BMI View: The success of Swiss Re's expansion into India's healthcare sector is highly dependent on the expansion of patient access to healthcare as well as the government increasing its commitment to the provision of medical services. We highlight that the uptake of Swiss Re's insurance policies will not be high if per-capita health expenditure remains chronically low. Consequently, Swiss Re will have to conceive some form of extremely low-cost policy to cater to the population until the situation improves.
Switzerland-based reinsurer Swiss Re has stated that it is looking to partner with the central and state governments in India. According to the company's Head of Life and Health Asia Managing Director , Asia's health insurance market is estimated to have a value of US$200bn. In Asia, Japan is Swiss Re's largest market, while India represents 10% of its total profit.
Health Insurance And Government Provision Of Medical Services In India
India does not have a nationwide health insurance policy for all groups of its population. Some national/state insurance programmes include:
Rashtriya Swasthya Bima Yojana (RSBY): Literally translated as the National Health Insurance Programme, the RSBY covers 23mn extremely poor families. In exchange for a registration fee of INR30 (US$0.54), enrolees receive a biometric-enabled smart card containing their fingerprints and photographs. This enables them to receive medical services up to a value of INR30,000 (US$541) a year at specified public and private facilities. The majority of funding is provided by the central government (75%), with the state government providing the remainder.
Janani Shishu Suraksha Karyakram (JSY): Launched in June 2011, the JSY seeks to improve mother and infant mortality in India. It gives free entitlements to pregnant women and women with newborns, including caesarean sections, drugs, blood transfusions and transport to and from medical institutions. When the JSY was introduced it was hoped that 100,000 mothers would use the service.
National Programme For Health Care Of The Elderly (NPHCE): Most government-run healthcare schemes in India are designed for those on low incomes or mothers and newborns. The NPHCE seeks to address the needs of the growing elderly population in the country. Its strategies include preventative and promotional care, management of illnesses, rehabilitation and therapeutic intervention.
Tamil Nadu Medical Services Corporation (TNMSC): Through TNMSC, Tamil Nadu is one the few states in India that provides pharmaceuticals free of charge, in order to improve the health of the population. Uptake is limited by short supplies of medicines, the need to queue at healthcare facilities for dispensing and a restricted list of available drugs. To keep costs down, the Tamil Nadu government uses bulk purchasing and manages to extract prices from pharmaceutical manufacturers that are between a sixth and a 10th of the retail cost. Larger firms, including some multinationals, provide the high-end products, while smaller local companies supply the basic medicines.
According to the state government, the scheme cost over INR2bn (US$35.8mn) in 2011. Purchasing drugs through traditional channels is still popular. Data from the Tamil Nadu Chemists and Druggists Association show retail drug sales in 2011 were INR54bn (US$967mn). Arul Kumar, general secretary of the association, said 30% of the state's population (19mn people) use the free medicine programme. However, the Tamil Nadu government said the uptake rate is closer to 60%, with significantly increased use after the income cap was removed in 2011.
Andhra Pradesh Employees Healthcare Fund (EHF): Andhra Pradesh, a large state in India, rolled out a cashless, mandatory EHF since November 2012. The new EHF is jointly funded through a monthly premium contribution where employees (including pensioners) will fund 40%, while the state government will fund the remaining 60%. The amount for the insured will be INR300,000 (US$5,360) a family per annum.
Under India's 12th Five-Year Plan (2012-2017), the country aims to roll out universal healthcare coverage. Key points of the strategy include:
Substantial expansion and strengthening of public health care;
Boost government health expenditure;
Reform RSBY to provide comprehensive primary, secondary and tertiary care and cover everyone under the 'below poverty line' category.
We have previously highlighted that the country is not ready for insurance-based universal healthcare as there are simply too few people on high incomes to support the masses on low incomes . Data from the World Bank shows the richest 20% of India's society had a per capita spending of US$2,223 in 2011. This expenditure figure is well above the US$1,000 threshold for being able to pay for essential medicines in a sustainable manner. The problem is that both the middle 60% of the population (US$669 spending per capita) and the poorest 20% of the population (US$309) fell below this mark. BMI does not expect universal healthcare in India before 2021, which is when the poorest 20% of the population will start spending on average more than US$1,000 a year, and therefore can contribute meaningfully to a totally inclusive healthcare scheme that is financed by risk pooling.
Existing Gap Is A Double Edge Sword
According to Antony Jacob, CEO of Apollo Munich Health Insurance, approximately 12-13% of the Indian population has some form of health insurance, including those covered by some form of government scheme. Meanwhile, data from the World Health Organization (WHO) also showed that the value of private health insurance reached INR111.1bn (US$2.4bn) in 2011, representing a mere 4.7% of total private health expenditure. At the same time, total out-of-pocket expenditure represented 69% of total health expenditure. The low proportion of private health insurance, coupled by high out-of-pocket health expenditure translate into market opportunities for Swiss Re and other private health insurers, if they are able to convert this out-of-pocket expenditure to insurance premiums.
|Low Government Health Expenditure|
|India Healthcare Expenditure By Type (INRbn) Time-Series (LHS) And In 2011 (RHS)|
We highlight that despite the opportunities, such conversion will be challenging. In November 2012, it was revealed that Switzerland-based Roche has partnered Swiss Re to sell a Swiss-engineered private insurance plan in China. The two companies began developing the programme in 2010, relying on local insurance firms to provide this reinsurance service - as international companies are not allowed to sell retail insurance. Currently, they are working with five local insurers in China .
The successes that Swiss Re is having in China cannot be easily replicated in India, simply due to the differences in government's commitment to healthcare. Since the medical reform in 2009, government health expenditure in China represented approximately 56% of total health expenditure. It has also initiated and reformed various schemes such as the New Cooperative Medical Scheme (NCMC), boosting universal health coverage. While the scheme has its downsides, in August 2013, the National Health and Family Planning Commission stated that 99% or more than 800mn people residing in rural regions have access to the NCMC. Due to the government's commitment to healthcare, it has attracted many foreign firms to set up bases in the country, consequently Swiss Re has a variety of healthcare players to tie up with, ranging from pharmaceutical firms to government and private healthcare players.
This is not the case in India, where private healthcare remains as a key source of healthcare provision for the people. More importantly, due to the lower per-capita health expenditure (US$60 in India in 2011 versus US$275 in China), patients tend to avoid modern treatment altogether. Therefore, Swiss Re's biggest risk in operating in India primarily stems from patient access to healthcare. Its strategy to partner with the central government will be challenging considering extensive bureaucracy in health policy planning. More importantly, since there is virtually no national health insurance programme for the population, most people will not have access to Swiss Re's insurance plans.
Due to the country's intellectual property protection issues, partnerships with foreign pharmaceutical firms are also a problem. Unlike their operations in China, multinational pharmaceutical firms occupy an even smaller market size in India due to a strong domestic generic drug industry. Similar to partnerships with the central government, Swiss Re will not be able to reach out to the majority of the population through partnerships with foreign innovative firms. In contrast, partnerships with generic drug firms would seem ideal. However BMI cautions that generic drugs are highly inexpensive and are provided for free in some states. Consequently, there are no vested interests for patients to sign up for Swiss Re's plan. Instead, BMI believes that there will be a higher rate of return should Swiss Re partner private health providers in the short term, given the dominance of the subsector, and look towards partnerships with state governments as they roll out specific healthcare plans for the respective states.
 Business Monitor International - Industry Trend Analysis - Underlying Risks To Free Drug Scheme - June 26 2012.
 Business Monitor International - Industry Trend Analysis - Roche Unveils Innovative Strategy To Gain Market Access - November 15 2012.