New Chinas Health Insurance

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New Chinas Health Insurance

• Raymond Yeung
• Deputy Head, Economic Research Consulting Asia
• Kelvyn Young
• Head of Medical Insurance, China
• Global Business Forum 2008
• 2008.04.10

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What do you expect from her?
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The death of Yang Da
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Hot off the web
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Formalizing informal payment?
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Background

• Swiss Re was invited by China Insurance
  Regulatory Commission (CIRC) in late 2005 to
  conduct a strategic study of China health
  financing reform
• In 2006, the study team
• interviewed stakeholders and government
  ministries
• visited Xinxiang and Xiamen to learn how insurers
  were involved in social health schemes
• surveyed health buiness data of 6 life insurers
• validated results and conclusions internally and
  externally
• launched report in March 2007

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The world spends USD5 trillion a year on
healthcare
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Healthcare spending in AsiaHow China compares
Sources World Health Organization Swiss Re
Economic Research Consulting- 2006 data
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Escalation in health spending, High level of
household burden
13 growth rate a year
Households bear 54 of total spending
Source Ministry of Health 2006 (2005
????????????)
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Transient poverty due to medical spending
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Consequence of an under-developed medical
insurance system
Illness
Financial catastrophe
Increase in precautionary savings
Increase in self- (but potentially improper) care
Transient poverty
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Over half of 1 billion Chinese had no health
cover in 2003
SourceNational Health Survey 2003
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Government-led strategies

• Urban (44 of population, 2005)
• Urban Employee Basic Medical Insurance since
  1998 covered 25 of urban population in 2005
• Goal is to cover all residents regardless of
  employment status
• Rural (56 of population, 2005)
• New Rural Medical Cooperative covered 50 on
  geographical basis
• Announced March 07 new goal of 80 geographical
  coverage

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A fragmented health insurance system
Ministry
MOH
MOLSS
CIRC
New Rural Medical Cooperative
Strategy
Commerical plans
Employee BMI
Execution
Local government
Local SHI
Commercial insurers
Geography
Rural
Whole country
Urban
Govt role
Operator
Operator
Regulator
Cover level
Broad and low level
Top-up with supplement scheme
Market driven
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• Commercial market
• New Rural Medical Cooperatives
• Urban Social Health Insurance

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Growth of commercial health premiums
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Ping An outperforms China Life from their
individual business
Source Yearbook of China Insurance 2006
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Group plans are often short term policyholders
also focus short term
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Average premiums per policy varies
Max10,370
Source Swiss Re CIRC Special Survey 2006
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• Commercial market
• New Rural Medical Cooperatives
• Urban Social Health Insurance

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New Rural Medical Cooperative System
Community-based health insurance for rural
Rises in no. of counties/cities covered by New
Rural Medical Cooperatives
Years
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Insurers involvement in New Rural Medical
Cooperatives

• In 2007, New Rural covered 730 million farmers
  (86) total funds reached CNY42.83 billion
• In 2007, seven insurance companies managed total
  CNY3.66 billion (USD522m) health funds under the
  New Rural, up 233 compared with 2006, covering
  30 million rural population, up 41, according to
  CIRC
• Insurers provide fund reimbursement, settlement
  and auditing for medical care schemes, receiving
  management fees from the governments
• Insurers do not underwrite in the New Rural
• However, farmers only get 30 expenses reimbursed

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New Rural Medical Cooperatives
Source Swiss Re Health Insurance Study Team
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• Commercial market
• New Rural Medical Cooperatives
• Urban Social Health Insurance to Kelvyn

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Key issues

• Potential overlaps between social health
  insurance and commercial insurance
• Due to improper economic incentives, medical
  behaviour of patients and medical service
  providers is inconsistent with the goal of
  cost-effective healthcare
• Partly responsible for the escalation of medical
  expenditure
• Current industry standard and infrastructure of
  health insurance do not facilitate scientific
  operation of medical insurance

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Diagnostic report
Improve cohesion between the social and private
insurers
Analyze potential benefits of 3rd party
administrators
Encourage risk sharing by MSPs to align the
incentives
Encourage data sharing among players
Encourage greater participation
Review incentives of MSPs
Encourage products that process claim control
features
Discourage products that dilute claim controls in
social insurance
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Swiss Res action

• Through our study with CIRC, Swiss Re has
  furthered our understanding of the Chinese
  healthcare market and established our local
  network
• A dedicated team for Chinas medical insurance
  has been established and is functioning
• Swiss Re sets up Prestige Health, our TPA
  organization assisting the development of the
  market

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Medical insurance in China large-scale
potential

• Growing demand and affordability
• 70 of affluent and upper mass customers
  (estimated at 41 million households by 2010)
  would consider commercial medical insurance (1)
• 15 of the 70 would consider expensive
  next-generation products priced at RMB 7,400 (USD
  1,000) p.a.
• Consumers want better services
• As affluence grows, customers seek better
  services, such as
• Shorter waiting time
• Cashless services
• Better pre- and post-admission follow-ups, etc
• Opportunities for introduction of new generation
  products
• Market potential for commercial health insurance
  (including critical illness)
• RMB 489 billion (USD 67 billion) in annual
  premiums (2)

1. Shanghai and Qingdao survey 2006 2.
Swiss Re Economic Research Consulting
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Just how large is Chinas potential?
Health insurance premium income USD Bn, excluding
Critical Illness

• By 2015, China GDP will reach USD8.4 trillion,
  (excluding exchange rate effect). Of the 5 spent
  on health, if 1.5 is funded via private medical
  insurance (excluding critical illness), the
  market will still reach USD6.3bn (CAGR 12)
• Between 2007 and 2015, affluent population will
  increase their demand for supplement scheme on
  top of social health insurance which will keep
  expanding. Actual figures in-between vary year by
  year.

(RMB46bn)
6.3
6
5
4
(RMB19bn)
3
2.6
2.2
1.9
2
1.0
1.0
1
0.5
0.3
0.3
0
Source McKinsey, Swiss Re Economic Research
Consulting
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Health business volume

• Total health insurance includes large
  proportion of long term or short term CI
  business, accident medex etc,
• A few companies sell Long term care and Income
  protection, but premium volume is very small
• 3. Volume increased from 2004 to 2006, small
  growth during year 2007.
• 4. Loss ratio is low for CI and individual PMI
  which mainly includes hospital cash and hospital
  reimbursement.
• 5. Group medical business experience is worse
  then individual

Slide 30
source CIRC yearly published data
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Contributions funds for Basic medical
insurance system
Contribution

• Fund

• Decision to establish a basic medical insurance
  system for urban enterprise employee state
  council 1998
• Guidance on participating basic medical
  insurance for urban flexible work force Ministry
  of Social Labour and Security2003 no.10

Slide 31
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Cover within the different funds

• Basic Fund
• 1. Inpatient but limits
• 2. Outpatient treatment of cancer (radiotherapy,
  chemotherapy), renal dialysis
• 3. Emergency room fees leading to an inpatient
  claim
• Additional Fund
• 1. Outpatient above a deductible
• 2. Inpatient above the basic funds benefits
• Individual Account
• 1. Covers the gaps of the basic and additional
  funds

Slide 32
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Summary of outpatient and inpatient cover
outpatient expenses
inpatient expenses
Slide 33
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SHI Urban Scheme - Overview

• Inpatient
• Employer pays approx 8 - Employee pay 2
• Deductible from 600 -2000 RMB, for example
  Beijing 1300 RMB
• The amount may differ by hospital grade,
  employment status or even DOB
• Copayment of the basic fund from 3 to 30
  depending on the hospital grade, employment
  status or amount of actual medical expenses
• Upper limit of the basic fund From 24000
  (Taiyuan) to 145000 (Guangzhou)
• Maximum amount paid by additional fund No limit
  set for some cities such as Shanghai, Hangzhou,
  For other cities the limits vary from 100,000 to
  300,000 RMB (Wuhan Chongqing)
• Copayment from additional fund from 2 to 25

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SHI Overview

• Outpatient
• Only some developed areas provide supplementary
  outpatient coverage, e.g. Beijing Shanghai
  with deductible 1542 for active work or 771 for
  retiree (varying by DOB), no SA, Copayment
  30-100 for actively work and 20-55 for
  retiree
• One company has designed their own out-patient
  product for those areas where there is no O/P SHI
  coverage

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QI_BU Product features in the current market
In Patient Out Patient

The example above is based on the features of the
Beijing market The features are typical of some
companies, most however only have two
sub-products, one is for Inpatient and the other
is for outpatient
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Hospital Providers in China

• Around 300,000 medical providers in the China
  mainland
• 4 kinds of medical structures in China mainland
  government, joint ventures, foreign owned and
  private. Approx 90 hospitals are government
  hospitals
• Governmental hospitals in China belong to
  different systems Ministry of Health (MOH),
  Ministry of Education (MOE), Army, City, the
  state etc. Most hospitals are not commercial or
  service oriented and have no service procedure
  and thus it can be difficult to build networks
• Hospitals are divided into 3 grades grade 3
  (best), grade 2 and grade 1. Grade 3 hospitals
  are found in big cities. Hospitals with the name
  of Peoples Hospital are usually the highest
  graded hospital
• Hospitals are graded on the evaluation of the
  hardware but not service

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Whats standing in the way?Key challenges in
China
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Swiss Res business model goes beyond the
traditional reinsurance model

• Success in medical (re)insurance demands the
  ability to operate and exert influence across the
  medical management and insurance value chains
• Professional approaches to product management,
  claims management and medical provider management
  are all key success factors
• Swiss Re will work, together with its partner
  organisations, to develop the key components of
  the value chain that do not currently feature in
  the local medical insurance markets

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Prestige HealthFull-service capabilities
Medical Insurers
Swiss Re Beijing Branch
Product development, pricing and reinsurance
capacity
Beijing 2 April 2008 Chee Kok POH CEO, Prestige
Health
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Prestige Health benefits chainpeople,
hospitals, insurers the State
Consumers Better services and more affordable
products
Hospitals Widens customer base, offers patients
better services and enhance hospitals reputation
Insurers More confidence over insurance cost and
profitability thereby offering more competitive
products
the State Contributes to sustainable medical
insurance industry growth and promotes better use
of hospital resource
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Swiss Res strategy to help clients succeed

• Core team in place plus strong local teams
• Team totally dedicated to growing and developing
  PMI market
• Claims Management strategy to ensure control of
  key aspects of the risk
• Engage with regulators and governments to assist
  with development of the market
• Provide clients with tools for success
• Helping clients with data analytics and the full
  suite of risk management solutions
• Help clients to grow their business via
  innovative product ideas

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Appendix
1. MedeGuide
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