Companies Face Obstacles in Path to Offering More Health Insurance Options
(Beijing) – Policy support is expected to boost China's fledgling commercial health insurance sector this year, making it an important supplement to the country's heavily burdened social security system.
The good news came in November when the State Council, the cabinet, issued guidelines on accelerating development of commercial health insurance. A month later, the chairman of the China Insurance Regulatory Commission (CIRC), Xiang Junbo, said that preferential tax policies would be granted to the sector.
Insurance professionals say these are clear signs that the central government will offer policy support to encourage commercial health insurance businesses in a bid to supplement the government's medical insurance system.
The November guidelines defined commercial health insurance as that "provided by commercial insurers to cover losses and costs caused by health problems and medical treatments," including medical, sickness, disability, medical liability and other forms of insurance.
"It means commercial health insurance can be more diversified, covering health, medical care, pension and other sectors," said Yang Xing, assistant to director of the strategic development department of the People's Insurance Co. of China (PICC).
Yang said the commercial health insurance industry could make great progress starting this year. "Policy support will help commercial health insurance to break ground," he said.
In January, Weng Tiehui, the vice mayor of Shanghai, said the city will start to offer medical insurance for critical illness to its residents as a supplement to the government-backed basic medical insurance system. The packages will be offered by commercial insurance companies.
Then on March 30, PICC announced plans to set up a pension insurance and health management subsidiary. The company's vice president, Dong Qingxiu, said the subsidiary will become an independent business division of PICC.
The regulator also put commercial health insurance high on its agenda for the year. A CIRC official said it is hoping to see commercial health insurance "improve in terms of size, number and diversity." The official said that in order to promote commercial health insurance, tax incentives and other support will be put in place.
Despite the positive policy outlook, health insurers are facing major challenges in trying to win support from public hospitals, a major hurdle for insurers who need to access patient information for risk control purposes.
CIRC says China has five insurance companies specializing in health insurance, and another 100 offering health insurance products. In 2014, premium income from health insurance products totaled 158.7 billion yuan, up 41 percent from the previous year.
But most firms have suffered losses in their health insurance businesses, even though the products are expensive. In 2013, four out of the five health insurance companies reported losses. The largest, PICC Health Insurance Co., registered a net loss of 187 million yuan.
Several industry sources blamed the losses on the companies' poor cooperation with hospitals. Andrew Scott, general manager of Ping An Health Insurance Co., said insurers in China cannot get involved in hospitals' diagnosis and treatment procedures to control medical care costs.
Unlike many Western countries, where insurance companies have a say in cost control through a bargaining mechanism with hospitals, public hospitals in China dominate the market.
"Large hospitals sometimes monopolize local health care resources and have an overwhelming say in medical insurance system," one CIRC official said. "Insurance companies can't bargain."
One executive of an insurance company said that under the current system public hospitals profit from patient numbers, their spending and government subsidies. "Why would hospitals cooperate with insurance companies?" he asked.
Zhu Ming, an insurance professor at Nankai University in Tianjin, said that without the support of hospitals, insurance companies are unable to get key information about patients so they can evaluate and control risks.
Wang Shenming, president of the First Affiliated Hospital of Sun Yat-sen University, said that "with little information about medicine prices and costs, insurance companies are not playing on the same level with their rivals," meaning hospitals.
Cai Jiangnan, director of the Medical Management and Policy Research Center at China Europe International Business School in Shanghai, said the country's health care system blocks the way to the development of health insurance because hospitals and doctors tend to over-treat illnesses and give pricy medicines to patients in a bid to make more money.
Cai said these practices squeezed the room for health insurance to grow and without changing the fundamental problems, policy support will only bring short-term benefits.
"For a long time, insurance company's medical insurance businesses have hardly broken even," the CIRC official said. "In some regions, the company's compensation is as high as three times its income."
Meanwhile, competition among health insurers has been unhealthy, said Scott. "There are many price wars in the market, without enough innovation in services."
He added that the health insurance market is dominated by medical insurance and sickness insurance products, but they have failed to meet consumers' needs for higher level of health care outside the basic health care system. In June, health insurance premiums reached 89.3 billion yuan; 42 percent of that was from sickness insurance and 36 percent from medical insurance.
Although insurers offer more than 2,300 kinds of health insurance products in China, PICC's Yang said most look alike.
"Products are very similar, which leads to fierce competition," Yang said. "Some large companies have pressed down prices and squeezed profit margins."
Finding a Path
Some companies count on foreign partnerships to improve professionalism in health insurance and win market share. In December, a joint venture between China Pacific Insurance Group Co. (CPIC) and Germany's Allianz SE was launched in the Shanghai Free Trade Zone, the first of its kind in the pilot area. The companies said the partnership combines CPIC's resources in the Chinese market with Allianz's professional and technical advantages in the health insurance business.
But some in the industry do not expect too much from these arrangements. An executive from a health insurance company said PICC Health partnered with experts from Europe's largest health insurance company, German's DKV, to help design the company's business, but all the German experts quit after one year.
"China's health care system has distinct characteristics," the executive said. "It has to rely on us to explore (the business) based on local conditions, policy changes and the health care system."
Some companies, such as Taikang Life Insurance Co. and Ping An Annuity Insurance Co., chose to join hands with medical information agencies in risk control and product development.
Others decided to invest in medical institutions. In 2013, New China Life Insurance Co. invested 500 million yuan to set up NCI Health Investment Management Co., the 13th medical center it established since 2011.
In June 2014, the CIRC approved Sunshine Life Insurance Co.'s planned purchase of 51 percent of Sunshine Union Hospital in Weifang, in the eastern province of Shandong. If the transaction is completed, Sunshine Life will become the first insurer to invest in a public hospital in China.
But Yang said there are great uncertainties surrounding insurance companies' investments in hospitals considering the huge costs and long repayment periods.
Yang said more insurers, including PICC Health, chose to set up agreements with hospitals in which the facility promised to control treatment charges and provide medical information. In addition to compensation, insurance firms also offer their clients access to specialized services in the partner hospitals.
Changjiang Securities said in a report that insurance for critical illness, which is not wholly covered by the social security system, will be a crucial business opportunity for commercial health insurance.
But local governments have been very cautious in allowing insurance companies to get involved in this business.
"Some are concerned about potential capital risks of insurance companies, while others worry about losing control of local social security departments," said an executive at a health insurance company.
In some pilot programs, Yang said, local governments set high requirements for insurance companies but provide limited information, making it difficult for the companies to evaluate risks and providing little profit margins.
Yang said the key for insurance companies to participate in critical illness insurance is getting access to the database for the social security system so they can get information about their clients. But firms' access is currently limited.
Meanwhile, companies also need to partner with large public hospitals to access more patients and their medical records. However, setting up these partnerships with large hospitals is a tough task for every insurance company, said Yang.
(Rewritten by Han Wei)
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