther Fink, Anne Fitzpatrick, Kara Hanson, Radhika Jain, Eeshani Kandpal,
Margaret McConnell, Anne Mills, Grant Miller, Aakash Mohpal, Manoj Mohanan, Timothy
Powell-Jackson, Edward Okeke, Rebecca Thornton, Marcos Vera-Hernandez, and Andrew
Zeitlin for early inputs. We especially thank Jeffrey Hammer for detailed comments on an
earlier draft. Timothy Taylor and the editors of this journal were instrumental in helping us
refine and tighten our arguments. We acknowledge funding from the World Bank’s Research
Support Budget, for project P178514. The findings, interpretations, and conclusions expressed
here are those of the authors and do not necessarily represent the views of the World Bank, its
executive directors, or the governments they represent.
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Journal of Economic Perspectives—Volume 37, Number 2—Spring 2023—Pages 123–152

The Prices in the Crises: What We Are

In response, governments in many low- and middle-income countries have

How are Health Insurance Schemes Structured in Low- and Middle-

The architecture of these health insurance schemes encompasses two features:

How Have Health Insurance Schemes Performed?

decline in the likelihood of catastrophic out-of-pocket health expenditures. The

Utilization and Health Outcomes

or blood pressure), or summary outcomes such as weight (including low birth-

The Demand for Health Insurance

Indonesia to examine whether household behavior changes when the price is a

Why Has Health Insurance Not Improved Health Outcomes: Supply

Quality of Health Care in Low- and Middle-Income Countries

Source: Data sources listed in online Appendix C.

Overcrowding. The World Health Organization (2016) raises frequent alarms

Provider Behavior and Market Allocation

Madhya Pradesh 70%

Source: Data sources listed in online Appendix C.

Why Has Health Insurance Not Improved Health Outcomes:

Instead of limited capacity, we believe that the keys to understanding the

Insurance Fraud and Administration

Health Insurance and the Know-Do Gap

A study by a non-profit organization, AP Mahila Samatha Society, in 2009 of

Subsequent research indeed confirms much higher rates of hysterectomies in the

Private facilities were found to concentrate mainly on easy-to-handle services,

Discussion and Conclusion

Expansion in Colombia, 1–13. New York: Inter-American Development Bank.

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