Closing the Affordability Gap: Can China’s Commercial Health Insurance Deliver?
At the end of 2021, individual out-of-pocket (OOP) spending in China constituted 27.7% of total healthcare expenditure (THE), soaring to 50% in some rural areas. The "Healthy China 2030" initiative aims to reduce this proportion to 25% by 2030, moving closer to WHO recommendation of maintaining it between 15-20% to avert illness-induced poverty.
However, with anticipated low single-digit GDP growth in the coming years, the expansion of China's basic medical insurance fund is expected to slow.
Consequently, the Chinese government has heightened its emphasis on the essential role of commercial health insurance (CHI), especially in ensuring coverage for advanced health technologies. The government has set an ambitious target to propel the sector to 2 trillion Yuan (equivalent to US$308 billion) by the year 2025.
The practical landscape, however, reveals a stark contrast. The CHI sector recorded a premium income of 982.5 billion yuan (US $151 billion) in 2021, constituting merely 5.4% of the country’s THE. Notably, over 60% of this sum is allocated to fixed-benefit payouts, while the consumption type of health insurance accounted for a modest 30%.
What is causing the gap? Can China's commercial health insurance take on the responsibility of filling the void left by social medical insurance?
Where is the disconnect?
Medical Expenses Beyond the Scope of BMI Coverage
Within the framework of the basic medical insurance (BMI) system, individuals bear responsibility for three distinct categories of medical expenses:
- Medical expenses beyond the scope of BMI coverage (e.g., high-value innovative drugs).
- Cost-sharing for BMI-covered services (e.g., deductibles, reimbursement ratio, and cap).
- BMI personal account expenses (individual payroll contributions designated for covering outpatient costs for oneself and family members).
Up to now, the majority of commercial health insurance products in China have predominantly addressed expenses in categories 2 and 3, offering limited coverage for category 1.
A significant contributing factor is the lack of confidence among China's commercial insurers in managing medical risks, relying heavily on the control tools provided by Social Medical Insurance.
The excessive dependence on social medical insurance has resulted in commercial insurers neglecting integration with the pharmaceutical and healthcare industry. This confines their role to offering financial protection without adequate access to care, sustaining a prolonged and detrimental cycle that hinders the sector's growth.
Pre-Existing Conditions
In China's commercial insurance market, health insurance is a relative newcomer compared to the life and property insurance sectors. Consequently, many Chinese insurers have applied the practices and mindset of life insurers to commercial health insurance.
In the realm of life insurance, accurate actuarial assessments, precise pricing, underwriting to select healthy individuals, and driving sales through substantial investments in distribution channels while controlling lapse rates are pivotal.
In contrast, health insurance operates on a different principle where the efficiency of funds is paramount—higher proportions allocated to medical payments signify greater efficiency in achieving maximum healthcare service outcomes with minimal expenditure.
As a result, focusing solely on screening healthy individuals to minimize or avoid payouts in health insurance compromises its ability to aggregate payment volume, ultimately diminishing its inherent value.
Hope Floats
Specialty Drug Plans: A Milestone in Commercial Health Insurance
The inception of specialty drug plans represents a turning point in China's commercial health insurance market.
These plans focus on reimbursing high-cost medications not covered by social medical insurance, particularly in the financially demanding field of cancer drugs.
They depart from the conventional post-event fixed benefit payout model, providing consumption-based reimbursements utilizing a drug catalog. This approach involves direct negotiations and settlements with the supply chain.
However, their restricted availability to the healthy population limits actual payouts.
City Commercial Health Insurance ("Huiminbao"): Catalyst for Positive Market Dynamics
The rapidly advancing City Commercial Health Insurance, focusing on safeguarding the entire population against major illnesses, even those with pre-existing conditions, has garnered significant attention and government backing. It has instigated favorable market shifts for traditional health insurance in several key ways:
Firstly, it serves as a valuable exploration of leveraging government endorsement to raise awareness and reduce sales costs for commercial health insurance.
Secondly, there is a growing acknowledgment that BMI personal accounts can be employed to acquire commercial health insurance, facilitating the utilization of funds accumulated in these accounts through CHI.
Thirdly, commercial insurers have now started to embrace covering individuals with pre-existing conditions, recognizing that health insurance should cater to a broader demographic beyond the healthy population.
Lastly, there’s a growing focus on developing management tools like commercial insurance catalogs and pharmacy networks, marking a significant step in managing expenses outside the social insurance catalog.
Decoupling BMI Reimbursement from Market Prices: Boosting Commercial Health Insurance
In 2022, NHSA introduced the concept of the BMI reimbursement rate. For drugs already in the market, the manufacturer's sales price may exceed the insurance reimbursement rate.
This suggests that the limitations of the insurance payment ratios may not constrain BMI reimbursement rates. Commercial insurance, assistance programs, and similar products can potentially contribute towards covering the portion not covered by BMI, thus creating opportunities for premium pricing for innovative therapies and prompting the expansion of commercial health insurance.
Final Thoughts
The evolution of commercial health insurance within any nation is inherently shaped by its domestic healthcare infrastructure and social security framework.
In China, the healthcare system is predominantly under the domain of public institutions, featuring regulated prices for medical services and a closely managed physician workforce. This leaves limited room for commercial insurance to negotiate payments within the healthcare market.
Yet, the pharmaceutical sector is marked by fierce competition. With the rapid advancements in new drugs and technologies, the collaboration between commercial insurance and the pharmaceutical industry, especially in critical areas such as high-priced outpatient specialty drug payments, offers a pivotal opportunity for both commercial insurers and manufacturers.
This opportunity involves effectively managing costs beyond the scope of social medical insurance through seamless integration between commercial health insurance and the pharmaceutical sector.
References:
- China Market Access Pathways for Innovative Medicines Infographic, NRDL+ Newsletter, 12-20-2023, https://nrdlplus.com/infographics
- Access Pathway for Innovative Medicines in China: Pure Commercial Health Insurance, NRDL+ Newsletter, 4-26-2023, https://nrdlplus.com/en/nrdlplus-newsletter-archive/china-access-pathway-innovative-medicines-pure-chi
- 医疗险的价值观和方法论：跳出寿险思维，做医保外医药健康支付方，回应2030年16万亿国家健康战略, 蔡卓, 慧保天下, 2020-12-01, https://mp.weixin.qq.com/s/SCzv5f05yDUULLdgofmCqg
- 「深度」国内健康险市场为何“生长”缓慢？杨翎, 圆角星, 2016-09-06, https://mp.weixin.qq.com/s?__biz=MzAwMTkxMjg1Mg==&mid=2247483684&idx=1&sn=236494f922c677c262b395b2132b9ea7&scene=21
- 全国两会|为创新药定制医保政策：单列目录？支付溢价？, 健康国策2050, 3-10-23, http://www.phirda.com/artilce_30768.html?cId=4
