Rising consumer interest in insurance in China as a result of Covid-19 and inadequacies in the healthcare system

A survey by Oliver Wyman has revealed that the recent Covid-19 pandemic has heightened the importance of health and insurance for Chinese consumers. This is due to the shortcomings in the country's public healthcare system that were highlighted during the December wave of the virus. The pressure on public hospitals, including a lack of capacity, led to an increase in patients seeking treatment at facilities operated by United Family Healthcare in China, according to the founder, Roberta Lipson. The survey found that this has exposed the gap between China's public health system and the country's global economic standing, which is now second only to that of the United States.

According to a survey conducted by Oliver Wyman in December, health, sports, and wellness are at the top of the purchasing priority list for individuals in China aged 25 and above. As China began to ease restrictions related to Covid-19, the survey found that 47% of respondents who plan to increase their spending in the health category intend to invest more in health insurance. This represents a 15% increase from October, as reported in the survey.

The recent resurgence of Covid-19 in China has led to an increased focus on health and wellness among consumers, with many expressing interest in purchasing insurance to protect themselves and their families, according to a survey conducted by Oliver Wyman.

Kenneth Chow, a principal at Oliver Wyman, notes that "There's a much higher health concern after this latest wave, but after the entire pandemic the health consciousness of the Chinese consumer has increased a lot." The survey found that even among younger individuals, health concerns ranked second only to plans for dining expenses.

The pandemic has put pressure on hospitals worldwide, but China's situation, particularly with the recent surge in Covid-19 cases, has highlighted the gap between the country's public health system and its global economic standing, which is second only to the United States.

China's per capita health expenditure is significantly lower than that of the United States, with $535 in 2019 compared to $10,921 in the U.S. Additionally, Chinese households shoulder a greater percentage of their healthcare costs, with 35.2% compared to 11.3% for Americans, according to World Bank data.

The overwhelming pressure on public hospitals due to a lack of capacity, has led to a significant number of new patients seeking both Covid and non-Covid care at facilities operated by United Family Healthcare (UFH) in China, according to Roberta Lipson, the company's founder. Lipson stated that UFH currently operates 11 international-standard hospitals and over 20 clinics in major Chinese cities.

The experience of the Covid-19 pandemic has led to a growing awareness of the importance of assured access to healthcare and an increased demand for UFH's services from patients who can afford self-pay care. This trend is also driving increased interest in commercial health insurance, which can cover access to premium private healthcare providers. Lipson stated that UFH is helping patients understand the benefits of commercial insurance, which will have a lasting impact on the demand for private healthcare services.

New Frontier Health, of which Lipson is vice-chair, acquired UFH from TPG in 2019. In early December, mainland China abruptly ended its stringent Covid-19 contact tracing measures, resulting in a surge of infections and hospitalizations that reached a high of 1.6 million nationwide on January 5th, according to official data.

Chinese health authorities have reported that between December 8th and January 12th, there were nearly 60,000 Covid-related deaths in Chinese hospitals, primarily among the elderly population. As of January 23rd, according to estimates from official data, the total number of deaths has exceeded 74,000.

Although the daily death toll has decreased significantly from its peak, these figures do not account for individuals who may have died from Covid-19 in their homes. There have been reports of a healthcare system struggling to keep up with demand during the height of the wave, including long wait times for ambulances and healthcare workers working overtime, often while sick themselves.

Covid 19

Health insurance

A majority of the population in China, approximately 1.4 billion people, are enrolled in the country's social health insurance program. This program grants access to public hospitals and reimbursement for medications that are included in a state-approved list. Both employers and employees make regular contributions to the government-run system.

However, according to S&P Global Ratings, the adoption of other forms of health insurance, such as commercial plans, remains low at only 0.8% as of the third quarter of 2022.

Analyst WenWen Chen forecasts that the commercial health insurance market will experience significant growth in the coming year. The increasing awareness of risk among individuals, particularly in the wake of the COVID-19 pandemic, has made it easier for agents to initiate conversations with clients. Key players in China's health insurance industry include Ping An, PICC, and AIA. Additionally, local authorities are currently piloting a low-cost insurance product known as Huimin Bao. According to a survey conducted by Oliver Wyman in December, 62% of non-policyholders intend to purchase health insurance, and 44% of existing policyholders are considering increasing their coverage. Over the past 15 years, the Chinese government has invested significant financial and political resources in the development of the country's public health system, with the topic receiving specific attention in Chinese President Xi Jinping's report at a major political meeting in October.

Hospital funding

According to Qingyue Meng, the executive director at Peking University's China Center for Health Development Studies, one of the major obstacles to enhancing China's public health system is its disjointed financing system. Health care providers in China receive funding from four separate sources, including social health insurance, the government health budget, essential public health programs, and out-of-pocket payments. These sources are managed by various authorities without effective coordination in budget management and allocation. As a result, hospitals and clinics are often reluctant to provide public health care due to the lack of financial incentives and the significant number of regulations. This further exacerbates the separation between hospitals and specialized public health organizations such as the Centers for Disease Prevention and Control.

In comparison, HCA Healthcare, the leading hospital operator in the United States, reported that over half of its revenue originates from managed care and other insurance providers. These managed care plans are typically company-subsidized and include a network of health providers. The majority of HCA's remaining revenue is generated from government-funded Medicare and Medicaid insurance plans.

In China, United Family Healthcare's Lipson stated that the company's privately managed business model enables them to respond more efficiently. "We finance our own growth and can attract talent and expertise by offering competitive compensation packages. This allows us to adjust our bed capacity to match the level of care required."

Lipson added, "Having observed the trajectory of the pandemic in other countries and because our patients are privately paying, we were able to secure sufficient supplies of medication and PPE as the number of Covid cases in China began to rise."

She also noted that United Family Healthcare had excess capacity at the start of the pandemic, as they had opened four new hospitals in the past two years. Lipson highlighted that while the public system had added 80,000 intensive care unit beds over the last three years, it still struggled to meet the demand created by the surge in Covid cases.

A shortage of specialized doctors

The ongoing pandemic has presented an opportunity for broader industry changes, particularly in the healthcare sector. According to George Jiang, Consulting Director at Frost & Sullivan, the health care payment system does not have a direct impact on China's hospitals, as most are directly under government oversight. However, macro events such as the pandemic can drive necessary systemic changes, such as the tripling of ICU capacity in a short period of time.

China's tiered medical system has historically forced doctors to compete for limited advanced intensive care departments in only the largest cities, leading to a shortage of qualified ICU physicians and beds. However, recent changes have allowed for smaller cities to hire specialized doctors, a situation that China has not seen in the past 15 years. With an increase in ICU beds, it is expected that China will need to train more doctors to that level of care.

While there are multiple factors that contribute to China's healthcare development and the tendency for locals to seek medical treatment abroad, Jiang noted that China's greater use of the internet for payments and other services in comparison to the United States presents the potential for China to become the most advanced market for medical digitalization. Chinese companies already in the space include JD Health and WeDoctor.

Correction: This story has been updated to reflect that Roberta Lipson is founder of United Family Healthcare and vice chair of parent company New Frontier Health.