China’s Commercial Health Insurance Market

By Rong Yi, PhD, Principal, China Healthcare Analytics Practice, Milliman, Inc.; August 10, 2021

China is large and complex economically, demographically, and geographically, and is also going through rapid changes at paces rarely seen in history. In this blogpost we provide a very high-level overview of China’s rapidly growing commercial health insurance market. Before delving into health insurance, let us provide some context in comparative light to set the stage.

Economy, Population and Public Health Insurance

China used to be one of the poorest countries in the world. After forty years of rapid economic growth, it has now become the second largest economy in the world. Measured by purchasing power parity (PPP), China’s real GDP exceeds that of the US by almost 16% (24.27 trillion USD vs. 20.94 trillion USD)[1]. China also has the world’s largest population, at 1.4 billion, making its GDP per capita roughly 16% of that of the US.[2]

 

China’s population growth has slowed down noticeably since the past decade, and is projected to have negative population growth after 2030, and by then 25% of its vast population would have reached retirement.[3]

China’s healthcare expenditure has been increasing in keeping with the economic growth and aging of the population. As of 2018 it accounted for a little above 5% of its GDP. It is reasonable to expect this trend to continue in the coming years. For instance, JP Morgan predicts that China’s healthcare expenditure will reach almost 7.9% in 2026[4].

Rapid economic growth also brings about rapid rate of urbanization. According to China’s 2020 Census, 63.9% of China’s population resides in the urban area, up from about 20% forty years ago^[5]. There are 18 cities with more than 10 million residents. Of these, 4 cities have more than 20 million residents. Healthcare facilities and other resources concentrate in these select metropolises.

More than 95% of the Chinese population has government-sponsored health insurance, known as the Basic Social Health Insurance (BSHI), which are further divided up into two groups based on employment status and urban/rural resident status. Funding of health coverage comes from the central government, local governments, employers, and the participants, and the level of funding varies by geographic area.

BSHI’s benefit design varies significantly by geography. Core to the BSHI coverage is inpatient services. Within inpatient services coverage, different areas may have different deductibles, copays, coinsurance and benefit cap. For urban employees, around 85% of covered services is paid by the BSHI. For the unemployed residing in the urban area or the rural residents, the percent coverage can be significantly lower[6]. In areas where the local economy is better off, outpatient services, outpatient prescription drugs, and sometimes chronic diseases (such as hypertension, diabetes, and dialysis) that require routine outpatient management and monitoring are also covered. The Chinese government has made it a policy priority to lower patient liability. In the past 15 years, the average out-of-pocket has gradually decreased from around 56%[7] in 2006 to slightly under 28.4% in 2019[8]. In comparison, out-of-pocket spending in the US during the same time period also has been gradually declining, from 13.5%[9] in 2006 to 11%[10] in 2019.

Commercial Health Insurance

From 2011 to 2020, the premium income of China's health insurance increased rapidly from 69.2 billion yuan to 817.3 billion yuan, with a compound annual growth rate exceeding 30%[11]. Whether the commercial health insurance market may continue to grow at this rate remains to be seen, however, it is a broad consensus that China’s commercial health insurance market still has a lot of room to grow in the foreseeable future, owning to the following factors:

There are four main types of medical insurance products[12].

 Coming up next…

In the coming months we will discuss China’s new product designs, market solutions and technological innovations that may be of reference for the US healthcare market, as well challenges that China’s healthcare market is facing which may need expertise from outside of China to help with.

Caveats and Acknowledgements

This blogpost has been created for MCOL. Views and opinions expressive in the above are those of the author’s and do not necessarily represent that of the Milliman as a whole.

Wendy Liu contributed to the article. Guanjun Jiang provided peer review.

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[1] Retrieved from https://data.worldbank.org/indicator/

[2] ibid, 1

[3] http://www.stats.gov.cn/tjsj/tjgb/rkpcgb/

[4] https://am.jpmorgan.com/sg/en/asset-management/per/investment-ideas/china-health-care/

[5] ibid, 1

[6] China National Health Security Administration Annual Summary Report for 2020, retrieved from http://www.nhsa.gov.cn/art/2020/6/24/art_7_3268.html

[7] ibid, 1

[8] China Ministry of Finance, http://sd.mof.gov.cn/zt/dcyj/202011/t20201103_3615823.htm  

[9] ibid, 1

[10] Retrieved from https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/

[11] http://www.gov.cn/xinwen/2020-12/16/content_5569978.htm

[12] Strictly speaking, critical illness insurance products are more akin to life insurance in that a lump sum payment would be made in the event of a claim, which is quite different from the other three types that are reimbursement policies.