China’s prominent growth in fintech has accelerated in the health industry, particularly in health financing, posing unique opportunities for solving complex public health issues. To meet the growing demand for quality healthcare for an aging population, it’s crucial for China to consolidate its preliminary universal health coverage system by further relieving people’s medical financial burden. Thus, innovation from its fintech sector has great potential to contribute toward this goal.

Health Finance in China: Medical Security System Overview

China has implemented universal health coverage under a multi-layered medical security system, which consists mainly of three parts:

 

The bottom layer: Urban and rural medical assistance system 

This layer includes government support and private donations. The system mainly caters to the population in extreme poverty, serving as a safety net of financial protection for their basic medical needs. The accessibility of the medical assistance system has grown significantly since its nationwide establishment and implementation in 2008. In 2018, the system benefited a population of 120 million with an expenditure of 39.97 billion RMB.[1]

The core layer: Basic medical insurance system 

Since the launch of major healthcare reform in 2009, China has expanded social health insurance for all, and the majority of the population is now covered by medical insurance, which is mainly composed of basic medical insurance for working urban residents, basic medical insurance for non-working urban residents, and the new type of rural cooperative medical care. The basic medical insurance system includes (1) the New Rural Cooperative Medical Scheme (NRCMS) plan, (2) Urban Resident Basic Health Insurance (URBMI) plan, and (3) Urban Employee Basic Medical Insurance (UEBMI) plan, with NRCMS and URBMI mainly financed by government subsidies, and UEBMI co-funded by the government and employers. By the end of 2019, NRCMS and URBMI have merged into one unified resident medical insurance system for most regions in China.[2] Critical disease insurance, being a crucial part of the basic medical insurance scheme, was created to prevent patients from a catastrophic financial burden. At least 50 % of the of medical reimbursement is provided for insured critical disease patients, and the reimbursement rate within the scope of the critical disease insurance has gone up to 60%  after URBMI merged with NRCMS. The private sector has also been encouraged to launch insurance products covering critical diseases, and more than one hundred kinds of critical disease insurance products have been provided to consumers, making it one of the most important health insurance categories in the market.

The supplementary layer: Private sector (Commercial health insurance and beyond) 

The private sector plays an essential role in filling funding gaps left by public health insurance. Currently, there are over one hundred insurance companies offering around 5,000 commercial health insurance products in China. What’s more, innovative models such as mutual aid and charitable crowdfunding platforms have flourished. Embedded in the digital ecosystem of apps/mini-programs, and empowered by the immense active user base of WeChat, these models have spread virally, offering families a more accessible and affordable way to gain necessary financial assistance.

 

Problem Statement: Existing Challenges

Despite the progress of implementing universal health coverage, populations in rural areas and low socio-income groups continue to struggle accessing high quality healthcare. Three key challenges are:

High financial burden for patients with critical disease

Death due to malignant tumors has become a major public health concern, accounting for 23.91% of total deaths in China, accompanied by an annual medical expenditure exceeding 220 billion RMB.[3] Patients with critical diseases like cancer are facing grim challenges in receiving timely and affordable medical treatment, which is worsened by the uneven distribution of health resources and limited coverage of basic medical insurance in terms of innovative drugs.

“On the one hand, the problem of uneven medical resource distribution persists. Many residents have to move across regions and provinces to obtain better medical services, which not only is time-consuming, but also generates high cost in travel, accommodation, and other resources not directly related to health care; On the other hand, innovative treatments and drugs are not easy to obtain under the current Chinese medical system, and the supply chain cost is relatively high. These two aspects have led to high costs of obtaining medical services.”

– ACCESS Health Partner from Ping’An Medical Insurance Technology

A research study conducted in Shandong province showed that as many as 52% of cancer patients experience some kind of financial difficulties in seeking treatment related to cancer, out of which 10% have forgone some kind of treatment due to unaffordable medical costs.[4]

Under-privileged populations are more vulnerable to medical financial burden

According to the statistics of the State Council Poverty Alleviation Office in 2016, 42% of the total poverty-stricken households in China became poor or returned to poverty due to illness, involving more than 7 million people.[5] A study on health expenditure of end-of-life cancer patients in China reveal that the proportion of family income allocated to health expenditures and OOP expenses were twice as high for low income quintiles than for high income quintiles. [6]

The vicious cycle linking poverty with poor health make the underprivileged population especially vulnerable to medical financial burden. Not only are they disproportionately prone to illnesses due to regional disparities in available health resources and preventive measures, many of them lack access to crucial financial protection services such as commercial health insurance. The CHI purchase ratio of people with an annual income below 10,000 yuan is only 14.2%, and high premium prices remain a major hurdle.[7]

Basic Medical Insurance Coverage remains insufficient in practice

Though China’s rate of out-of-pocket payments as a proportion of total health expenditures has declined dramatically from 59% in 2000 to 29% in 2017, OOP payment is still significant under many individual scenarios.[8] Limitation on medication, type of medical services, health organization, and reimbursement rate restrict the utilization and protective effect of basic medical insurance. For example, inpatient medical care requires 10-20% of OOP co-payments under the two urban insurance schemes (UEBMI & URBMI), and can be as high as 35% for the rural plan (NRCMS), which imposes a substantial financial burden even on the insured population.[9] Furthermore, basic medical insurance can only cover limited innovative drugs and treatments, preventing poorer households from accessing quality treatment in time, further generating higher costs as advanced-stage disease and complications set in.

Potential Solutions: Thriving Fintech Trends

Fintech fundamentally transformed people’s lives in China with digital technology and daily touch points. Some of these thriving fintech innovations show great potential in addressing health financing issues analyzed above:

Insurance technology 

The combination of internet, technology, and insurance changed the landscape of commercial health insurance, making it much more accessible in everyday life.  It provides highly-accessible insurance services, and is able to personalize protection schemes based on treatment fields and consumer types. Among the myriad of new insurance products, two types of products stand out:

  • Inclusive insurance/Supplementary medical insurance
    • This type of insurance results from collaboration between insurance companies and the government, with features including low premiums and relatively limited compensation. Low premiums allow for easier entrance and higher accessibility to most residents, with the aim to include as many residents in a city as possible.
  • Outcome-based insurance 
    • Outcome-based insurance is highly aligned with the new market trend of “value-based care”, which emphasize quality over quantity of the medical care. Outcome-based insurance based on drugs or medical devices is a model that links the therapeutic effect to insurance compensation. Usually, medical device companies or pharmaceutical companies and fintech companies jointly design products, which are underwritten by cooperative commercial insurance companies. In this model, after using drugs and medical devices bound to insurance items, insured patients will be paid if they fail to reach the pre-established curative effect target within a certain treatment time.

Many insurance companies are accelerating their development of technology. Insurance technologies include cloud computing, big data, artificial intelligence, Internet of Things, blockchain and other technologies. This will promote insurance companies to obtain greater promotion in product development, cost control, risk management, customer service and so on. Chinese insurance giant Ping’An, for example, is deploying an AI risk management system backed by linked user databases to automate claim management. Taikang, on the other hand, is taking a step further to build a health cloud ecosystem, with data integrated from thousands of nursing homes, clinics, and hospitals, to better understand customer needs and improve their experience.[10]

Mutual aid and crowdfunding platforms 

Mutual aid and crowdfunding are two models which have gained traction recently. Mutual assistance refers to a large amount of funds shared by members, while Crowdfunding refers to fundraising initiated due to medical expenses that the individual or family cannot afford. Mutual aid platforms like Shuidi and Qingsong well meet the needs of the under-privileged population who lack access to or can’t afford commercial health insurance, filling the funding gap between low incomes and high medical expenses. Mutual aid plans feature low cost and are easy to access via WeChat. If one participant of the plan is inflicted with critical disease and needs help for medical care, everyone in the plan will share the cost equally. This model has achieved great success particularly in underdeveloped areas. As of the end of 2019, there are 80 million users subscribed to Shuidi Mutual Aid Plan, of which more than 70% are from third-tier cities and rural areas.

Summary

In the past few decades, the Chinese government has developed a multi-layered medical security system which underpins China’s fast economic development through offering a stable workforce for companies and reducing concerns of future uncertainty. The medical security system also has played a role in achieving universal health coverage in China. However, the economic development and improvement of living standards drives the demand for healthcare services, the growth rate of healthcare expenditure has far exceeded that of household income. These factors, along with shifts in the population structure and epidemic patterns, brought on by aging population and urbanization, are posing major challenges to the supply of and funding for treatment to an already overburdened healthcare system.

Fintech industry has transformed people’s lives in China with digital technology and daily touch points. The preliminary fintech solutions such as supplementary medical insurance and mutual aid platforms have shown initial success to provide residents with broader healthcare service coverage and financing channels. In the near future, we look forward to more fintech innovations, helping solve health financing challenges and develop the multi-layered medical security system in China.

[1] “2018年我国医疗救助惠及1.2亿人次_滚动新闻_中国政府网,” accessed June 24, 2020, http://www.gov.cn/xinwen/2019-04/16/content_5383608.htm?_zbs_baidu_bk.

[2] “Statistical Communiqué of the People’s Republic of China on the 2019 National Economic and Social Development,” accessed June 24, 2020, http://www.stats.gov.cn/english/PressRelease/202002/t20200228_1728917.html.

[3] Freddie Bray et al., “Global Cancer Statistics 2018: GLOBOCAN Estimates of Incidence and Mortality Worldwide for 36 Cancers in 185 Countries,” CA: A Cancer Journal for Clinicians 68, no. 6 (November 2018): 394–424, https://doi.org/10.3322/caac.21492.

[4] Mingzhu Su et al., “Financial Hardship in Chinese Cancer Survivors,” accessed June 24, 2020, https://acsjournals.onlinelibrary.wiley.com/doi/abs/10.1002/cncr.32943.

[5] “有多少中国人，赚够了看大病的钱,” accessed June 24, 2020, https://new.qq.com/omn/20190331/20190331A06FJD.html.

[6] Anli Leng et al., “Catastrophic Health Expenditure of Cancer Patients at the End-of-Life: A Retrospective Observational Study in China,” BMC Palliative Care 18, no. 1 (2019): 43, https://doi.org/10.1186/s12904-019-0426-5.

[7] “《中国商业健康保险研究报告》显示55.9%的人想买健康险，你的产品是他想要的吗？_手机搜狐网,” accessed June 24, 2020, https://m.sohu.com/a/194766833_618588.

[8] “Meng 等。 – 2019 – China’s Encouraging Commitment to Health.Pdf,” accessed June 24, 2020, https://www.bmj.com/sites/default/files/attachments/resources/2019/06/china_health_reform_full.pdf.

[9] “Private Health Insurance in China Finidng the Winning Formula.Pdf,” accessed June 24, 2020, shorturl.at/pESW8

[10] “Insurtech Leaders in China: Digital Innovation in Insurance,” accessed June 24, 2020, https://www.bcg.com/industries/insurance/digital/lessons-from-chinas-insurtech-leaders.aspx.