Thursday, 5 December 2013

Medical ills thwart insurers in China

by Nichola Zamiska
For years the Chinese government tended to the health of its people, offering basic but near-universal coverage.
But as the country opened up to the outside world and embraced capitalism, that health-care safety net was all but dismantled. Now, most Chinese are left to fend for themselves, paying out of pocket when they get sick. Savings are regularly wiped out by illness.
The government is struggling to find a solution -- and may have a partial answer in private health-insurance coverage, for those who can afford it. The problem is that, as in other developing countries, a loosely regulated health-care system, marred by rampant overprescription and other shortcomings, is slowing the development of private medical insurance in China. That, in turn, is limiting Beijing's options as it strives to rebuild the system.

Although major multinational insurers have begun to enter the Chinese health-insurance market, they remain largely on the sidelines. "This is not a profitable business," says Clarence S.F. Wong, head of economic research and consulting in Asia for Swiss Reinsurance Co. , the world's largest reinsurer by premiums. "There is huge demand in the market, but insurance companies are very conservative."
The Chinese life-insurance arm of American International Group Inc., aig -1.94% which also sells health insurance, is the most significant foreign player, with an estimated 3% of the market. The New York financial-services company offers health coverage for between 12 yuan and 30 yuan ($1.56 and $3.91) for every 1,000 yuan of coverage, depending on the insured person's age.
But the company's health-insurance business accounts for just 7% or so of premiums collected by AIG's life-insurance arm in China, according to Bonnie Wu, a spokeswoman for AIG in Hong Kong. She declined to comment on whether AIG's Chinese health-insurance business is profitable. "At the moment, our business focus in China remains on life insurance and retirement products," Ms. Wu said.
Although the Chinese health-insurance business remains small compared with life insurance -- a market estimated at $53 billion in 2006 -- demand is growing quickly, partly because of rising incomes in urban areas. The health-insurance market grew nearly sixfold between 2000 and 2006, when the Chinese spent $4.6 billion on private insurance, according to a report by Swiss Re, which the company said it conducted at the Chinese government's request. Swiss Re says that sum could rise to $14 billion by 2015.
Even growth on that scale would fall short of the country's need for coverage. Only about 6% of urban Chinese and 8% of rural Chinese are enrolled in a health-insurance program, according to a Ministry of Health survey cited in the Swiss Re report.
At the heart of the business's unattractive economics in China is overprescription. In the U.S. and some other developed countries, insurers negotiate with hospitals through middlemen to cap costs based on specific diagnoses, not actual expenses. The reimbursement for treating flu, for example, might be fixed at $50. In China, the network of state-run hospitals calls the shots. Because doctors and hospitals rely on prescription drugs to boost their income, it is difficult for insurers to manage costs.
Recently, Xiao Ming, 29 years old, brought her feverish three-year-old son to see the doctor at a small hospital in Jiangsu province that derives most of its revenue from drug sales. Dr. Zhu Bin told her the boy probably had a bad cold and sold her an antibiotic injection for 17 yuan.
In most developed countries, that would be an unusual treatment for the sort of infection the boy appeared to have. Dr. Zhu says he prescribes and sells drugs to nine out of every 10 people who walk in the door. He says that the child needed the drug, and that the hospital's prices are reasonable.
At best, private health insurance would be a partial fix for what ails China's health system. Hundreds of millions of the country's rural poor have little, if any, extra money to spend on health care. Beijing is considering greatly increasing public spending on health care -- money that could go into state-run hospitals and toward a public insurance program. But a robust private health-insurance system could relieve some of that cost burden.
In its report, Swiss Re suggested a raft of changes to promote the spread of private health insurance, including opening up the business to more middlemen, who could help broker cheaper prices for drugs and services between insurers and hospitals.
"The Swiss Re study proposes some worthwhile strategies for our review of China's medical-insurance system," Chen Wenhui, assistant chairman of the China Insurance Regulatory Commission, said in a statement issued by the company after the report's release. The commission didn't reply to written questions seeking more information.
Source: WSJ

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