Chinese Healthcare Insurance

Chinese Healthcare Insurance
By Leon Long
China Expert

China has made considerable progress in its reform of public health insurance over the past few decades. The government has taken on the responsibility of financing many aspects of health insurance, especially for rural residents, who make up 59.58 % (834 million) of China’s population as of 2018.

The private health-care system is thriving, as more Chinese and foreign health insurance companies enter the market, which is expected to exceed RMB5 trillion by 2020. The government is encouraging private health-care providers by relaxing regulatory restrictions and offering incentives to Chinese consumers.

State-run Health Insurances in China

More than 95 % of people in China use public health insurance systems, but the different plans affect the type of services they receive.

In 2019, China spent approximately 6.6 percent of GDP on health-care, which amounts to CNY 6,519 billion (USD 944 billion). 26.7% was financed by the central and local governments, 45% was financed by publicly funded health insurance, private health insurance, or social health donations, and 28.3% was paid out-of-pocket.

China's medical insurance only pays for treatment from government-approved hospitals and clinics. Some employers may offer additional insurance that allows employees to seek medical treatment from private facilities, but these funds are not taken out of the contributions to the medical insurance fund.

In China, state-funded health insurance is divided into two main categories, based on one’s employment status:

Urban Employee Basic Medical Insurance (UEBMI)

This is the most generous public health insurance plan, and it is funded by employees, their employers, and local governments. Companies or government organizations contribute 6-12 percent of the employee’s salary to the fund, and the employee contributes 2 percent. This plan has the highest average premiums and the highest reimbursement rate. The national average reimbursement rate is 75.6% in 2019. There were approximately 329 million people that were covered by this program in 2019. The employees also receive a social security card; that is also a bank card. Both employer and employee make contributions to this card ( approximately 3.4% of their salary). The card can be used to purchase medicine in approved pharmacies or as an outpatient.

Urban-Rural Resident Basic Medical Insurance

It covers urban and rural residents, self-employed individuals, children, students, and the elderly. In 2019, 1.24 billion were covered under the two insurance schemes (the rural plan and the urban non-employed plan) that make up this program. The national average reimbursement rate was 59.7% in 2019.

Urban-Rural Resident Basic Medical Insurance is financed through annual fixed premiums. Individual premium contributions are minimal, and government subsidies for insurance premiums make up the majority of insurer revenues. In regions where the economy is less developed, the central government provides a much larger share of subsidies than provincial and prefectural governments. In more-developed provinces, most subsidies are locally provided (mainly by provincial governments).

Besides the state-run insurance, there are two other insurances in China. They are:

Maternity Insurance

In China, pregnant women receive paid maternity leave. Employers, but not employees, are required to make monthly contributions for this form of social insurance.

To be eligible for this type of insurance, a woman must work for an employer who has paid three months of contributions and related medical services.

Money from the fund is paid to the new mother while she is off work and caring for her newborn baby. The amount of these payments is based on the women’s average wages. Men can also receive these benefits if his wife does not work in a company.

Work-related Injury Insurance Scheme

In China, the Regulation on Work-related Injury Insurance applies to all workers under the employment of enterprises, institutions, social organizations, private non-enterprise organizations, funds, law firms, accounting firms, and individually-owned businesses. It ensures that employees or their families receive efficient medical treatment and adequate economic compensation in case of work-related injuries or death. Promulgated by the Social Security Administrative Department of the State Council, the insurance premium is contributed by employers, and the rate is determined based on the risk of work injuries in different types of industries. This form of insurance is similar to many countries, the workers’ compensation insurance. It pays for treatment stemming from a work-related injury or illness. Additionally, employees who perform work under certain types of weather conditions can receive allowances.

Benefits Package of the Public Medical Insurance

The benefits package is often defined by the local governments. Publicly financed basic medical insurance typically covers:

  • Inpatient hospital care
  • Primary and specialist care
  • Prescription drugs
  • Mental health-care
  • Physical therapy
  • Emergency care
  • Traditional Chinese medicine

Some dental services (such as tooth extraction, but not cleaning) and optometry services are covered, but most are paid out-of-pocket. Home-care and hospice care are often not included. Durable medical equipment, such as wheelchairs and hearing aids are often not covered.

Preventive services, such as immunization and disease screening, are included in a separate public-health benefit package funded by the central and local governments; every resident is entitled to these without co-payments or deductibles. Coverage is person-specific; there are no family or household benefit arrangements.

Maternity care is also covered by a separate insurance program; it is currently being merged into the basic medical insurance plan.

Online Medical Insurance Market in China

With nearly 725 million mobile internet users, a measured regulatory approach that supports innovation and the continuous development of new, disruptive services by digital giants Alibaba, Baidu, and Tencent, digital platforms have become integral to everyday life in China. The Chinese insurance market has seen the same pace of innovation. As a result, insurers engage more directly with customers than in the past and develop offerings that target their unmet needs.

According to the 2018 annual online insurance policy report, more than 222 million consumers, which comprise 28% of China's total internet users, have bought insurance policies online.

As per a report by Tencent, online insurance in China would remain robust with high potential, owing to the disparity in the number of consumers that purchased online insurance and the overall internet users in the country.

More than 75% of respondents in the survey said they are willing to use insurance sold via the internet.

Long-term accident insurance, long-term critical illness insurance, and life insurance are the three most purchased online, with children and the elderly being top priority targets.

In 2013, Alibaba co-invested in Zhong An Insurance. Zhong An is the first online-only insurer in China. Alibaba holds 19.9% shares of the company. In 2016, Alibaba co-founded Ali-Health Internet Insurance, targeting the online health insurance market. Also in the same year, Alibaba launched the online insurance service in Alipay.

Alipay’s insurance service is attractive to both insurers and users. Alipay’s insurance service platform is the world’s largest platform. It has 520 million Alipay users. Insurers like Taikang Insurance and Ping An Insurance scrambled to launch products on this platform.

WeSure, Tencent's insurance platform, has widened its line of products and formed partnerships with 20 insurance and reinsurance companies. The "data-driven" and "social connection" features of WeChat will help WeSure recommend more suitable products to users, while partnerships with more insurance companies will continue to diversify the platform's offerings.

Private Health Insurance and Major Insurance Companies in China

While the majority of Chinese under public health insurance, the market for private insurance grew dramatically from 1.5 trillion yuan ($21 billion) in 2014 to 2.4 trillion yuan ($34.8 billion) in 2015, and it could reach 5 trillion yuan ($72.5 billion) by 2020. As the country’s middle class grows and the population ages, public health services are falling short of the growing demand for medical care, resulting in “growing government support for private sector involvement in the full spectrum of the health and medical system from cradle to grave,” according to a report from Ernst & Young.

Currently, five private insurance companies specialize in health insurance, and another 100 offer health insurance products, including 28 foreign life insurance companies. The three largest private health insurers are Ping An Health Insurance Company, PICC Health Insurance Company, and China Life Insurance. Most private health insurance plans provide supplementary insurance products to complement public health insurance plans. Supplementary insurance and critical illness products are the most developed in the market, primarily because public insurance systems cannot fully cover the costs of catastrophic illnesses.

The 5 biggest Chinese Insurance Companies are:

China Life Insurance (Group) Company

With a market capitalization of about $100 billion, China Life Insurance Co., Ltd. (NYSE: LFC) is the biggest insurance company in China and one of the top insurance companies in the world. NPW for China Life is $97.6 billion, according to A.M. Best. China Life traces its roots to the founding of the People's Republic of China in 1949. It operates life insurance, property, and casualty insurance businesses, and it also offers asset management services as well as other financial services.

Ping An Insurance (Group) of China Ltd.

Ping An of China was founded in 1988 and held its initial public offering (IPO) in 2004. While the company began as a property and casualty insurance company, it has since expanded to offer life insurance, banking, online financial services, and wealth management businesses with the stated goal of becoming a comprehensive financial services provider. The company had 184 million customers in 2018. Ping An is listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange.

China Pacific Insurance (Group) Co., Ltd.

China Pacific Insurance Group is an integrated insurance provider offering property and casualty insurance, life insurance, and reinsurance products, as well as asset management and investment services. It was listed on the Shanghai Stock Exchange in 2007 and the Hong Kong Stock Exchange in 2009. It has a market capitalization close to $23.74 billion.

People's Insurance Company (Group) of China Limited

People's Insurance Company of China Group was established in 1949. Along with subsidiaries, the company mainly engages in property insurance, reinsurance, health insurance, life insurance, pension insurance, Hong Kong insurance, and operating insurance. Its most substantial subsidiary is PICC Property and Casualty Company, which sells a wide variety of non-life insurance products, including auto, home-owners, commercial property, and agricultural policies. People's Insurance Company of China Group is listed on the Hong Kong Stock Exchange.

New China Life Insurance

New China Life Insurance Company was founded in 1996 and has quickly grown into a top-five company in the industry. While its primary business remains for life insurance, the company also has growing business interests in the investment industry and the health-care industry. New China Life has more than 32,000 individual customers and 86,000 institutional customers. The company manages and deploys insurance funds through its subsidiaries including Asset Management Company and Asset Management Company (Hong Kong). New China Life was simultaneously listed on the Hong Kong Stock Exchange and the Shanghai Stock Exchange in 2011.

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