China has been through huge changes over the past 20 years, moving from a rural local market to the second largest economy in the world. There has been a huge influx of foreigners working for multinationals and Chinese companies, and some Western companies have completely outsourced their production to China. The latest census shows that 600,000 foreign nationals were living in China at the end of 2011, while the number of UK expatriates working there has increased by 18% in the past five years.
Despite being an economic powerhouse, the provision of healthcare in China still lags behind most Western countries. Economic reforms in China in 1978 resulted in the government’s progressive withdrawal from publicly funded medicine, which meant that medical costs were increasingly paid for by patients themselves.
“As happens elsewhere around the world when healthcare is not state funded this means that often the poor cannot afford medicine and that there is inadequate provision for preventative medicine,” says Beverly Cook, managing director of international private medical insurance (iPMI) provider Expacare. “Unsurprisingly this has meant that average life expectancy has increased by only 3.5 years since 1978; this is stark considering that neighbouring countries such as Japan, Singapore and Hong Kong have doubled their longevity in the same time period.”
Times have changed since the economic reforms, but there is a lot of variation in the standard of healthcare throughout China. Medical facilities in the major cities are generally of a high standard, but facilities in rural areas are very basic. Most healthcare facilities are in the public sector, but there is a fast growing private sector developing as companies take over and refurbish disused state hospitals.
“Anybody can access the public sector hospitals, but Asian medical treatments might take some Westerners by surprise, as they can include traditional Chinese medicine,” says Debbie Purser, managing director at MediCare International. “Whilst there are private hospitals in the main cities of Beijing, Shanghai and Guangzhou, in reality the number of these is low and many are regarded as inferior to the better state hospitals. Recent changes to the Social Insurance Laws mean that expatriates with residency rights can be included in the Chinese social security system, but with long queues and generally poor facilities, there is little incentive for them to follow this route.”
Paying for healthcare
The way in which healthcare is paid for in China is very complex. Both employers and employees make a contribution to state administered funds. The type of cost incurred, i.e. inpatient or outpatient, will determine from which segment of the fund costs are met. Fund expenses are capped, so there is a possibility that individuals using the state system will have to pay some costs from their own private insurance or personal funds. This complexity, plus the variation in healthcare standards, means that having an iPMI policy in place is highly recommended.
“By definition, the majority of expatriates working in China, especially Western expatriates, will have key man status i.e. they will be highly important members of a workforce. It is therefore vital that if they fall ill, they can have access to the best healthcare as quickly as possible – that means using private insurance to access facilities quickly and to jump queues. Sometimes this will mean evacuation outside of the country, at which point an international policy is vital. Such VIP or high end policies are now also becoming popular amongst local wealthy Chinese, as they enable treatment abroad,” says Purser.
There are a lot more insurers with a presence in China than in the other BRIC countries. Bupa and CIGNA have operated there for some time, and this year both Allianz Worldwide Care and Now Health International opened local operations in China. However, Ron Buchan, chief executive officer of Allianz Worldwide Care, does not think many more insurers will open offices there because of the regulatory and procedural hurdles.
“I think we will most definitely see the number of insured people increasing, and there will also be an increase in joint ventures where companies seek medical cover locally and pay for it in the local currency. But there probably won’t be an increase in the number of insurers because there is a big barrier to entry to setting up a local Chinese operation,” he says.
Insurers also face the difficult task of controlling the cost of claims. MediCare’s Purser says Chinese hospitals have a reputation for overcharging and some estimates suggest that premiums have to rise by 10% to keep pace with rising costs.
“Patient fraud is also an issue,” she says. “Some insurers are now subcontracting administration to specialist local companies who should be able to control costs and limit fraud. Other changes include the introduction of outpatient deductibles to deter over use of policies.”
China is also a challenging place for brokers to do business in. Steve Nelson, sales manager at iPMI broker April Medibroker, says Chinese bureaucracy is extremely complex and the rules are strictly applied, so brokers need to make sure they are aligned with local partners who are authorised to operate in the territories. Most international policies are not approved for sale inside the country, so the challenge lies in making sure non-admitted policies are going to be honoured as sometimes these are all an insurer has to offer. A big risk for brokers dealing with local insurers is that they may not be able to pay commissions outside of China.
“In China itself, each insurer seems to have a different approach to what they can offer and this may be partly to do with the fact that not all plans can be sold locally. However, as a broker outside of China, Medibroker can usually find a plan to cover either on a non-admitted basis or look for a plan provider who has a strategic partner arrangement in China and so be able to offer their plans on an onshore, admitted basis,” says Nelson.
One of the most important features of an iPMI policy is evacuation cover. Expats might need to be moved to a hospital in the city and some might need to be evacuated to Hong Kong or their home country where the standard of medical care is higher. Many people choose to go to Hong Kong for elective surgery or to have babies.
“When moving overseas it is especially important that businesses know what to look for in a policy,” says Expacare’s Cook. “For example, do they want to cover the costs of potential GP visits, medical evacuations, cancer and chronic conditions, routine examinations, medication and operations? These can all be costly in emerging markets. Importantly, are the conditions clear? Those purchasing cover should always ensure as a priority they know that pre-existing conditions are covered and understand the small print.”
The wide range of plans available for expats in China means that getting advice from a specialist broker is essential. With the number of expats in China expected to increase, the opportunities for brokers are abundant.