How Employee Insurance Can Help China Manage Its Rising Medical Costs

Editor's Note: In this article, originally published in BRINK Asia, Mercer's David Anderson explains what's driving China's rising medical care costs, and what insurance strategies will ensure China's employees receive low-cost, high-value care.

Medical insurance premium rates are on the rise around the world, and are pushing employers to play a more strategic role in shaping the healthcare market. This is especially true in China, where a population of 1.4 billion ensures that the country has the largest representation of universal health insurance in history.  

The rarity of universal health insurance coverage in growth economies makes China’s achievement even more remarkable. However, while studies conclude China’s experience is exemplary for nations seeking to follow in its footsteps, the limitations of publicly provided care cannot be ignored in a world where medical costs are on the rise.

In the span of just one year, 2016 to 2017, China has seen increases in both inpatient and outpatient medical trend rates. Medical costs are increasing at an average annual rate of 10 percent — more than four times the rate of local consumer price inflation (2.4 percent). The medical insurance arranged by the Chinese government falls short of meeting these evolving needs. Deductibles, copayments and coverage limitations have created a need for employees to turn to supplemental insurance to cover their risks.

In response to the added burden on operating expenses and employee purchasing power and gaps in publicly provided care, Chinese employers are increasing their investments in employee commercial insurance. China’s commercial healthcare insurance market has seen a growth rate of approximately 25 percent since 2000. More than 100 insurance companies are now providing commercial healthcare products in China, and this number is growing. Through commercial insurance, employers can capitalize on cost saving opportunities and have some influence on the healthcare market.

Findings from Mercer’s 2017 Medical Trends Around the World Survey, coupled with our client partnerships across China in the cities of Beijing, Dalian, Guangzhou, Shanghai, and Shenzhen, indicate there are three core elements escalating the cost of medical care in China and influencing commercial insurance strategies.

An Aging Workforce

China has the world’s fourth-most rapidly aging population. By 2050, over 27 percent of the population will be age 65 or older, according to the United Nations. Chinese employers are seeking to overcome employee health risks due to aging populations by exploring new options for guaranteeing affordable access to quality care for their employees. These include evidence-based benefits design, centers of excellence, medical audits, second medical opinion, and new patient care technologies. Employers are also analyzing their workforce populations and providing targeted healthcare provisions based on employees’ workforce health profiles. Through commercial insurance, Chinese employers are putting in place the right health culture and incentives to positively impact the health of their workforce and curb the medical demand of aging populations.

High-Priced Technologies

By 2022, the World Economic Forum forecasts that annual health spend in the growth economies is going to be $4 trillion — an estimated 10.7 percent growth in health expenditure every year, as compared with 3.7 percent in developed economies during the same time period. Pair this projection with China’s historically inefficient medical system and we have the perfect recipe for creating new opportunities across the healthcare value chain. China is experiencing the growth of digital healthcare services, including online physician consultations and prescription delivery services. This digital makeover is achieving two important things. First, it’s providing Chinese employers the option to offer “higher-end benefits” more broadly to more employees. Second, it’s creating multi-billion-dollar opportunities for technology companies.

However, although new technologies can offer hope for better treatments, they provide a challenge for many of China’s employers in how to assess their value at the higher price point. As a result, many Chinese employers are looking to commercial insurers for help by leveraging data and technology to better design and integrate resources.

Increasing Medical Claims

Across Asia, cancer remains the costliest inpatient claim. Outpatient data confirms that gastrointestinal diseases are the second-most costly claims, followed closely by respiratory conditions. Given the complexity and increasing personalization needed in treating these ailments, Mercer’s survey finds employers are buying commercial medical insurance to guarantee employees have access to second opinions and to centers of excellence, which can ensure better outcomes.

Chinese employers are also purchasing commercial insurance to have more personalization options to address prevention, early diagnosis, and long-term care. Customizing healthcare design means employees get the services or support they need and better transparency on outcomes as well as costs — to care for a family member with cancer or simply stay healthy.

Employers have a unique role to play in determining how high medical trend rates impact their employees. Through a sound strategy, they can affect both cost and outcomes to ensure access to affordable and quality healthcare coverage. As China’s employers increase their commercial insurance investments, they will need to evaluate the key medical cost drivers and integrate these factors into their investment strategies.