Medical Insurance in China How is it different from India?

1. Medical Insurance in ChinaHow is it different from India? Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010

2. Agenda • A Brief History of Healthcare in China • Major Problems in Chinese Healthcare • Healthcare Reform in China • Private Health Insurance in China • Issues for Private Health Insurers in China • Health Insurance Product Development in China • India and China – Comparisons and Potential Lessons Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010

3. 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

4. 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 • Misaligned Incentives for Healthcare Providers • fee for service encourages over-servicing Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010

5. 2. Major Problems in Chinese Healthcare • High Out-of-Pocket Costs Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010 Source: China’s Ministry of Health

6. 2. Major Problems in Chinese Healthcare • High Cost of Pharmaceuticals Average cost per inpatient visit Average cost per outpatient visit Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010 Source: China’s Ministry of Health

7. 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

8. 3. Healthcare Reform in China Urban Employee Basic Medical Insurance New Rural Cooperative System 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. 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.

9. 4. Private Health Insurance in China Total health insurance premium income of Chinese insurers Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010 Sources: Yearbook of China‘s Insurance, CIRC, Swiss Re Economic Research & Consulting

10. 4. Private Health Insurance in China 70% individual business, 30% group business Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010

11. 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 • Critical Illness, Hospital Cash, Surgical Cash Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010

12. 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 • IBNR and Claim Delays • SHI payments often not resolved until end of year • Groups renew before claims experience is known Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010

13. 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 • high volume, low cost claims • late notification of claims Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010

14. 6. Health Insurance Product Development • Customer Segmentation Share of Chineseurbanhouseholds* No. of urban Chinese** Target premium*** Upper High Global ~ 0.1 0.4mio 15-30K Mass ~ 0.5 2mio 3-12KAffluent High Upper ~ 9.4 35mio 1-3KMiddle Upper Mid Lower ~ 12.6 46mio 0.5-1KMiddle Lower Mid Masses ~ 77.3 284mio 0.3-0.5K Upper Lower/ Mass *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) ***Absolute figures in RMB p.a. (Source: Swiss Re’s estimate) Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010

15. 6. Health Insurance Product Development • Customer Segments and Product Needs Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010

16. 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 loss-making business against other smaller portfolios • temptation for top-line growth is ever-present • turning a loss-making portfolio into a profitable one is extremely difficult Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010

17. 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 • preventative and basic healthcare is unexciting, but often has a bigger impact on overall health objectives Medical Insurance in China Global Conference of Actuaries Mumbai, February 2010