Community based health insurance is an emerging and promising concept that has
attracted the attention of policy makers as it addresses health care challenges faced by the
poor. This paper discusses solutions to important incentive problems in micro-health
insurance schemes which threaten their sustainability. In particular, three issues explored
are : (i) if defining household as unit of insurance always mitigates adverse selection
problem; (ii) how ex ante moral hazard problem can be circumvented through group
insurance contract; and (iii) how to set incentives for scheme managers. Various public
policies are discussed that help to set appropriate incentives to better manage health
insurance schemes in low-income country environments.