From Awareness to Adverse Selection: Intra-Household Allocations of Health Insurance in Nigeria

Abstract

Micro health insurance is often family-based out of fear for adverse selection within households. This paper tests whether this concern is warranted, building on a unique insurance scheme in which households can opt to enroll individual family members instead of their entire family. The resulting variation in enrollment is used to test whether initial health affects who within the family is later enrolled in insurance. I show that first-time enrollment is subject to adverse selection on self-reported health, but a partnering health facility with incentives to attract a healthy risk pool fully eliminates such selective enrollment. By contrast, health measurements determine renewal but not first-time enrollment, consistent with the hypothesis that insurance coverage improves awareness of future health risks, exacerbating adverse selection over time. These findings imply that adverse selection poses a threat to individual-based program sustainability only via selective renewal.