Reflections on the "fast lane" for health insurance with tax incentives
By Benn He, L&H Client Manager of Swiss Re China
The health insurance business has been given a fresh impetus. Since the unveiling of a slew of tax incentives, we have seen positive reactions from every corner of the market. Without delay, the tax authorities have issued tax incentive measures and the regulators have drawn up a plan for the development of the tax incentive business. The market has chimed in, pointing out that private health insurance is exactly what we need. Insurance companies, for their part, have been energetically preparing for this enormous future market. We believe that – thanks to the tax incentive policy – the private health insurance has entered the "fast lane".
But instead of drooling over the potential profits to be reaped from this tantalising big cake, insurance companies should start to explore how we can more effectively complement the medical services provided by social insurance. We can do this by bringing into full play the edge that private health insurance has over social insurance in terms of efficiency. This would bring real benefits to the consumer and drive the continued growth of private health insurance. In so doing, insurance companies can truly participate in the bigger picture of China's medical reform and become a force for reform of the medical protection system.
A. Position inside the medical protection system
Private health insurance has close ties with both the social insurance system and the medical services. As such, its prominent role has always been to provide an effective supplement to the public medical insurance system. However, the business position of China's private medical insurance has long been awkward: individual insurance products are often nothing more than accessories of the savings business, while group insurance products have looked like social insurance foot soldiers. Some would even argue that in the bigger picture of the health protection system, private medical insurance – lacking any distinguishing features – has become expendable.
In overseas markets though, private health insurance often closely matches the government medical insurance. In recent years, it has played a crucial role in particular in the bigger picture of international medical reform. The private health insurance in the U.S., for example, shoulders the bulk of the responsibilities of social insurance. In the U.K. and Germany, private insurance covers the medical protection of most of the mid-range and high-end crowd. In various countries, private health insurance participates, to varying degrees, in the medical protection system.
China's social insurance system has developed rapidly in the bigger picture of medical reform: in the short space of just five years, it has basically achieved "full coverage". Yet it will be hard to continue to expand the items covered by the social insurance system and keep on increasing its operational efficiency. Which is exactly where private health insurance comes into the picture. Propelled by this latest tax incentive policy, private health insurance should rediscover itself. It should find back its position in that bigger picture. We can see that the direction of the current tax incentive products is encouraging the insurance companies to develop a "mid-range" medical insurance – treatment and drugs that fall outside the scope of the protection offered by social insurance. Such kind of products seek out the gaps in the medical services provided by social insurance, and can thus enhance the medical benefits that the consumer gets. In other words, private health insurance can strengthen its position in the medical insurance system by differentiating itself.
B. Greater value through a better customer experience
The insurance business is part of the finance industry, where the value of customer service is obvious. The medical insurance facing the latest tax incentive products is unlike life insurance, life-savings insurance or critical illness insurance. In medical insurance, there are many claims to pay out and there are plenty of opportunities for insurance companies to come face-to-face with their customers. More customer service items can be provided, which benefits the building of a closer relationship with the customer during the interaction.
In addition, the tax incentivised health insurance is being promoted as "mid-range" medical insurance. Considering that the protection content is different from the scope of social insurance, the customer will be able to enjoy new drugs, more potent drugs and updated medical treatments. All that will make the benefits of private health insurance plainer for everyone to see.
Also, the latest round of tax incentive products makes the health services stronger, since the insurance companies will be better able to effectively safeguard the health level of the customer through health advisories, disease prevention and disease management.
Another highlight is the sale of tax incentivised health products in the office. Corporate support will benefit the implementation of health management services, thus the health services will have greater effect.
Obviously, while increasing the customer service frequency and creating closer customer relations, the tax incentivised health insurance has its own challenges in terms of process and management. Insurance companies must optimize their operational workflow, simplify enrolment steps, increase the efficiency of health services and create perfect service methods. What's more, since we are in the Internet age, insurance companies must strengthen the application of mobile internet technologies: they must use new technologies to push service innovations. All this will greatly enhance the customer service experience.
C. Benefits of bringing about efficiencies
Finding a balance between fairness and efficiency has always preoccupied the medical protection system. The medical services provided by social insurance err on the side of fairness while the private health insurance has an edge in efficiency. The way the international medical protection system has embarked on reform has been through invoking a private insurance mechanism, controlling the excess medical treatment provided by medical institutions and by checking the too rapid rise in medical treatment expenses. Taking advantage of the promotion of the tax incentive policy for health insurance, China's insurance industry should take a leaf out of the book of the private health insurance overseas. It should build out a medical services network, take part in the management of the process of medical assistance, and bring into full play its expert superiority in verifying claims. In doing so, it can provide solutions to where the medical services provided by social insurance lacks in efficiency and make powerful contributions to the reform of China's medical insurance system.
The Health Maintenance Organizations and managed care established in Europe and the U.S. are mature. But in China, the larger environment does not allow private health insurance to simply adopt advanced foreign models. Still, for insurance companies implementing a more refined management of their medical insurance business, there are opportunities to be found in the rapid growth of China's health service industry in recent years, in the increasingly clear direction of reform that medical institutions are taking and in the greater use of high tech applications for medical treatment. Private health insurance can add value and improve efficiencies in aspects such as health prevention, the management of the medical protection process, the management of chronic diseases, the sharing of information about medical treatment etc.
Naturally, whether the mechanism of tax incentivised medical insurance is efficient will depend on the risk selection and risk management of the business. After all, tax incentivised medical insurance is private insurance, and hence needs not to take on too much social responsibility. As for tax incentivised "mid-range" medical insurance, the anti-selection risk is clearly present, since it adopts individual enrolments and not group enrolments, and since it is a voluntary, not a mandatory enrolment.
In addition, considering that the scope of protection includes drugs uncovered by social insurance , it reduces the first line of defence of social insurance verification and therefore the requirements placed on the risk management capabilities of private health insurance are even higher. The promotion of the future policies must therefore consider the misgivings of insurance companies, and allow the insurance companies to appropriately control risk, thus creating a good policy environment for the business operations under the tax incentives.
The advancement of the health insurance tax incentive policy is without doubt creating excellent room for growth in the private health insurance. Insurance companies must widen their horizon and include private health insurance in their medical protection system considerations. They must bring into full play the advantages in terms of efficiencies of private health insurance and complement where the medical services provided by social insurance are insufficient/lacking. At the same time, since the business of private health insurance has been slow for a long time, there is a lack of professionals, and the risk management capabilities are weak. To run a tax incentivised health insurance operation, the operational base of health insurance must be strengthened and the professional level must be improved in areas such as sales, enrolment, claims and customer service. A medical services network must be vigorously built out and the weight of health management in medical insurance must be enlarged.
China's bigger picture of medical reform is still a work in progress. There remain restrictions on the reform of public hospitals, the drug pricing mechanism and the doctors' incentive and remuneration mechanism. The adoption of managed care by private health insurance faces a myriad of difficulties in the current medical environment. But one can imagine that as private health insurance starts playing a greater role in the bigger picture of medical reform, it will enhance its position in the social protection system and its contribution to efficiency too will go from strength to strength. We believe that private health insurance can look forward to even more room for growth.
Published 24 June 2015
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