The effects of the new co-payment health insurance policy are limited, and the sharp rise in medical expenses in our country is difficult to mitigate

The Bank of China requires insurance and Islamic insurance companies to provide a “co-payment” medical insurance option with lower premiums in the future. MIDF research suggests that the New Deal still cannot solve the problem of soaring medical expenses in our country.

Analyst Hu pointed out that the relevant new policy mainly addresses two problems in the insurance industry. They are the “buffet syndrome” (buffet syndrome) driving up medical cost inflation, and the low penetration rate of health insurance, which causes the public health system to be overburdened.

“However, the inflation of medical expenses is not only caused by a 'buffet mentality'; there are also other structural and global influencing factors, and none of these factors can be addressed by the Bank of China's new policy.”

According to analysts, other major factors driving up healthcare inflation in the country include rising drug production costs, lack of official regulation of private hospital fees, a sharp rise in the number of people admitted to hospitals in the post-pandemic era, and demographic problems with an aging population.

“The high cost of medical care is bad for insurers because it will lead to an increase in the number of health insurance claims made by customers. The additional burden brought about by this will be passed on to customers in the form of premium increases, which may cause some customers to choose to lose their insurance.”

The analyst pointed out that since 2019, the country's healthcare inflation has reached a very high level, far exceeding the overall domestic inflation, but also far above the global and regional average.

According to analysts, China's total medical inflation in 2023 reached 15%, and net inflation was 12.6%. This year's total annualized medical inflation was also 15%, and net inflation was 11.9%, far exceeding the country's overall inflation of 2.4% and 3.1% during the same period.

On the other hand, MIDF research suggests that the “co-pay” health insurance option is generally beneficial to insurers, but the impact is not significant.

Analysts pointed out that although this new medical insurance policy is beneficial to insurance companies, it is too gentle to bring any significant benefits to insurance companies in the short term.

“The co-payment model reduces medical premiums and may drive increased premiums and revenue, and customers may also be more likely to be retained due to lower premiums. However, the profit margin of medical insurance is quite low. Even if premiums increase, high costs and low earnings will cause insurance companies' profits to rise at the same time.”

Analysts added that the new health insurance policy mentioned above is also difficult to solve the problem of high medical inflation in the country impacting insurance companies.

Furthermore, he said that it is probably difficult for the Bank of China to adopt a stricter and more determined new health insurance policy, as this may cause strong opposition from many parties.

In any case, the analyst said that insurance companies may take the opportunity to change their operating strategies to gain more market share, or they may completely shift their focus and treat health insurance as an inefficient market.

“But we'll have to wait and see what's going to happen.”

“A significant portion of Allianz's life premiums comes from ongoing medical premiums. Furthermore, medical premiums only account for 10% and 8% of the overall premiums of Malaysian Islamic Insurance and Lun Ping.”

Currently, the analyst maintains a “positive” rating in the insurance sector. Allianz, Malaysian Islamic Insurance and Lianping have all received “buy” ratings. The target prices are RM14.52, RM25.76, and RM4.97, respectively.