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AIS's Health Business Daily
Featured Story August 15, 2008 U.S. Health Insurers Go for the Gold in China, but Could Face Hurdles in Complex Emerging Market Reprinted from HEALTH PLAN WEEK, the industry's leading source of business, financial and regulatory news of health plans, PPOs and POS plans. With one of the fastest-growing economies in the world, a growing affluent customer segment, a high savings rate and rapidly expanding consumer spending, the People's Republic of China has become an attractive market for U.S. health insurers. The Commerce Department itself describes China, host of this month's Olympic games, as "the world's largest untapped insurance market." Aetna Inc. is the latest insurer to enter the market, opening a representative office in Shanghai a few months ago. WellPoint, Inc. opened its representative office in Beijing earlier this year, while UnitedHealth Group opened its office in Beijing last year. CIGNA Corp. has been in the China market since 2003 and already is turning a profit, Mike Ross, marketing vice president at CIGNA International, tells HPW. But while it might be a potential gold mine, China also is a challenging market. Martha Temple, president of Aetna Global Benefits, describes it as a "complicated market" with barriers and unique issues that make it imperative for insurers to explore the terrain carefully before launching a business line. To do business in China, a company must first open a representative office and partner with a Chinese company. The office must be open for two years before the company can apply for a license to sell products and services. Insurers typically use that time to conduct research, explore strategic options and identify a joint-venture partner. CIGNA and others say that finding the right partner is crucial for success. While Temple says Aetna is looking at the group insurance market, WellPoint and United are exploring opportunities in health administration, risk management and care coordination. CIGNA is focusing on selling individual accident and hospital indemnity products along with life insurance. Since adopting market reforms in the late 1970s, China has been among the world's fastest-growing economies. With a nominal gross domestic product (GDP) of $3.4 trillion, China is the fourth largest economy in the world. The World Bank projects that China could triple its economic output in the next 10 years. According to the U.S. Dept. of Commerce, the Chinese government is interested in developing its health care and pension insurance sectors in order to sustain announced reforms and provide for the nation's aging population. Analysts tell HPW that the potential value of China's health insurance premium market could reach more than $17 billion by 2015, triple what it is today, in part due to the aging of China's population and an expanding economy. China's health care spending is expected to account for 6% to 7% of its GDP, and this could further grow the market for insurance products. U.S. health insurers say they are focusing on three primary business lines: health insurance products and services for employees of multinational and other companies doing business in China; direct sales of health insurance products to Chinese nationals; and administrative, care coordination, medical management and related services to health care providers and other entities. Expatriates Help Drive Growth The influx of multinationals and other U.S. companies into China is driving a growing market for providing health coverage to their employees. Aetna and other companies already serve the expatriate market in Asia as well as China and are working to grow their market share. A recent Mercer Human Resource Consulting survey found that more than 90% of multinational companies say that China is important to their global strategies, with 52% calling it critical. Aetna already provides health insurance products for more than 15,000 expatriates working in China. While China's health care system is run by the government, hospitals in China typically set aside sections for nationals who are privately insured. And with a growing affluent consumer class, this market is expected to grow. But the individual market is immature and risky. Loss ratios (derived by comparing claims with premiums) for risk-based health insurance products have been as high as 20% for some Chinese insurers in recent years, and a few reportedly have stopped offering individual health insurance. CIGNA, however, is aggressively tapping into the demand for hospital indemnity, accident and life insurance. The company sells these products through direct-to-consumer vehicles, primarily banks and telemarketing, a distribution strategy CIGNA has used successfully in other international markets. CIGNA's joint-venture partnership now operates four branches, reaching 25% of the total Chinese population. The company declines to disclose profit by individual country. Ross tells HPW that CIGNA's decision to pursue direct-market insurance products was driven partly by growth in the country's credit-card business. Because employer-based insurance is virtually non-existent, consumers rely on government-run programs that can leave gaps in coverage. CIGNA's hospital indemnity products target this need. Ross says that CIGNA broke even in China in a short period of time "and turned a profit in 2007." The company also "continues to experience a significant increase in its customer base." Although CIGNA is constantly exploring expansion opportunities, Ross says the company "has no plans to announce at this time." Ross credits CIGNA's success to its decision to create a joint-venture partnership with the China Merchants Group. The decision to joint-market with Chinese banks also was an important factor in achieving market penetration and growth. Aetna is taking a different tack. Temple says that if the company decides to offer health insurance products, it will likely target the group rather than individual market. "As a group insurance company, this would be our first target for exploration," she says. Plans Could See Booming Ancillary Business Another market for U.S. insurers is the growing need for administrative, disease management, risk management, care coordination, quality and wellness programs as China's health care delivery system evolves. In addressing these markets, Temple says insurers such as Aetna would be exporting operational strategies they have honed in the U.S. Both WellPoint and UnitedHealthcare are actively exploring these business lines. WellPoint recently partnered with Premera Blue Cross and two other companies to explore offering third-party administrator services in Shanghai. UnitedHealthcare, meanwhile, is "exploring opportunities to partner with employers, government entities and health care providers to help improve health administration and risk management, as well as coordinated care delivery for consumers," spokesperson Daryl Richard tells HPW. Citing significant and often problematic differences between the U.S. and China health care markets, Temple says Aetna is moving cautiously and methodically. "We've hired a Chinese national to help us understand the market and identify opportunities. It's basically a preliminary market exploration. At the end of the two-year period, we may decide not to pursue any opportunities. Or we could decide to offer only non-risk services." Another challenge: the widespread use of traditional Chinese medicine which, Temple says, poses a unique challenge. Industry analyses also cite a host of geographic, cultural, regulatory and structural issues that can make the China market difficult to navigate. The market is diverse, with varying levels of regional strengths and weaknesses. The judicial process is slow, expensive and plagued by corruption. The country lacks overall management talent, and most consumers are, for the most part, unsophisticated. The health care industry is highly regulated, and the regulatory process is far from transparent. Finally, reforms
announced recently by the Chinese Health Ministry included plans for
universal health coverage, new delivery systems and changes in hospital
management. But the reforms were vaguely worded and couched in highly
generalized terms, making it difficult to predict their potential impact. |
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