Plenty of room for healthcare insurance growth in China: EY

China's tsunami of rising diabetes and cancer cases, a rapidly aging population and out-of-pocket payments for most cutting-edge therapies is coming to a head. Combined with growing incomes, however, it represents a massive opportunity for foreign and domestic firms in healthcare insurance.

Jonathan Zhao, Asia Pacific Insurance leader, and Andy Ng, Greater China Insurance leader for consulting firm Ernst & Young (EY), surveyed 2,000 middle- to upper-middle-class consumers to get insights on what the scope of demand is from clients in that space for a market expected to exceed RMB5 trillion ($747 billion) by 2020.

That is a whopping increase from the RMB241.1 billion figure cited by the consulting firm.

It also highlights the key findings of the survey. For starters, 93% of folks with insurance coverage say it's either "not satisfactory" or "somewhat satisfactory." What's more, 33% of them have no savings set aside to cover serious illnesses while 80% sees pollution in China as key health worry.

China does offer national basic health insurance and--through federal and provincial reimbursement lists--drugs through several channels at highly-subsidized costs.

That is done through one of three plans: Urban Employee Basic Medical Insurance, Urban Resident Basic Medical Insurance and the New Cooperative Medical Service. Efforts are in the works to merge them into a unified system.

But as EY notes, the plans are a form of triage in the country of 1 billion-plus people that is struggling to contain healthcare costs and regulate changes in areas from public hospital pricing and services to the way drugs are approved.

"These systems cover 97% of the population," EY said in the report. "Actual coverage is minimal, with large disparity between plans and high out-of-pocket spending. There is a looming funding crunch as health care expenditures outgrow public funding. If no action is taken, the BMI will accrue an outstanding debt of RMB735 billion by 2024.The government will need to either subsidize this funding deficit or reduce coverage."

This state of affairs, EY said, has not gone unnoticed. Companies see a market opportunity.

Citing data from the China Insurance Regulatory Commission, EY said there are 5 insurance companies in the country now that specialize in health and another 100 that offer health insurance products, which includes 28 foreign life insurance firms.

"CIRC reported more than 2,300 health insurance products in the market in 2015," EY said.

But there are a number of chronic and major illness costs that are not covered under government plans. These diseases often require navigating a complex system to find the right therapies.

"Drug costs are a major concern, and despite the Chinese government’s best attempts to bring costs under control through its Essential Drug List (EDL), prices continue to rise," EY said in the report. "Among the survey respondents, 77% reported that they had been prescribed drugs not covered by the EDL. When asked about the most important services in their private health insurance plan, 65% cited extended prescription drug coverage."

In a recent story, Reuters highlighted the problem as one that has led many families to seek loans to cover chronic illnesses, often leading to crippling debts.

The news agency, citing figures from Boston Consulting Group, said personal healthcare costs are forecast to jump fourfold to RMB12.7 trillion by 2025.

As EY noted, however, this scale has attracted major firms such as Ping An Insurance Group and niche players in peer-to-peer lending that provide funds for medical bills.

These services, EY said, will benefit as well from China's push to setup a big data standardized system of healthcare records, allowing more detailed actuarial work to determine premiums and identify trends in disease management.

- here's the EY report
- and a related story from Reuters

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