Medical Insurance in China
How is it different from India?
Medical Insurance in China
Global Conference of Actuaries
Mumbai, February 2010
Agenda
Medical Insurance in China
Global Conference of Actuaries
Mumbai, February 2010
Slide 2
1.
A Brief History of Healthcare in China
2.
Major Problems in Chinese Healthcare
3.
Healthcare Reform in China
4.
Private Health Insurance in China
5.
Issues for Private Health Insurers in China
6.
Health Insurance Product Development in China
7.
India and China – Comparisons and Potential Lessons
1. A Brief History of Healthcare in China

1949-1978 Central Planning
– near universal basic healthcare
– low cost with emphasis on prevention

1978-2000s Decentralisation, Market-Based Reforms
– reduced central government funding
– healthcare operators encouraged generate own
sources of revenue
– collapse of rural social health insurance
Medical Insurance in China
Global Conference of Actuaries
Mumbai, February 2010
Slide 3
2. Major Problems in Chinese Healthcare

Decline in quality of healthcare
– much slower improvements in life expectancy
– poor handling of epidemics

Inequality of access to healthcare
– lower socio-economic classes and rural population

High Out-of-Pocket Expenditure
– ~50% OOP, even with social health insurance
Medical Insurance in China
Global Conference of Actuaries
Mumbai, February 2010
Slide 4

Misaligned Incentives for Healthcare Providers
– fee for service encourages over-servicing
2. Major Problems in Chinese Healthcare

High Out-of-Pocket Costs
CNY billion
1,200
1,000
510
800
485
452
600
407
400
271
200
0
Medical Insurance in China
Global Conference of Actuaries
Mumbai, February 2010
Slide 5
117
71
301
121
80
334
368
154
179
91
112
389
223
129
259
155
321
178
230
2000 2001 2002 2003 2004 2005 2006 2007
Government
Social plan & enterprise
Source: China’s Ministry of Health
Household
2. Major Problems in Chinese Healthcare
High Cost of Pharmaceuticals

Average cost per inpatient visit
Average cost per outpatient visit
160
6000
140
5000
4000
100
680
1678
1691
1735
80
1412
60
31
1,477
1,597
1,748
1,872
38
40
66
65
68
2005
2006
2007
35
19
55
40
2,046
1,992
2,148
59
54
62
2,400
74
20
0
0
Slide 6
21
1013
1000
45
42
28
1320
Medical Insurance in China
Global Conference of Actuaries
Mumbai, February 2010
18
17
1887
1568
24
21
751
2000
23
986
844
756
26
120
1090
937
3000
27
1176
2001 2002 2003 2004 2005 2006 2007 2008
Inpatient drug bill
Doctor's fee
Source: China’s Ministry of Health
Other
2001
2002
2003
2004
Outpatient drug bill
Consultation fee
2008
Other
3. Healthcare Reform in China

By 2011
– Expanding Social Health Insurance to cover 90% or
more of the population
– Increasing government expenditure on public health
services, including primary care gatekeepers
– Reforming the pharmaceutical market

By 2020
– Universal healthcare system
– Accessible and affordable healthcare for all
Medical Insurance in China
Global Conference of Actuaries
Mumbai, February 2010
Slide 7
3. Healthcare Reform in China
Urban Employee Basic Medical Insurance
Administered locally, the funds and accounts
are used to finance inpatient and outpatient
expenditure within the formularies set by the
Ministry of Health and the Price Bureau.
Slide 8
New Rural Cooperative System
Similar to the urban plan, except that the central and local
treasuries contribute instead of the employers. Rural
households enroll into this scheme on a voluntary basis.
4. Private Health Insurance in China
Total health insurance premium income of Chinese insurers
45
42.8
40
35
30
27.7
25.4
25
21.2
18.2
20
15.7
15
11.3
10
7.2
5.4
5
1.1 0.3
1.5 1.0
1997
1998
1.2
2.5
1.1
8.9
5.0
2.9 3.3
10.0
12.1
10.7
6.8
0
1999
2000
2001
2002
Individual products
Medical Insurance in China
Global Conference of Actuaries
Mumbai, February 2010
Slide 9
2003
2004
2005
2006
2007
Group products
Sources: Yearbook of China‘s Insurance, CIRC, Swiss Re Economic Research & Consulting
2008
4. Private Health Insurance in China
70% individual business, 30% group business
Medical Insurance in China
Global Conference of Actuaries
Mumbai, February 2010
Slide 10
4. Private Health Insurance in China

Group Medical Insurance
– Privatised Social Health Insurance
– Qibu – Supplementary reimbursement to SHI
– annually renewable, mostly loss-making

Individual Medical Insurance
– mostly riders to basic life insurance plans
– mostly guaranteed renewable, with reviewable rates
– limited coverage for expenses outside of SHI system
– mostly profitable, but with problematic pockets
Medical Insurance in China
Global Conference of Actuaries
Mumbai, February 2010
Slide 11

Critical Illness, Hospital Cash, Surgical Cash
5. Issues for Private Health Insurers

Interaction with Social Health Insurance
– within SHI framework
– coordination with SHI benefits

Regional and other SHI disparities
– utilisation rates vary
– medical costs vary
– SHI coverage varies

Medical Insurance in China
Global Conference of Actuaries
Mumbai, February 2010
Slide 12
IBNR and Claim Delays
– SHI payments often not resolved until end of year
– Groups renew before claims experience is known
5. Issues for Private Health Insurers

Loss-making business
– withdraw from group market
– focus on smaller groups where competition is less
– focus on individual business with better margins
– upsell as many riders as possible
– importance of data and systems

Claims management
– follow SHI claim payment decisions
Medical Insurance in China
Global Conference of Actuaries
Mumbai, February 2010
Slide 13
– high volume, low cost claims
– late notification of claims
6. Health Insurance Product Development

Customer Segmentation
Share of
Chinese
urban
households*
No. of
urban
Chinese**
Global
~ 0.1
0.4mio
High
Mass
Affluent
~ 0.5
2mio
Upper Mid
Upper
Middle
~ 9.4
35mio
1-3K
Lower Mid
Lower
Middle
~ 12.6
46mio
0.5-1K
Masses
~ 77.3
284mio
0.3-0.5K
Upper
High
Upper Lower/ Mass
Target
premium***
15-30K
3-12K
*Data for 2005: In percent (Source: State Statistical Bureau of the People's Republic of China,
China Statistical Yearbook)
** Data for 2005: In absolute figures (Source: State Statistical Bureau of the People's Republic of
China, China Statistical Yearbook)
Medical Insurance in China
Global Conference of Actuaries
Mumbai, February 2010
Slide 14
***Absolute figures in RMB p.a. (Source: Swiss Re’s estimate)
6. Health Insurance Product Development

Customer Segments and Product Needs
Market Segment
Ordinary Employees
(Mass to Upper Mid)
Medical Insurance in China
Global Conference of Actuaries
Mumbai, February 2010
Slide 15
Product Needs
Qibu products complementary to SHI.
Middle Income
(Upper Mid to High)
 limited network hospitals only,
government and low-end private;
 comprehensive within the SHI
 limited outside SHI.
High Income Domestic
(High to Upper High)
 VIP and higher-end private;
 comprehensive within and outside
the SHI framework.
High Income International
(Upper High)
International and Expatriate covers
7. India and China – Comparisons and Lessons

Socially Disadvantaged and Rural Sector
– government subsidies required
– fee-for-service reimbursement increases utilisation
without necessarily improving outcomes
– control over supply-side (eg fixed tariffs, package
rates, gatekeepers) necessary to restrain cost

Loss-Making Group Business
– difficult to cross-subsidise large portfolio of lossmaking business against other smaller portfolios
– temptation for top-line growth is ever-present
Medical Insurance in China
Global Conference of Actuaries
Mumbai, February 2010
Slide 16
– turning a loss-making portfolio into a profitable one is
extremely difficult
7. India and China – Comparisons and Lessons

Reimbursement with Fixed Tariffs
– price regulation on some healthcare costs drives
providers towards services with less price regulation
– alignment of provider incentives to government
objectives and patient outcomes is crucial

Balance between Acute and Preventative care
– acute and catastrophic care involves high costs and
benefits relatively few people, but is where private
insurance is most useful
Medical Insurance in China
Global Conference of Actuaries
Mumbai, February 2010
Slide 17
– preventative and basic healthcare is unexciting, but
often has a bigger impact on overall health objectives