Michael Griffiths, regional director of healthcare at specialist insurance brokers Howden, explains how insurance is an answer to the region’s healthcare crisis.
Less than a month into 2018 and already I have received invitations for two separate healthcare conferences targeting “The Asian Healthcare Crisis”. That the healthcare systems of many Asian countries face significant challenges is probably not in dispute. In July last year a public hospital in India made headlines around the world when it was reported to have run out of oxygen supplies, resulting in the deaths of over sixty children. The true horror of this event lay not in the headline but in the conclusion of the official investigation which noted the total number of deaths for that month was in fact a significant improvement on the figure for July 2016 when 292 patients had died.
Another less headline-grabbing but potentially greater problem is the aging population demographic of many countries in Asia. China’s one-child policy has made it the world’s most rapidly aging society, with the United Nations projecting that by 2050 over 27% of the population will be over 65 years of age. The grey wall of China will place a huge strain on the country’s already overburdened healthcare resources, and will require a dramatic rethink of government policies that currently place little emphasis on issues of aged care.
The third challenge for Asia, one which will be familiar to readers in many other parts of the world, is the rising cost of healthcare. Last year, the WHO released a report estimating that each year over 100 million people, particularly in sub-Saharan Africa and South Asia, are pushed into extreme poverty due to healthcare costs. In the Philippines and other countries in Asia there have even been reports of hospitals forcibly detaining patients until outstanding bills have been paid.
So, the problems are real, and easy solutions not evident. Governments in Asia’s developing countries have to date focused much of their attention and resources on economic growth, at the expense of investment in healthcare infrastructure. There are sound reasons for doing this. Economic growth in Vietnam during the 1990s reduced the proportion of Vietnamese living in poverty from 58% to 37%, meaning that millions more people could now afford access to at least basic healthcare. The problem in Vietnam now is the accessibility, quality, and cost of that healthcare. Government policy change is required in many Asian countries, but this is unlikely to occur quickly or easily. Another solution is sought, and the question that many are asking is whether insurance could be used to address these problems?
The short answer is yes, insurance could indeed be used to address these problems. However, there is no “one size fits all” solution that a country can buy off the shelf. What’s more, the introduction of insurance solutions will itself require change in government policy, in cultural attitudes, and in the expectations of insurers themselves. And, of course, there is always the question of who should pay the premiums.
In 1802, Samuel Marshall wrote A Treatise on the Law of Insurance in Four Books. Not exactly a title that you will find high on Amazon’s hot-seller lists, but it provides the classic statement of how insurance works:
“By means of policies of insurance it cometh to pass… the loss lighteth rather easily upon many, rather than heavily upon few;”
This is the pooling concept that underlies all insurance policies. Policyholders pool their resources to spread the burden of an otherwise catastrophic loss. The insurance company creates the pool from which otherwise unsupportable losses are paid.
How does this help solve the Asian healthcare crisis? Well, starting at the bottom strata of society we can use micro-health insurance programmes to give the poorest members of society access to basic healthcare services. Micro-health insurance typically targets a specific community, where members each contribute small premiums to build a pool that can be drawn on to access simple, low-cost treatments. The access to basic health services in remote areas of Pakistan is reported to have improved following the introduction of micro-health insurance programmes there.
For those countries facing an aging population demographic, a form of health insurance called long-term care insurance is available to provide cover for nursing home fees or home support costs. This product has been available in developed countries for many years, and typically covers costs not picked up by public or private health insurance programmes, like day-nurse visits or food deliveries. Long-term-care insurance can be structured like an annuity where the insured received a regular fixed payment, or as a claims-based policy where reimbursement is provided for care-related costs as they are incurred.
For those countries where improving the quality of care and controlling healthcare costs is a priority, a strong private health insurance sector is an important tool. Health insurers introduce competition into the healthcare sector by establishing preferred provider networks. They also reign in excessive charges by dictating what services can be provided for certain illnesses. The managed care regime that has developed in the US may be unpopular, but for countries facing a crisis of quality or affordability it offers a potential solution that would improve standards of care for millions.
An increased penetration of private health insurance would also help resolve the shortage of hospitals that many Asian countries face. Healthcare is subject to the laws of supply and demand like any other service. If a greater proportion of any population has private health insurance, and thus the means to pay for their care, then it would not be long before healthcare investors responded by building new hospitals to meet this demand.
If health insurance offers solutions to the Asian healthcare crisis, why has it not achieved wider acceptance in many Asian countries? For example, in Indonesia, the Philippines and Vietnam private health insurance represents less than 1% of total health expenditure. One reason is that the pooling mechanism of insurance does not fit comfortably into some Asian cultures. People who have paid an insurance premium will often feel that they need to make claims up to or exceeding the premium amount to get best value from the transaction. This is not such a big problem for home insurers, as few people will burn down their home just to recoup the premium expense. However, it is a significant problem for health insurers where purchasers will often seek unnecessary medical treatments to get what they paid for. Hospitals can hardly be expected to reject patients with the capacity to pay, leaving insurers with loss ratios that drive up premiums and delay the level of health insurance penetration that might bring about significant improvements in healthcare quality and cost.
Cultural issues also arise in respect of long-term-care insurance. A few years ago, I proposed that elderly Chinese could fund the cost of long-term-care insurance by taking out reverse mortgages. After all, many elderly Chinese own their own home or apartment and the rapid economic growth of recent years has substantially increased property values. A reverse mortgage could unlock that value and allow the elderly to pay for the insurance themselves. What was the problem with that? Well, in Chinese culture parents want to pass their assets down to their children and there was a great deal of resistance (from both the parents and the children) to the idea of reducing that value of the inheritance.
The Asian healthcare crisis is ultimately a set of structural problems. Insurance, and particularly health insurance, has the potential to provide innovative solutions for many of these problems. The next question is whether the governments and societies of Asia are prepared to make the structural changes needed to make such solutions feasible.
Michael Griffith will be a panellist at the HealthInvestor Asia Summit to be held in Singapore on 15 May. The topic for his session is “How to adapt healthcare to an aging population?”. For further details please see https://www.ipevents.net/health-asia/summit/
