Towardsa Comprehensive Private Health Insurance market in China

Transcription

1 The Actuarial Society of Hong Kong Towardsa Comprehensive Private Health Insurance market in China Dr. Andrew Murray Senior Vice President: Strategic Risk Management, Discovery International 7 March 2013

2 Agenda Massive unmet need Customers turn to PHI, but existing market in its infancy Most dominant PHI category, Critical Illness, meets only limited needs 4 True financial risk relating to healthcare costs in China 5 Traditional PHI products offset OOP liability only partly 2

3 Agenda Massive unmet need Customers turn to PHI, but existing market in its infancy Most dominant PHI category, Critical Illness, meets only limited needs 4 True financial risk relating to healthcare costs in China 5 Traditional PHI products offset OOP liability only partly 3

4 China is already the No. 5 healthcare market in the world $ billion Growth of Asia s healthcare market US$2.6 trillion ~20% of global market China share of Asia healthcare market India share of Asia healthcare market Chinacontribution to global profit pool US$1 trillion ~10% of global market % 4% 7% 7% 11% US$22bn 4% Asia China 10% 20% 29% 35% 40% US$113bn 15% US$1 trillion ~7% of global market India US$91bn 41% Source: Bain (2012); McKinsey (2010, 2012) 4

5 ... but invests far less in healthcare than many other international markets Healthcare expenditure per person(in US$) US UK SA China Population (in million) THEin US$ billion THEas % of GDP % 10% 9% 5% Public Expenditure as % THE 53% 84% 44% 54% Private Expenditure as % THE 47% 16% 56% 46% of which is OOP 25% 62% 30% 79% OOP as % THE 12% 10% 17% 37% 5 Source: World Bank (2011 data); Discovery analysis

6 Growing burden of lifestyle disease increase both mortality and morbidity risk Industrialization and poor lifestyle habits lead to rise in chronic disease Top 5 chronic conditions Hypertension 26.2% 54.9% and an increase in Vitality Age, indicating higher health risk Vitality Age > chronological age Gastroenteritis 10.3% 10.7% Diabetes 5.6% 10.7% Rheumatoid Arthritis 8.6% 10.2% Cerebrovascular disease 6.6% 9.7% < >60 All All Female Male 260 million cases of chronic disease in 2008 Incidence of hypertension and diabetes quadrupled and heart disease and cancer doubled in past decade <20% of 7 17 year-olds in large cities are overweight or obese On average the Vitality Age (a health-risk adjusted age) of participants was 8.2 years higher than their real age Most health factors measured by the Vitality Age are modifiable Source: clearstate(2012); Ping An Health (Vitality Age survey 2012) 6

7 Current health financing approach offers inadequate financial protection OOP spending decreased from 60% before reform but remains high with significant risk of catastrophic spending for low-income families 70% 60% 50% 40% 30% 20% OOP social 12% 10% 8% 6% 4% % government 2% 0% % urban L M S rural E C W High OOP costs driven by both uncovered OP costs (particularly for URBMI and NCRMS members) and IP costs exceeding the annual limit Coverage level depends largely on financial means of local government Rural inhabitants particularly at risk of catastrophic healthcare spending: average IP admission requires OOP spending of 50% 70% of their annual income (double that for urban areas) 12 th 5-Year Plan focus on shifting such cost for CI conditions to PHI Source: Economist (2012); World Bank (2011) 7

8 Current health delivery approach frustrates access to quality care Healthcare funding strategy favors large, urban hospitals 35% 30% 25% 20% 15% 10% 5% 0% City Hospital County Hospital Government subsidy Medical service fees Drug revenue Other revenue CHC THC ~ 90% of healthcare funding allocated at provincial or sub-provincial level Direct government subsidies to public hospitals was US$7.4 billion in 2008: >60% spend directed to urban hospitals; only 10% spend on primary care where access is limited due to oversubscription of available capacity 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% General hospitals THC CHC High demand leads to severe overcrowding in Class 3 general hospitals Accessing care requires excessive queuingor cash to navigate the system: buy registration numbers from scalpers or to give hongbao CHC = Community Health Center; THC = Township Health Center Source: World Bank (2011); KPMG (2010); WSJ (2012) 8

9 Agenda Massive unmet need Customers turn to PHI, but existing market in its infancy Most dominant PHI category, Critical Illness, meets only limited needs 4 True financial risk relating to healthcare costs in China 5 Traditional PHI products offset OOP liability only partly 9

10 Small existing PHI market with lack of specialization Market size of existing PHI product categories Other products RMB 1.3 billion High-end cover RMB 800 million Mid-market cover RMB 200 million SHI supplementary cover In-patient only cover RMB 5 billion Covers some additional costs for treatment in public hospitals Typical premium: RMB Comprehensive cover RMB 30 billion Covers SHI shortfalls for treatment in public hospitals Typical premium: RMB 500-2,000 Critical Illness cover** RMB 49 billion Commercial insurance for selected conditions up to an agreed sum-insured Typical premium: RMB 3-8 per RMB 1,000 of cover RMB 86 billion* 92% from CI and SHI supplementary cover Source: Munich Health (2013) *Graphic not to scale; ** Include investment components 10

11 Small existing PHI market is dominated by CI and SHI supplementary cover Market size of existing PHI product categories 35% Comprehensive SHI supplementary cover Estimated market size: RMB 30 billion Cover is sold in units; Ping An Life sells cover with each unit representing RMB 3,000 of cover Individual clients typically buy 2 3 such units Group-based cover has a median annual limit of RMB 20,000 for IP and OP costs RMB 86 billion* Source: Munich Health (2013); Mercer (2012) 57% Critical Illness cover** Estimated market size: RMB 49 billion Typical sum insured is RMB 100,000 Rider to life insurance (25% of the CI market) or sold as a stand-alone product (75% of CI market) CI products in China cover a standard 25 conditions; some products expand this list as product features *Graphic not to scale; ** Include investment components 11

12 Mature high-end market continues to grow; infantile mid-market offers substantial growth opportunity Market size of existing PHI product categories RMB 86 billion* Source: Munich Health (2013); Mercer (2012) ~1% High-end comprehensive cover Estimated market size: RMB 800 million Typical premium: RMB 12,000 RMB 30,000 Cover is mostly sold to groups HR function typically acts as key decision maker Network and benefits selected drive pricing <1% Mid-market comprehensive cover Estimated market size: RMB 200 million Typical premium: RMB 2,000 RMB 12,000 Cover is mostly sold to individuals, most likely middle-class and affluent Chinese Some products assume partial cover for services by SHI; other assume no SHI cover Few insureres have built distribution channels able to support high-advice products *Graphic not to scale 12

13 Cash allowance products and travel health cover Market size of existing PHI product categories ~1% Hospital cash and surgical cash products Estimated market size: RMB 1 billion Typical premium: RMB 100 RMB 500 Lump sum cash payments in case of hospitalization or surgery <1% Travel health cover Estimated market size: RMB 300 million Typical premium: RMB 1,500 RMB 2,000 Travel cover for clients that require covcer outside of Mainland China RMB 86 billion* Source: Munich Health (2013); Mercer (2012) *Graphic not to scale 13

14 Need for Private Health Insurance voice of the customer Market Research Insights Consumers perceive serious shortcomings in healthcare system Consumers rely on commercial insurance products for additional security Existing products address need only partially Core issues BMI coverage insufficient Insufficient BMI scope Lack of access Critical Illness products Accidental Medical Reimbursement products Hospital cash products Medical Reimbursement products Details Low IP limit and low OP cover ratio Some off-schedule tests, drugs, devices are not covered Poor access, long queuing time, hongbao Perceived risk of a significant shortfall when diagnosis is a critical illness Uncertainty of expense for accident or emergency Provides cash to help cover shortfall and navigate system Traditionally offered as group BMIsupplementary product 1. Insufficient number of conditions covered for critical illness products. 2. Complex and ambiguous coverage terms. 3. Lack of a suitable product for me. IP = in-patient; OP = out-patient; BMI = Basic Medical Insurance, the Chinese government insurance programs Source: McKinsey consulting report (2009) 14

15 Agenda Massive unmet need Customers turn to PHI, but existing market in its infancy Most dominant PHI category, Critical Illness, meets only limited needs 4 True financial risk relating to healthcare costs in China 5 Traditional PHI products offset OOP liability only partly 15

16 Cheap product but meets only limited needs: # 1 Sum insured does not reflect expected OOP cost Different conditions have very different cost profiles 350% 300% 250% 200% 150% 100% 50% DRG 21 DRG 16 Average IP claims cost : RMB 9,545 and sum insured is frequently higher than OOP costs for CI events 25% 20% 15% 10% 5% OOP costs as % of sum insured* distribution by decile 0% DRG 22 0% DRG 16 Diseases and disorders of blood, blood forming organs, immunological disorders DRG 21 Injuries, poisoning, and toxic effects of drugs DRG 22 Burns Expected actual OOP costs for CI events far less than sum insured Only 7 of the 20 most expensive claims had OOP costs exceeding typical sum insured (RMB 100,000) and not all of these events would be CI events Source: Analysis of SHI hospital claims of Ping An insured clients (2010) *for RMB 100,000 sum insured 16

17 Cheap product but meets only limited needs: # 2 Covers a closed list of narrowly defined conditions Diagnosis linked Procedure linked Functional impairment linked Cancer Heart valve surgery Stroke Heart attack CABG heart vessel bypass surgery Meningitis or encephalitis Severe burns Aorta surgery Traumatic brain injury Loss of multiple limbs Benign brain tumour Alzheimer s disease Acute liver failure Transplants Parkinson s disease Chronic liver failure Bone marrow failure causing anemia Deep coma >96 hours life support Chronic renal failure >90 days of dialysis Motor neuron disease Paralysis of multiple limbs Heart failure due to Aerza syndrome Heart failure due to cardiomyopathy Loss of vision Loss of hearing Loss of speech 60% of total claims 30% of total claims 17

18 Cheap product but meets only limited needs: # 3 Low probability of meeting CI product criteria CI insurance type: low incidence and known sum insured Typical RMB value paid out per RMB 1,000 sum insured distribution by age band Males Females Industry has a deep understanding of utilization trends Known sum insured, so no CPE uncertainty Reimbursement-type: significant utlization rate and CPE uncertainty 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 CPE by setting Global Hong Kong Plan s coverage area: Luxury Private Public Private VIP Mainland (excl Lux Priv) Mainland (incl Lux Priv) Regional and Global Public Uncertain utilization rate PAH experience typical annual admission rates in the 8% -15% range CPE varies greatly by coverage area and setting surprisingly costly Public Hospitals VIP setting CPE = Cost per Event Source: Munich Health; PAH analysis of high-end IP claims (2012) 18

19 Cheap product but meets only limited needs: # 4 CI products may impose a heavy cash flow burden Actual case study: 52 year-old male insured by Ping An Treated in a public hospital Day 1 Day 122 Day 180 Stroke Hospitalization 1 2 Discharge Hospital claim settled 112 days hospitalization Total cost = RMB 218,855 16% of total costs OOP 7% of costs off-schedule 3 Evaluation of severity of functional impairment Source: Analysis of SHI hospital claims of Ping An insured clients (2010) 19

20 Cheap product but meets only limited needs: # 5 CI products does not facilitate access to care General consultation Special consultation Outpatient halls Inpatient wards 20

21 Cheap product but meets only limited needs: # 5 CI products does not facilitate access to care General consultation Seniority of doctors varies greatly Short diagnosis time (generally within 5min) Lack of sufficient communication Surrounded by other awaiting patients, meaning case privacy cannot be guaranteed Special consultation Assistant chief doctors and higher level in tier-3 hospitals Average diagnosis time exceeds 30min Detailed explanation about pathology, status of illness, treatment scheme and self health care Separate room, one-on-one communication 21

22 Agenda Massive unmet need Customers turn to PHI, but existing market in its infancy Most dominant PHI category, Critical Illness, meets only limited needs 4 True financial risk relating to healthcare costs in China 5 Traditional PHI products offset OOP liability only partly 22

23 Real impact of healthcare costs in China: More than half of all SHI claims value paid OOP Ratio of costs by decile 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Cost type Type C off-schedule Type B SHI shortfalls Type A SHI paid Ratios of which for overall non-ci CI events events 24% 28% 48% 90% 88% 84% 10% 12% 16% All costs 87% 13% Source: Analysis of SHI hospital claims of Ping An insured clients (2010) 23

24 Real impact of healthcare costs in China: CI coverage would either under or over-insure clients Under-insured: low probability of hospitalization being a CI event Probability of hospitalization a CI event distribution by decile Overall probability of being a CI event Over-insured: CI payouts typically exceeds actual OOP costs 25% 20% 15% 10% 5% OOP costs as % of sum insured* distribution by decile % Model classified 5.3% of admissions in sample as potential CI events Higher cost events are more likely CI events than lower cost events For most CI events, the payout reeceived would far exceed the event cost Source: Analysis of SHI hospital claims of Ping An insured clients (2010); CI events modeled *for RMB 100,000 sum insured 24

25 Real impact of healthcare costs in China: Analysis of 20 most expensive claims Diagnosis LOS Total Cost Type A Type B Type C Acute pancreatitis Chronic liver disease Rectal cancer - early stage Stroke Carotid artery injury Aorta aneurism Brain tumour Stomach cancer - early stage Pneumonia Stroke Aorta aneurism Colon cancer - early stage Epilepsy Liver cancer Stomach cancer - early stage Heart valve disease Breast cancer - early stage Heart valve disease Heart vessel disease Stroke TOTAL COST Category share of total cost 35% 26% 39% CI cost as ratio of total category cost 27% 27% 32% 23% Source: Analysis of SHI hospital claims of Ping An insured clients (2010) LOS = length of stay 25

26 Case #1: 30 year-old male K85.9 Acute Pancreatitis Diagnosis LOS Total Cost Type A Type B Type C Acute pancreatitis Chronic liver disease Rectal cancer - early stage Stroke Carotid artery injury Aorta aneurism Brain tumour Stomach cancer - early stage Pneumonia Stroke Aorta aneurism Colon cancer - early stage Epilepsy Liver cancer Stomach cancer - early stage Heart valve disease Breast cancer - early stage Heart valve disease Heart vessel disease Stroke TOTAL COST Likely conclusion: 72 days hospitalization 85% of total costs OOP 26% of costs off-schedule Pancreatitisis not a standard CI condition and this event would therefore not qualify for a CI payout Category share of total cost 35% 26% 39% CI cost as ratio of total category cost 27% 27% 32% 23% Source: Analysis of SHI hospital claims of Ping An insured clients (2010) LOS = length of stay 26

27 Case #2: 55 year-old female D01.2 Carcinoma in situ: rectum Diagnosis LOS Total Cost Type A Type B Type C Acute pancreatitis Chronic liver disease Rectal cancer - early stage Stroke Carotid artery injury Aorta aneurism Brain tumour Stomach cancer - early stage Pneumonia Stroke Aorta aneurism Colon cancer - early stage Epilepsy Liver cancer Stomach cancer - early stage Heart valve disease Breast cancer - early stage Heart valve disease Heart vessel disease Stroke TOTAL COST Likely conclusion: 8 days hospitalization 59% of total costs OOP 45% of costs off-schedule Canceris a standard CI condition but carcinoma in situ (early stage cancer) is excluded and this event would therefore not qualify for a CI payout Category share of total cost 35% 26% 39% CI cost as ratio of total category cost 27% 27% 32% 23% Source: Analysis of SHI hospital claims of Ping An insured clients (2010) LOS = length of stay 27

28 Case #3: 53 year-old male I63.9 Cerebral Infarction Diagnosis LOS Total Cost Type A Type B Type C Acute pancreatitis Chronic liver disease Rectal cancer - early stage Stroke Carotid artery injury Aorta aneurism Brain tumour Stomach cancer - early stage Pneumonia Stroke Aorta aneurism Colon cancer - early stage Epilepsy Liver cancer Stomach cancer - early stage Heart valve disease Breast cancer - early stage Heart valve disease Heart vessel disease Stroke TOTAL COST Likely conclusion: 112 days hospitalization 16% of total costs OOP 7% of costs off-schedule Stroke is a standard CI condition and this case may potentially qualify for CI cover but can be assessed only after 180 days for permanent functional impairment Category share of total cost 35% 26% 39% CI cost as ratio of total category cost 27% 27% 32% 23% Source: Analysis of SHI hospital claims of Ping An insured clients (2010) LOS = length of stay 28

29 Agenda Massive unmet need Customers turn to PHI, but existing market in its infancy Most dominant PHI category, Critical Illness, meets only limited needs 4 True financial risk relating to healthcare costs in China 5 Traditional PHI products offset OOP liability only partly 29

30 Real impact of healthcare costs in China: Very substantial OOP liability Average OOP liability in RMB 25,000 20,000 Value of OOP liability distribution by decile 15,000 Type C off-schedule costs 10,000 5,000 Type B SHI shortfalls OOP as % of total cost 78% 51% Source: Analysis of SHI hospital claims of Ping An insured clients (2010) 30

31 Existing insurance options decrease OOP liability: SHI coverage leave clients very exposed Average OOP liability as % of total cost 90% 80% 70% Ratio of OOP liability distribution by decile 60% 50% SHI cover only 40% 30% 20% 10% 0% Source: Analysis of SHI hospital claims of Ping An insured clients (2010) 31

32 Existing insurance options decrease OOP liability: Adding CI coverage decrease OOP marginally Average OOP liability as % of total cost 90% 80% 70% Ratio of OOP liability distribution by decile 60% 50% 40% SHI cover only SHI + CI 30% 20% 10% 0% Model assumptions: 1. CI cover with RMB 100,000 sum insured 2. CI events modeled using PAH classification algoritm Source: Analysis of SHI hospital claims of Ping An insured clients (2010); CI events modeled 32

33 Existing insurance options decrease OOP liability: SHI supplementary cover more effective to decrease OOP Average OOP liability as % of total cost 90% 80% 70% Ratio of OOP liability distribution by decile 60% 50% 40% 30% 20% SHI cover only SHI + SHIsupplementary 10% 0% Model assumptions: 1. SHI supplementary cover with RMB 9,000 annual limit Source: Analysis of SHI hospital claims of Ping An insured clients (2010); CI events modeled 33

34 Existing insurance options decrease OOP liability: Adding CI to SHI supplementary cover has marginal impact Average OOP liability as % of total cost 90% 80% 70% Ratio of OOP liability distribution by decile 60% 50% SHI cover only 40% 30% 20% SHI + SHIsupplementary + CI 10% 0% Model assumptions: 1. SHI supplementary cover with RMB 9,000 annual limit 2. CI cover with RMB 100,000 sum insured 3. CI events modeled using PAH classification algoritm Source: Analysis of SHI hospital claims of Ping An insured clients (2010); CI events modeled 34

35 Existing insurance options decrease OOP liability: Comprehensive reimbursement insurance close all gaps Average OOP liability as % of total cost 90% 80% 70% Ratio of OOP liability distribution by decile 60% 50% SHI cover only 40% 30% 20% 10% 0% Comprehensive reimursement type insurance product Model assumptions: 1. Comprehensive reimbursement-type insurance with annual limit of RMB 500, No SHI entitlement required Source: Analysis of SHI hospital claims of Ping An insured clients (2010); CI events modeled 35

36 Introducing Ping An Health s latest thinking: the Comprehensive Health Protector Offers comprehensive cover both onschedule and off-schedule costs are covered up to high annual limits ensuring any gaps are covered in full Improves access to quality care by extending cover to treatment in VIP wards of public hospitals and making available expert guidance on accessing hospitals and famous specialists Helps make clients healthier by: Understanding their health Making it easier to get healthy Making it cheaper to get healthy Helping them track their progress towards health goals Providing rewards to keep them motivated Vitality Health Investment Account offers tangible value that helps clients build up equity and overcome lack of familiarity with pure protection insurance 36

37 Introducing Ping An Health s latest thinking: Platinum Vitality members get insurance at no cost Comparison of premium vs reward value distribution of rewards by Vitality status Premium for Vitality MSA value Premium for Insurance Protection Total premium Blue Bronze Silver Gold Platinum Vitality status Maximum benefit for reward partner Complete online health assessments Complete health check-up and submit results Go to Gym occasionally As for Blue status, and in addition: Earn most of the bonus points for health check-ups Achieve an excellent rating for the Vitality fitness assessment Go to Gym frequently Purchase fresh fruit and vegetables at designated stores No claim last policy year 37

38 The Actuarial Society of Hong Kong Towardsa Comprehensive Private Health Insurance market in China Dr. Andrew Murray Senior Vice President: Strategic Risk Management, Discovery International 7 March 2013