Private Health Insurance: Unlocking the Potential in Emerging Markets
by Ann Casanova, IFC Health and Education Consultant, Charles Dalton, IFC Senior Health Specialist, Susan Holliday, IFC Principal Insurance Specialist, and Andrew Myburgh, IFC Senior Economist
This article, which incorporates ideas discussed by participants at IFC’s Global Health conference in Miami, explores opportunities for private health insurance to enter or expand further in emerging markets. One route is through the growth of social health insurance in many markets, which is creating opportunities for the private sector to support government plans and contribute to improved access to affordable quality care.
While the global health insurance market will reach an estimated value of $1.6 trillion by 2020, market penetration of private health insurance in emerging markets is low. Even in South Africa, which hosts the most developed private health insurance market on the African subcontinent, only about 16 percent of the population is covered by private insurance.
When private health insurance is available, it is frequently offered by corporations to their employees, but individuals are not purchasing health insurance on their own. In Africa, where there is a growing middle class and a young population - estimated to reach one billion by 2050 - most treatment is paid out-of-pocket because of a lack of health insurance. In Nigeria, about 95 percent of health spending is out-of-pocket. Furthermore, insurers in many countries are faced with the challenge of having enough suitable service providers for their patients to access care when and where they need it.
The World Bank and the World Health Organization support universal health coverage to ensure that everyone can access the health care they need without suffering financial hardship. This does not mean that there is no role for the private sector. For instance, in Turkey, Brazil and Mexico, which all have social health insurance programs, private insurance options have been growing. In 2017, private health penetration in these markets ranged from 7 to 24 percent. In many countries, the tax base of formally employed persons is too low to offer a robust package of all-inclusive health benefits to everyone. As a result, countries are facing pressures on what they can afford. Governments are realizing that with their limited means they cannot do it all alone - they need partners.
Opportunities for Private Insurance
Governments will need to identify the right kind of support necessary to complement the public sector. There is a broad spectrum of approaches for the role of private insurance. A mixed market of public and private provision and payment can be beneficial for the country. A few areas of cooperation are supplementary insurance, population segmentation, and third-party administration.
Supplementary insurance could be aligned with the government’s mandatory program to fill gaps in benefits coverage. This is easier to do in markets where the government package explicitly identifies exclusions, such as access to specialists, prescription medications, and elective procedures. Top up insurance products could promote access to better quality providers or accelerate access when there are long waits and reduce the burden on the public system. Governments could provide tax incentives for people to buy supplementary insurance. Another approach to supplementary insurance is to have governments assume financial responsibility for covering low income people through private health insurance plans.
Population Segmentation: Here the government shares the risk burden with private health insurance by carving out segments of the population. For instance, children, elderly, and low-income people can be covered by government, while those who can afford private health insurance can pay for private insurance and free up limited public health resources. This would likely vary across countries as they design a local formula that is suitable to their context. For instance, India and Indonesia are embarking on multi-level systems with social health insurance that covers about 75 percent of the population, while corporations and more affluent members of society can continue to buy their own private health insurance.
For the two scenarios above, coordination between government and private insurance is necessary to ensure that risk pools are spread and that clear lines of demarcation are established. To attract private insurers to the market, clarity is needed on the rules of engagement. Government must take the lead to define how the market will work and set up a well-structured framework so that individuals have access to the right level of service provision.
Third Party Administration services for self-insured governments: The scope of these services can be quite expansive. Beyond traditional claims processing, third party administration can include population health management, risk pool management, and fraud management. There is considerable opportunity for the private sector to help governments establish social and national health insurance initiatives.
When it comes to private health insurance, many emerging markets face supply side constraints. In Nigeria, where in 2018 close to 54 percent of the population lived below the World Bank-set global poverty line, there were significant problems with the provider network. According to the former Nigerian Minister of Health, Professor Isaac Adewole, in 2016 there were more than 30,000 primary healthcare facilities but less than 20 percent were functional. Despite the enormous gaps, the government cannot afford to make all the necessary upgrades. In areas where private insurance will not enter markets due to the absence of a functioning health care infrastructure, governments could create public-private partnerships to build the ecosystem that is needed.
Georgia, a nation of 3.7 million people, had a similar supply-side problem. The government had a portfolio of post-Soviet era facilities that were in a decrepit state. Beset by fiscal constraints, the government turned to the private sector to take over facilities and overhaul the sector. Results were rapidly achieved. Georgia Healthcare Group, the largest provider and an insurer, overhauled 54 hospitals and clinics with an average turn-around time of between two and three years. Over the past decade, it invested $300 million. While universal health care is still funded by the public sector, about 85 percent is delivered by the private sector. (See the IFC case study here.)
Governments can ensure that the right balance of service provision is in place to avoid problems such as that in Lesotho, where the primary care ecosystem was not in place before a new hospital was established in 2011. As a result, the single hospital in the country – the most expensive care setting - became inundated with patients. While sequencing the establishment of a health ecosystem is a chicken and egg situation, insurance will follow if the government can make the provider side work. Still, private insurance needs a big enough volume of customers to spread the risk to become sustainable.
There are demand side constraints as well. Offering affordable plans for larger segments of the population – not just the wealthy - and the mechanics of collecting premiums in markets where the financial system is underdeveloped can be challenging. Private insurance can offer customized products for low income people who can afford to pay a small sum. Private insurance may be able to achieve greater market penetration by allowing people to pay premiums by mobile phone.
Notwithstanding the untapped opportunities, insurers who are considering entering new markets often find it difficult to assess the market given the lack of data. This contributes to uncertainty about the scale of demand. “It is hard for private companies to jump into a new market and take all the risk without sufficient information,” one participant explained.
Governments can attract insurers by providing market data on local disease profiles. For instance, some countries may have a large population of elderly people with all the accompanying health issues, including dementia. Other countries, especially in large urban areas, may be seeing an increase in lifestyle diseases such as diabetes, cardiac disease and cancer. Countries with high levels of pollution encounter more respiratory illnesses. Rural communities may be coping with undernourished and unvaccinated children. In Africa and South Asia, some countries are juggling both eradication of communicable diseases and a rise in non-communicable diseases. This kind of data will help private insurance to assess the viability of entering a given market, to price the risk accordingly, and to position resources.
Private insurers can play a role in driving quality, but the sector needs to better align incentives to benefit patients, while increasing the focus on improving health outcomes. Fragmented care makes it more challenging to effectively coordinate care, which is increasingly important as populations manifest increased comorbidities. This is where vertically integrated providers such as Health Management Organizations can be a good option for emerging markets because they can align incentives for providers and expand provision of health services.
With well-conceived business models, private insurance companies can replicate some aspects of integrated providers. In a number of countries, insurance entities cannot own service providers and even Kaiser Permanente, the largest integrated care provider in the US, is legally structured as three separate entities (insurance, hospitals, and regional medical groups). These are managed and governed separately. What makes this approach effective is that their health care goals are aligned, while contracts integrate formal cooperation across all the entities.
Hybrid models that integrate the principles of Health Management Organizations with more traditional models of health insurance are starting to emerge. Discovery in South Africa and Fullerton in Asia Pacific are two examples. Private health insurance can mimic concepts typically found in Health Management Organizations by collectively managing a population, either through a preferred provider network or through its own network. Vertically integrated organizations seek to reduce healthcare costs by actively managing patients and coordinating services with a focus on preventive care, while leveraging comprehensive data utilization tools and embracing technology and innovation.
One key element is a shift away from fee-for-service models in favor of prepaid service models that compensate doctors on fixed salaries and give departments annual budgets. While it is not easy to shift away from fee for service models that enjoy high margins to pre-paid or capitation models that have lower margins and are volume driven, such change will help drive better patient outcomes and value.
The insurance industry holds a lot of data. It can mine the data to identify the mortality rate, hospital readmission rate, and to promote better coordination of care - through avoiding repetition of tests that drive up costs, for instance. It can see when providers are over diagnosing and over prescribing and can use that information to manage providers. By mining the data, insurers can improve prevention and better manage populations with chronic diseases. One participant explained how an African insurer demonstrated fresh thinking when it looked at its own data and used it to improve prevention. By leveraging its own data, insurers can also support targeted disease management for groups with chronic conditions to help improve outcomes. Ultimately, well managed patient populations could help reduce emergency room visits and other costly procedures which can lower the overall cost of health care.
Good data is needed to have a more efficient health care system. This will enable better population management and effective risk management. Insurance houses a tremendous amount of data that can be shared with governments to improve the sector. Companies do not lose any competitive advantage by sharing selected statistics with the government. Artificial intelligence can be used to predict the spread of communicable diseases and epidemics in communities. The consolidated data can then be analyzed and shared with the market. This kind of data is necessary in real time because longer time lags reduce the utility of the information. If the government is not able to collect this kind of data, industry associations can undertake the role. Governments do not need to do everything, but it does need to give clear rules on what it will or will not do in a way that is predictable.
For example, for several years Colombia has worked on open data initiatives across the health sector through the Integrated Information System for Health and Social Protection (SISPRO). Currently more than 10,000 healthcare providers and 40 insurance companies, both private and public, report, share and analyze information leveraging the available data sets.
Also, as part of the digital transformation agenda, the government is working in cooperation with public and private stakeholders on the National Electronic Health Record Interoperability Project. The first step is to construct a basic data set that will enable continuity of care within the whole country. It is defining the interoperability platform for all stakeholders while ensuring data protection and privacy. It also is planning how data will be shared and used for public health policies to strengthen population health management. Private stakeholders across the health sector are playing an important role in defining and implementing the project.
Focus on Outcomes
Traditionally, incentives have been aligned around payers or providers. It is rare that insurance companies compete with one another based on the quality of services offered to patients, but governments can stimulate competition among insurers in a way that benefits patients. For instance, Colombia is studying a move away from capitation to outcomes-based compensation. One metric used is to track the number of days between diagnosis and treatment. In Georgia, quality care reduces readmission, which is essential because the government will not pay for the first round of services if there has been a follow-up hospital re-admission.
While this concept is emerging, standards on health outcomes need to be based on real data. In South Africa, for instance, a commission was formed to develop standards on how to meaningfully and transparently develop and share data. Governments can play a role in establishing reporting standards. The more insurers are actively monitoring outcomes, the more the system can actively manage the health of the broader society.
Role of Technology
Insurance can play a big role in driving technology adaptation by agreeing to pay for innovations such as new diagnostic tools. This will drive demand and will also help develop new technologies. Insurance can introduce technology such as doctor-to-patient teleconsultations and support telemedicine between off-site doctors and specialists and medical staff on-site. This is helpful in areas where there is a lack of doctors since it helps reduce costs while better managing patient needs. Insurance can also promote service delivery in non-traditional locations. For instance, patients can obtain basic tests in local pharmacies and shops. Governments should consider providing a space to pilot, test, and approve the use of innovations so long as patient safety is not compromised. This can promote access by helping bring down costs more rapidly.
In countries like Zambia, where health expenditure was US$56 per capita in 2016 according to World Bank data, every dollar spent is precious. By leveraging technology such as biometric identification or contactless smart cards, insurance systems can reduce fraudulent use of medical services and cut down on processing costs. In East Africa, “MediSmart” cards have already been deployed at over 3,500 facilities across six countries. The solution promotes efficient patient identification and eliminates impersonation. It helps reduce overbilling by streamlining processing and promotes secure access to medical information, transactions, and claims. By effectively combating fraud, insurers can better contain costs and offer more competitive premiums. As a result, biometric devices and smart identification cards can be a strategic pre-requisite for private and public insurance to cultivate a successful health insurance sector.
Health care is an important driver of economies. In emerging markets, health care can become an engine of growth, but investment is needed. To attract private insurance, governments need to facilitate an enabling environment that encourages private insurance to enter their markets and effectively offer coverage. In areas where there are gaps in the service provision ecosystem, private-public partnerships can be an option. IFC Advisory Services can help structure these. There are ample opportunities for private insurance to enter emerging markets, even those that are embracing universal health coverage, but engagement is needed between both sides to establish a “common playing field” that benefits the patient.
Published in October 2019
The following participants dedicated their valuable time and insights to the Insurance Think Tank session at the 2019 IFC Global Private Healthcare Conference:
- Holly T Bui, United Healthcare
- Arvan Chan, Centene
- Dominik Wehgartner, Allianz
- Matt Lilley, Prudential Africa
- Margaret Kathanga, Britam
- Tosin Runsewe, AXA
- Mansard Tope Adeniyi, AXA
- Mansard Tunde Hassan-Odukale, Leadway
- Natasha Sunderji, Accenture
- Irakli Gogia, Georgia Healthcare Group
- Nkateko Msimeki, Careworks
- Tom Corr, United Healthcare
- Cameron Murray, Centene
- Marcus Osborne, Walmart
- Brent Layton, Centene
- Camilo Arenas Bermúdez, Colombian Ministry of Health
- Charles Dalton, Senior Health Specialist
- Susan Claire Holliday, Principal Insurance Specialist
- Andrew Myburgh, Senior Economist
- Ann M. Casanova, Global Health and Education Consultant