China looks to West to help it boost Mainland healthcare provision

That China regards its health care system as a matter of national importance and government focus is hardly new; in fact,  better public health care provision has been a priority of Beijing’s for decades. Nevertheless, as an EY survey of 2,000 middle-to upper-middle class Chinese consumers published last year revealed, the country’s public health system has struggled to keep up with the country’s growing and ageing population and its rising expectations, with the result, EY noted, that “the private health care system is thriving”. 

Here, Charlotte Beugge looks at how the latest in a series of relaxations of regulatory restrictions are designed to encourage more foreign investment in mainland health insurance and healthcare provision – and what effect these measures, and similar, earlier easing of rules, are having.

Behind the bamboo curtain, there’s a revolution going on: in China’s healthcare sector. And it’s a revolution that major western private medical insurers, healthcare providers, private equity providers and investors are increasingly involved in with the apparent blessing of China’s leaders.

A country with a population of about 1.4 billion is, of course, inevitably going to have a significant demand for medical care of all kinds. But the demographics of modern China offer particular challenges for the country’s leaders.

For one thing, the country’s one-child policy aimed at controlling the country’s seemingly worrying rate of population growth  has resulted in a relatively old population, with relatively few children to look after each set of ageing parents.  China’s leaders introduced the policy in 1979, and didn’t begin to phase it out until 2015.

As a result, the current median age in China is 37.3 years, according to www.worldometers.com, which compares to a median age of just 20.4 years in 1970, when the population was around 920 million.

Other statistics show that more than a third of China’s once relatively youthful population will be over the age of 60 by 2050.

Any population skewed towards the elderly is always going to be strained, but according to industry sources, China was caught off guard in this area because until the last few decades, adult children routinely looked after their ageing parents in their own homes. This worked as long as there were enough adult children to go around, and as long as these children remained close to home.

In 2012, there were enough beds in China’s nursing homes to accomodate just 2.1% of its elderly, compared with a figure in the West of between 5% and 7% and even 13% in some countries with a tradition of long-term care insurance, such as Australia, Japan, Tailwan and Korea, according to Bromme Cole, a Shanghai-based American entrepreneur in China’s elder care sector.

Private providers fill the gap

Given such statistics, it’s hardly surprising that over the past decade, China’s educated middle classes and high-net-worth and UHNW individuals have begun increasingly to rely on private providers of medical coverage and healthcare and nursing home specialists to fill the gap between what they expect, and what the state system is able to provide.

By 2020, according to McKinsey, the value of China’s healthcare market is expected to reach US$1trn, and by 2030, $2.3trn.

Rather than restricting private provision of such services, China has actively encouraged it, most recently by announcing last month that it would permit foreign firms to be allowed to hold a majority stake in joint ventures with mainland Chinese life insurance companies and securities companies.

While experts on the ground caution that the Chinese market is fraught with challenges for outside providers, the names of the companies setting up shop there is growing by the day, often including major international healthcare, elder-care and health insurance providers.

As reported here earlier this month, for example, Ping An Capital, part of the huge Chinese Ping An Insurance Group, has just invested Y800m (US$121m; £90m) in Singapore based healthcare provider Fullerton Healthcare Corp, with the intention, Fullerton co-founder and group chief executive Michael Tan said, that the money would be used to set up some 100 clinics in Chinese cities.

In September, research by the global insurance giant AXA flagged up the fact that, as it reported, China is “set to become the global destination for new international expansion” over the next five years, based on responses from some 250 companies in eight countries, as well from 372 “globally-mobile workers”.

A suitable case for treatment?

As in the UK and many other markets, consumers living in China always have the option of accessing free healthcare from state-run hospitals.  And as Danny Huang, director of business development for Aetna International, points out, this can and often does work for some, depending on where they are, and what their needs are.

“In China, employers must purchase social medical insurance for all employees including expatriates,” he explains.

“Members can use their social security cards in public hospitals in their city of residence.”

Outside China’s major cities, however, public provision is not always to a standard seen in the West – and traditional Chinese medicine is still in use in places, sources say. Added to that, waiting times can be lengthy, and appointments short, although some public hospitals do have “VIP” sections, which mimic the standard of care found in private hospitals.

Richard Lonsdale, head of client services at Generali Global Health, describes the standard of China’s public healthcare system as “still relatively basic, covering approximately half of a family’s average annual healthcare expenditure, and with very limited coverage for serious or chronic illnesses”.

Home and away

Wealthier Chinese, along with expats, now often have private medical insurance. For expats, it’s essential – but what policy they buy depends on where they are based.

Jack Yuan, Chief Executive Officer for AXA Tianping – Health Business Unit, explained: “Each province has a different policy on social security, so depending on where an expat is based, they may or may not be required to purchase a local policy.

“In Shanghai, for example, it is voluntary for expats to buy social security insurance, but in Beijing it’s compulsory”.
Yuan points out that AXA offers regional and cross-border policies in China for expats and locals, adding that two-thirds of those with cross-border plans in China are locals –an indication, he notes, of the increasing mobility of the Chinese middle classes these days.

While many of China’s major cities do have good private hospitals, meanwhile, there can be significant cost issues, some observers in the market point out.

“The cost of claims is an issue – the good private hospitals know they are in a market dominant position, and use that knowledge to drive up their costs,”  says Generali’s Lonsdale.

“In some cases,  the costs can be near USA levels.”

Opportunity knocks?

So what opportunities does China offer Western private healthcare providers, and international private medical insurers?

Tobias Meckert, head of sales for Allianz Partners’ international health business in the Asia Pacific region,  admits that the market’s high-net-worth individuals represent “a segment we are particularly interested in”

“We are continuing to see the trend that more Chinese customers are travelling globally and, as a result, the need for high end international medical insurance is growing”.
“We see significant growth opportunity in the iPMI market in China, not just from expatriates but also from the rapidly growing base of upper affluent Chinese consumers,” added Fred Ding, general manager for China at Hong Kong-based Now Health International.

“While there are many world class medical facilities in the Mainland, there are often limited options in the tier two or tier three cities, which can make booking an appointment very difficult. This means that it’s important for local nationals and expats alike to have the right health cover in place, with access to an extensive, high quality provider network both locally and worldwide.”

Aetna International’s Huang adds: “The government has encouraged insurance companies involved in the medical sector to facilitate the fast growth of medical expenses insurance within the health system.”

However, “the insurance sector is still a highly restricted industry for foreign investors”, he adds.

Unsually, perhaps, traditional Chinese medicine is popular in the Chinese market, and for this reason, is included on most insurance plans, according to  AXA’s Yuan.

“It is covered as standard on both our global plans as well as our cross-border products, and we find that it is the third most frequently used benefit on our cross-border plans”.

Challenge for expats: accessing good care

For expats living in China, meanwhile, accessing good-quality healthcare can be a challenge, even with good insurance coverage – at least, away from Shanghai and Beijing, which are both home to world-class hospitals.

This presents foreign healthcare providers, whose investment , as noted above, is increasingly being invited by the government, opportunities.

Currently, expats living outside of China’s main urban centres who need urgent treatment are often medically evacuated to Hong Kong. A measure of the advance in the quality of China’s healthcare system, therefore, will be a significant drop in the numbers of such medical evacuations.

And among the first to spot this change are likely to be those iPMI companies currently looking after such expats, including Aetna International, Generali Global Health, AXA Tianping, Allianz Partners and Now Health International.

To read and download EY’s 32-page, 2016 report, The Rise of Private Health Insurance in China,  click here. 

To read and download AXA’s 20-page-long World of Work report from July, which highlights the emergence of China as the new No. 1 destination for international businesses looking to expand, click here. 

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