Community based micro insurance has aroused much interest and hope in meeting health
care challenges facing the poor. In this paper we explore how institutional rigidities such as
credit constraint impinge on demand for health insurance and how insurance could
potentially prevent poor households from falling into poverty trap. In this setting, we argue
that the appropriate public intervention in generating demand for insurance is not to
subsidise premium but to remove these rigidities (easing credit constraint in the present
context). Thus from insurance perspective as well, our analysis highlights the importance
of having appropriate savings and borrowing instruments for the poor.