Op-ed: Separate social and private insurance systems are an economic bottleneck

To most Chinese, the world of insurance is shrouded in mystery. No one is quite sure exactly what we do, and who else can you think of whose business is trying to sell people services which they hope they don’t™ have to use? When international medical insurers entered the China market in the early 2000s, perceptions of us then were far from favorable. At that time, anybody involved in buying or selling insurance was basically looked at as a huangniu or street scalper a somewhat derogatory term commonly used to describe guys hanging around outside sports and concert venues trying to flog tickets of dubious authenticity.

But over a decade later, perceptions are finally changing as middle class Chinese begin to put more trust in insurance products and seek to protect themselves, their families and their businesses. The rapidly growing pool of expatriate workers also want the best protection.

The catalyst for this change occurred in July 2011 when China’s new Social Insurance Law came into effect. It mandated that companies trading in China enroll each employee in five insurance programs: Basic pension, basic medical, work-related injury, unemployment compensation, and maternity insurance. In addition the law set out to narrow the gap between urban and rural healthcare provision regardless of employment status, and to make it easier for personal social insurance accounts to move across provincial borders, essentially to make the labor force more mobile. Foreign employees and their employers were also obliged by the new law to make social insurance system contributions, adding more red tape and financial costs for international and, increasingly, Chinese companies seeking to hire international talent.

Despite the law having officially come into effect over three years ago, there are regional variations on its interpretation and implementation. Looking at the issue of foreign worker’s contributions, this is mandatory in Beijing and Guangzhou, but so far, Shanghai has remained exempt. In Beijing, the monthly contribution employers need to make for each of their staff averages to a little over RMB4,000 (US$650) per month – a significant amount.

When it came into force, there were differing opinions on it in the business community. None were pleased about the significantly higher cost of hiring foreign employees, but some thought it was only fair since similar laws exist in most developed countries. In order for the social insurance system to become practical for foreigners, many obstacles will need to be overcome. Yet if this can be successful, it would present the opportunity to overhaul the all medical insurance in a way that will also have positive benefits for Chinese citizens.

The quality of Chinese public hospitals varies widely, at least when compared with facilities in the West. That’s to say nothing of privacy levels in treatment rooms, nor the practicalities of navigating the Chinese healthcare system if one does not speak Chinese. So foreign workers and employers couldn’t really be blamed for wondering what they would really get out of their mandatory social contributions. Most foreigners already have their own private insurance arrangements to cover treatment at private hospitals which obligatory Chinese social health insurance contributions do not cover. Moreover, the majority of foreigner workers only stay in China for a few years, and certainly very few stay long enough to even think about using any Chinese state retirement fund they may have paid into.

The Chinese authorities could address this situation by allowing insurers to design a system that integrates mandatory social contributions and coverage arrangements. This would mean foreign workers contributions to China’s social health insurance system don’t go to waste. There are a few such schemes in China at the moment being rolled out, but these are very much in their infancy: HR managers and chief financial officers need to pressure their brokers to offer such kinds of coverage, not only to benefit their employees but also to encourage the insurance world to speed up the roll-out of these new programs.

This is the time to act. Due to recent high-level insurance fraud cases in China, official scrutiny of brokers and insurers is being tightened – so we in the industry must now take the lead to help improve health insurance regulation when it is under the microscope. And after years of non-enforcement, the authorities are cracking down on foreign firms who purchase insurance overseas as it’s now only legal to buy from licensed brokers and insurers, so there’s little alternative.

Anyone connected with a foreign company in China may be thinking pressing for foreign staff to get a better health insurance deal in China is of course a positive goal, but it is just a drop in the ocean of China’s massive employee pool.

Demand from Chinese consumers for western-standard healthcare is soaring. Most Chinese are frustrated by the poor level of medical care that they receive and with the domestic medical system in general; they share many of the complaints that foreigners have. An executive at a major insurer in Shanghai told me his firm was signing up 350 Chinese a day with private health insurance deals. Thats rapidly expanding demand by any standard.

Where are all these potential patients going to seek the treatment they are paying a higher premium for? Increasingly, international hospitals and the VIP departments at Chinese hospitals. The Chinese government should encourage the creation of an insurance system where everyone in China can also use private healthcare treatment without their social insurance contributions going to waste, not only foreigners. Knowing their healthcare contributions would not be going to waste would encourage more Chinese to get a better standard of treatment. This would increase their general well-being and sense of security, and raise the overall level of healthcare provision in China by funding expansion of international and private Chinese hospitals. State coffers would also see a boost from the greatly increased tax which could be earned from insurers on the premiums they earn.

Also, with the peace of mind that comes with knowing you could get a high standard treatment for serious illnesses without being hit by a massive bill, the rainy day funds kept by many Chinese could be ploughed into the economy through consumption, one of the main goals of the government. At the same time, China-based firms would also find it easier and less costly to attract and retain elite talent who expect top healthcare packages.

Insurance brokers would gladly shed their mysterious reputation for all of these goals.

Illustration: “Heavens! I have to queue for 7 hours?”