Health Care Insurance in China, Really?
October 2nd, 2009 by Kent KedlDownload this podcast
Length – 15:40
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In the past couple of Podcasts, we’ve been talking about healthcare in China and, specifically, about the potential opportunities that this might represent for foreign companies doing business in China. The rallying cry here in China these days comes under the heading of “yi1 gai3”, literally “healthcare reform” … and if you think that Mr. Obama is staking his future presidency on healthcare reform in the U.S., the pressure on the Chinese government is 10 times worse. China suffers from similar issues – a large number of its citizens not covered (or under-covered) by the existing insurance options. But when we say “large”, we need to be very careful what we mean here … because “large” in China means something like over a billion people with inadequate coverage.
Remember from our previous Podcasts, that this is a population that is rapidly aging – by 2020, there will be 181 million people aged 65+ in China, more than the entire population of Russia, and those 181 million elderly people will be 25% of the world’s total elderly. Remember, too, that the responsibility of supporting these elderly is falling on the shoulders of China’s vast only-child children, those born starting in the early 1970s when China stepped up their population control enforcement.
Of course, what actually will happen in China’s healthcare reform is anyone’s guess right now and I cannot claim to have unique insight … China’s healthcare reform leaders are following Deng Xio-ping’s dictum in the early 80s that China’s developing would be, what he called, “Mo shi tou guo he” … crossing the river by feeling for stones. We’ve already talked about one of those “stones”, the infrastructural changes that China needs to make, upgrading their hospitals and equipment, starting with the mid- and lower tier hospitals. This will certainly be happening, and in a big way. But there are three other “stones” that seem to be most prominent right now: insurance, doctor training and healthcare regulation and monitoring. Let’s look at each of these in order:
Insurance
For most people – including yours truly – discussing health insurance is a sure cure for insomnia! But in China, there are actually some very interesting socio-economic issues tied with health insurance. In China today, over half of people’s healthcare costs come out of their own pocket while only about 18% comes from government-sponsored insurance. The exact opposite is happening in the U.S. where the vast majority of healthcare expenses are born by government or employer-sponsored insurance programs and, though it sometimes seems like a lot, a smaller portion of the average American’s paycheck goes to pay for their own healthcare. In China, about 9% of a person’s disposable income is spent on healthcare … and that figure will nearly double to over 16% by the year 2025. China has a HUGE problem on its hands right now!
One of the biggest challenges we have in getting foreigners to understand the China healthcare system is to get them to realize just how little insurance matters in China … seriously, for most of China’s citizens, insurance picks up such a small portion of the total healthcare tab that people will rarely think about it. I was on a panel a couple of months ago, speaking to a group of doctors and healthcare professionals visiting from the U.S. I was the only foreigner on the panel … kind of the token white guy! For the first half hour, the visitors pelted us with questions about the insurance system in China … how much did it cover, what drugs and devices were covered, how was it paid for, etc. We tried to politely answer their questions but my fellow panelists were getting frustrated … they were wondering why these people were asking questions about something that didn’t really matter here. Finally, I spoke up and said, “Listen, I guess what we are trying to tell you is that insurance doesn’t matter AT ALL here! People don’t think about it much … they look at how much money they have in their pockets or bank account and make healthcare decisions on that basis. Get off the insurance stuff already!!” There was this shocked look among the visitors … then one of them said, “Wow … this place really IS different!!”
Yes, it is different … but the Chinese government’s goal is for it to change and change drastically. As we’ve discussed before, the relatively high savings rate in China (30-40% of total income, depending on where you live) can be attributed, in part, to people’s concerns about the future healthcare costs for themselves and their parents. Beijing has to find a way to crow-bar open people’s wallets and encouraging local consumption (and not rely so heavily on exports) so fixing health insurance is a HUGE requirement for them. So a key goal of China’s medical reform is the elusive phrase “universal coverage” … that every one of China’s 1.3 billion (and growing) population is covered under a health insurance plan. And as the United States is finding out, the devil is in the details of defining what “coverage” means and how far do you need to go to get to “universal”.
There is a plan in China to have several different kinds of insurance but divided, generally, into two types: insurance for urban residents and insurance for those living in the smaller towns, villages and countryside. Let’s start with urban residents, currently the only population with any kind of meaningful insurance (and even then only about 15% of them are covered). The government’s goal is, by the end of 2010, to have 100% of urban residents covered by what they are calling the Urban Employee Basic Medical Insurance. The details, of course, are still being worked out on this, but the goal seems to be to have it be funded by both the employer and the employee with co-pays up to 30% and a deductible of up to 2,000 RMB (about $300). Right now, they are saying that the maximum annual payout would be 4 times a person’s annual wage … but this could just be marketing at this point. There is talk, too, of an insurance program to cover those urban residents who are unemployed … and that would have a maximum out-of-pocket payout of about 35% of total costs. That is not much lower than it is now, but I suppose it is, as my grandfather used to say, better than a sharp stick in the eye (and, at least you can get some help paying for the medical care necessitated by the sharp stick in the eye and you know that can’t be cheap!)
The insurance plan envisioned for rural residents is a bit more basic but will be much more difficult to roll out. Right now, the average rural resident gets a medical reimbursement every year of about $20 … now, healthcare is certainly cheaper in China than it is in most other countries, but 20 bucks won’t get you very far, even here! The program for rural residents is much cheaper, per person, than is the urban plan, but there are more “persons” to cover in the rural area (remember that nearly 65% of China’s 1.3 billion people still live in the countryside). In the rural plan, there would be a 100 RMB premium with 80 RMB paid by the government. There would be a 60% co-pay with an RMB 500 deductible. The maximum payment under this plan would be 10,000 RMB per year, only about $1,500. Under normal circumstances, that would be OK … but in any kind of catastrophic or near-catastrophic situation, that would not be enough to get anyone through.
Again, there is a LOT of talk about this … in the media, among colleagues, etc. And this is completely anecdotal evidence, but I don’t see a lot of optimism from the average Chinese citizen that these programs will arrive on time and provide adequate coverage. There could be an opportunity here for private insurance and more of that is coming online (all the big international insurance companies are already here) but there is not a historical practice of buying health insurance. I think that people here will still be hedging against the future by saving money, not spending a lot on insurance. So right now, it seems that everyone is waiting around to see just what kind of insurance the government comes up with … and then everyone will decide if it means anything to them or not.
Medical Training
The second “stone” sticking up out of that raging river we are trying to cross is medical training. Right now in China, there really is no standard to practice medicine and you do not necessarily need a medical degree to practice medicine … in fact, 98% of medical professionals practicing in China today have a bachelor’s degree or less, and about 70% have the equivalent of a vocational college degree.
Now, this is a bit scary, but let’s put it in some context here … China’s medical training is NOT based on a “general medicine” approach is it is in the U.S. where all medical doctors – from surgeons to dentists to psychologists – go through a standard program of general medical training. Rather, nearly every one of China’s 1.6 million doctors is a specialist – in fact, only about 4% are considered general practitioners. Everyone else has some specialization … 18% do internal medicine, 12% are surgeons of one kind or another; 10% are obstetricians; 4% are pediatricians. So when I say that they have a “vocational degree” of some kind, it means that they study their particular vocation … like surgery … to the exclusion of all else.
This can make for some very good surgeons … if the problem presented to them fits the textbook case that they have previously studied. A son of a good friend of mine here fractured both bones in his forearm last year and they went to a local orthopedic surgeon who did the surgery and pinned the bones. They went back to the U.S. over the summer and had a surgeon look at it there and the U.S. surgeon was very impressed. He said that the Chinese surgeon had done the best job he had ever seen in this type of surgery.
However, rarely in a medical situation do problems present themselves textbook style. Right now, if you have a medical problem, you will go to the hospital, check in and tell them, generally, what is wrong with you. If you say that your stomach hurts, you might be sent to a gastro-intestinal specialist. But if you are found to actually have a nerve condition that presents itself with stomach problems, you will end up being in kind of a no-man’s land … once you enter the system along the “stomach” track, it is very difficult to get on to the “nervous system” track. In the Chinese medical system, there really aren’t anything like “case managers”, someone that will look after your overall health picture and coordinate the care you need with the best specialists to help you.
I do some work with a medical foundation here in China and we had a baby from a rural orphanage in for some heart surgery. She also had a swollen abdomen but the heart was the biggest problem … she went through surgery and came out of it OK. She spent time in the hospital and slowly recovered … but it still looked like she was hiding a basketball underneath her navel. One day, the heart surgeon came by to check on her and, after examining her, declared her fit to leave the hospital. One of our Western volunteers was there and said, “Hey, wait a minute … what about her belly??” The doctor said, “Oh, that’s not my area. You’ll have to talk to someone else about that.” He was not being mean … he was a very caring man and was a very good heart surgeon. But that is ALL that he did … he did heart surgery! He was not trained in anything else and certainly was not going to stick his neck out to go beyond his expertise.
Now, what I have been talking about is for hospitals in the urban areas … the rural areas of China are even more challenging. A 2001 study of about 800 village doctors in Western provinces found that 70 percent of them had no more than a high school education, and had received an average of only 20 months of medical training. In addition, our interviews with rural clinics show that over 60% of doctors and healthcare workers in have less than 5 years of experience … and only 2% nationwide have over 10 years of experience.
For a country that will soon be smack-dab in the middle of a HUGE, medically-fragile, elderly population, this is not the kind of situation you want to be in! Part of China’s investment in their healthcare future will require massive amounts of money spent on doctor and healthcare worker training. As far as I’ve been able to see from the current talk on healthcare reform, I don’t see anything committed to this effort … but there certainly should be!
Regulation
For those that have done any business in China, you know what China can do with a bureaucracy. Typically, Chinese government bureaucracy is mirrored at multiple levels … starting with national and moving down through provincial, county, city, district and neighborhood, there are branches of the same government entity. In healthcare regulation and monitoring in China, we see the same thing … but it becomes MUCH more complicated because there are often parallel and competing government entities vying for power. Look just at the national level and you find multiple regulatory bodies involved including:
- The Ministry of Health which oversees hospital management
- The State Food and Drug Administration which , similar to the FDA in the U.S., regulates anything related to food and pharmaceuticals, from production to distribution.
- The National Development and Reform Council (NDRC) which oversees much of healthcare pricing
- The China Insurance Regulatory Commission (CIRC) which, as its name so subtly suggests, regulates insurance, particular private insurance.
- Then there is the alphabet soup called the MoHRSS, the Ministry of Human Resource and Social Security who looks over the shoulder of the CIRC to regulate public insurance and the reimbursement list.
- Finally, there is the Ministry of Finance who is responsible to help fund this whole mess.
There is not one, overarching ministry in charge … a ringmaster, a quarterback, a dominatrix in a doctor’s outfit … use whatever metaphor floats your boat! So not only do we have a HUMONGOUS need for real, lasting healthcare reform in China, we have a bunch of ministries all lunging for the same levers to pull. My concern is, obviously, that we are going to see some real challenges ahead of us in the coming years.
Conclusion
So let’s bring this back home … what does it mean for us, the potential foreign investors in China’s healthcare system? I can see two areas of interest:
- Foreign investors should be focusing on the mid- and lower-tiers of the healthcare system … to find a way to participate where the volume is and where the money is going to flow. I mentioned this in earlier Podcasts, but foreign investors – device companies, pharmaceuticals, drug delivery, etc. – should certainly try to play in the upper sectors, but should use that play to find a way to get into the lower ones. If you are a device company, find a partner to work with to bring your particular technology to the masses. Guaranteed, you are going to have to take some engineering OUT, reducing features and functions but also reducing costs. Then you’ll need to find a distribution channel that can get it to the hospitals and clinics purchasing this equipment. And they WILL be purchasing … again, the government is going to be dumping MASSIVE amounts of funds in these mid-tier healthcare outlets to upgrade their capabilities. Get in on the ground floor and you could be in for quite a ride. We are working with several medical device companies now on these strategies and the opportunities are HUGE!
- The second area I am only going to mention in passing because I don’t really know exactly how to do it yet – and that is, find a way to participate in the actual DELIVERY of healthcare. Participate in private clinics, open medial labs, work at doctor training. The need is obvious and overwhelming … I am honestly just not sure how to turn it into a business yet. We are working on a couple of projects in the privatization of clinics and hospitals and are seeing some very exciting things … I just haven’t seen a business here yet. Its there, I can smell it … but I haven’t found it yet.
If you are working in some area of China healthcare, please share your story with us … send a comment along on our blog at www.technomicasia.com/blog. If you have a really good story, we’ll get you on the Podcast to share it. For those of us trying to cross that raging river by feeling for stones, it always helps to have others by you, to help guide and stabilize you (and, to extend the metaphor, to help haul you up when you fall flat on your can!).
Thanks for listening … in our last healthcare Podcast coming this fall, we’ll talk about pharmaceuticals in China and how the healthcare reform will impact this very critical area. Until then, remember our motto: “In China, everything is possible but nothing is easy.” We’ll see you next time on the China Business Podcast.
