Demand for Health Insurance: A Study on the Feasibility of Health Insurance Schemes for Community Based Groups in Addis Ababa City

Abstract

This study analyzes households’ willingness to pay (WTP) for a new health insurance scheme. The data was collected from a random sample of 210 households from three community-based organizations, locally known as iddirs. These iddirs were purposively selected from areas that are believed to constitute largely of the penurious and also informally employed groups of the society in the capital Addis Ababa. The study employs a contingent valuation procedure to elicit data on households’ WTP. Both descriptive statistics and econometric estimation techniques are applied to analyze the data. According to the descriptive analyses about 98% of the sample households are willing to pay a certain amount of money to the proposed health insurance scheme. These households on average are willing to pay a premium amounting to 11.56 birr per month to the scheme. However, the likelihood that households are willing to pay and the amount they will pay shows significant variation among the sample households. In this respect, Tobit regression analysis indicated that household income, household size, education, health status and formal employment, all have a positive and significant effect on a household’s WTP. The paper suggests the introduction of health insurance by the Ethiopian government and its provision to the urban poor so as to meet their demand for health insurance.

Key words: Willingness to pay; Contingent valuation; Community Based Health Insurance; Low-income earning groups.