In China, tech companies tackle health insurance

(Bloomberg Opinion) --One wouldn’t think Chinese in their 60s worried about the cost of cancer treatment would be a demographic slice that interested high-flying technology companies. Earlier this week, however, Ant Financial Services Group, an affiliate of Alibaba Group Holding Ltd., announced a new product targeted especially to them, part of its Xiang Hu Bao platform. For a small monthly fee, participants will be guaranteed up to $14,700 specifically for cancer care if they ever receive that dreaded diagnosis.

It’s only the latest innovation from Chinese technology companies looking to tap into fears over rising healthcare costs on the mainland. Even as politicians in the U.S. champion a version of socialized medicine, Communist China is desperately looking for ways to make private insurance work. And high-tech companies, even more so than traditional insurance providers, could well lead the way.

Xiang Hu Bao, which Ant initially launched last October for individuals between the ages of 30 days and 59 years, is one of several “mutual aid” platforms that have sprung up in recent months. The idea is simple: Users agree to pay membership fees up to $28 per month to cover the healthcare of other members. In return, they’re guaranteed reimbursement for treatment of 100 “critical illnesses.” (Payouts for non-cancer care top out at approximately $44,000 for those younger than 60 years old.) The only criterion for joining is a decent credit score, as calculated by Ant's Zhima Credit, which collects data on hundreds of millions of Chinese.

Before announcing its cancer-focused extension on May 8, Xiang Hu Bao had already attracted 57 million users, most of whom earn low incomes and would otherwise struggle to afford traditional private health insurance. And it’s not alone: At least two other mutual health plans claim more than 50 million members each, including Waterdrop, owned Beijing Shuidi Mutual Insurance Technology Co., a company backed by Tencent Holdings Ltd. and food-delivery giant Meituan Dianping.

Waterdrop is gambling that mutual aid is just the gateway to other insurance-like products. It also operates an online insurance distribution platform that, presumably, members can join as their incomes allow.

Like so much else in China, demographics are driving these innovations. At the end of 2018, 18% of China's population — roughly 250 million people — had reached retirement age. That's the world's largest population of elderly, and it's growing.

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A stethoscope sits on an examination table in an exam room at a Community Clinic Inc. health center in Takoma Park, Maryland, U.S., on Wednesday, April 8, 2015. Led by the American Medical Association, three of the top five spenders on congressional lobbying have waged a campaign to urge Congress to revamp the way Medicare pays physicians and end the cycle of "doc fix" patches. Senate leaders predict quick action on House-passed legislation when Congress returns April 13 from its two-week recess. Photographer: Andrew Harrer/Bloomberg

Paying for their health care won't be easy. China's state-sponsored insurance system provides near-universal coverage and reimburses 60% to 90% of medical expenses. But it generally covers only treatment at government hospitals, and only for basic services and the most common diseases.

Meanwhile, resources are growing scarcer. In 2018, state health plan spending rose 22.1%, while revenues only increased 17.9%. Long-term, both numbers are headed in the wrong direction. Deficits — and cutbacks — are inevitable.

That's placing a growing burden on ordinary Chinese. In 2015, out-of-pocket expenditures accounted for around 35% of all Chinese health payments (compared to 11% in the U.S., and 15% in the U.K.). For Chinese outside of the biggest cities, government payments are even smaller and health care outcomes are generally much worse. The anxiety is even making its way into mainstream entertainment: Last summer, Chinese flocked to theaters to watch a black comedyabout a leukemia patient who imports affordable generic cancer treatments for himself and others.

Thus far, Chinese policymakers have had little luck promoting commercial insurance as a supplement to state coverage. Today only 6.7% of Chinese have private insurance; in 2016, private payouts accounted for a mere 3.3% of income at Chinese medical institutions. Consumers are wary of high premiums and delays in paying claims. Insurers, in turn, struggle to control their costs: Government-run medical facilities lack price transparency and don't generally share patient data, which makes it difficult for actuaries to control risk.

The vast amounts of user data available to China's tech platforms doesn’t necessarily reveal health histories. But it can help pinpoint creditworthy customers, who presumably will be less likely to engage in medical insurance fraud. That, at least, is the thinking behind Xiang Hu Bao and similar platforms.

For now, mutual aid isn't a replacement for commercial insurance. Not only do such plans cover far less than traditional private insurance, their relative youth and lack of regulation make it unclear whether they’ll be able to meet their obligations over the long-term. Indeed, the Chinese government wisely prohibits such plans from being described as “insurance.”

Nevertheless, their near-instant popularity should remind the government that its best option for dealing with China’s looming health insurance crisis is to open markets to the innovative forces that have transformed other parts of the Chinese economy. Like patients, policymakers need all the help they can get.

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