Many health insurance agents and brokers in the United States are concerned about federal government intrusion into the insurance arena. There is a growing fear among U.S. agents that private health insurance may become extinct unless government is held at bay. But when one looks to the private health insurance industry outside the United States, a different story is unfolding.
Meetings with health insurance executives and government ministry officials around the world have revealed a startling reality: Private health insurance is a growth industry, even in the poorest of countries.
Today, health care is the world’s largest service business and draws in excess of $1.5 trillion in investments annually. That investment figure is expected to grow to $4 trillion annually by 2010. There are many reasons for this investment trend, including national governments limiting and reducing health-care budgets, the corresponding growth of private health insurance and the aging population the world over.
Most readers are aware that during the past 10 years, health-care expenditures have grown to about 14% of gross domestic product in the United States. That same growth trend is seen in the 30 member countries of the Organization of Economic Cooperation and Development, or OECD. Health-care expenditures in these countries have doubled in the same time period. This steady growth in health-care spending is understandable, given that for each 1% growth in societal wealth, there is a corresponding 0.5% growth in health-care expenditures. That is, as a nation becomes wealthier, its people are willing to spend more on health care.
This steady growth in health-care expenditures creates some unique opportunities for individuals and companies in the health insurance sector.
Reasons for Growth
Around the globe, the pressures behind rising health-care costs include technology, medical advances, an aging society and consumerism. Collectively, these factors drive up medical costs 2.5% to 3.5% annually. This is a significant annual increase, and governments are increasingly turning to the private sector, including private health insurance, to alleviate budgetary pressures.
Pertinent developments are taking place outside the United States.
In the European Union, the founding Maastricht Treaty specifically forces EU members to rein in budget increases and align their budgets with the budgets of the other member nations. And while the treaty doesn’t specifically state how governments should control costs, many countries have looked to the health-care sector as one sizable budget item that can be reduced.
In Belgium, the OECD recently reviewed the health insurance sector and concluded that while solidarity, or health coverage for all, was effective, the industry had too many insurance companies (due to state regulations and price supports).The OECD recommended that Belgium allow consolidation within the health insurance industry through mergers, acquisitions and company failures.
While the Asian economies have struggled the past few years, their governments are rapidly updating their health insurance sectors. India recently liberalized the insurance industry and Australia, in the summer of 2000, instituted lifetime pricing in health insurance in the interest of building up the number of citizens covered by private insurance.
In the old Eastern Bloc countries, Poland and Slovakia stand out as two extremes of the changes taking place today. Poland is redefining the country’s budget in anticipation of entry into the EU and increasing its use of private health insurance to meet budget guidelines. The opposite is happening in Slovakia, a country where all employees have mandatory health coverage provided by private, nonprofit health insurance companies. A new movement within the government intends to ban private insurance. While this is distressing to the private sector, these reactionary efforts are not the norm in today’s global market.
Nations such as the Netherlands and Singapore adhere more closely to what can be considered “the new norm” in health care. The Netherlands is currently reducing the number of sickness funds, or state-sponsored associations for health insurance, to cut costs, and the government is looking to the private sector to fill the void. In Singapore, the government is concentrating on a three-tiered program–Medisave, Medishield and Medifund–that encourages individuals to pay a portion of their health-care expenses.
Collectively, these changes have driven the rapid growth of private health insurance overseas. Europe has a growth rate in private health insurance between 5% and 7% annually, according to a recent PriceWaterhouseCoopers survey. But it must be noted that this rapid growth in private health insurance, while due in part to budget constraints, also is attributed to a growing dissatisfaction with government-paid health services and the use of private insurance by employers as an additional benefit for employees.
With governments looking to the private sector to help finance health care through health insurance, the health insurance industry will continue to experience significant growth. Although the top three health insurance companies in Brazil control nearly 80% of the market, the private players in Turkey have penetrated only 10% of the country’s private-market potential.
But all markets are not the same. It is important to recognize that the world is composed of countries in various stages of economic development. For analysis, the countries can be divided into the mature markets and the developing, or emerging, markets.
As mentioned earlier, it is projected that 2010, private investment in health care will be $4 trillion. A significant opportunity lies in the $750 billion of that investment that will come from emerging markets.
In emerging markets, health-care expenditures will focus in the areas of hospital and clinic development, pharmaceuticals, specialty care and private access, or insurance. Although private health insurance will be a growth product, the overall dollar amount spent compared with developed countries will be relatively small. But make no mistake, growth will be rapid. Officials in Bahrain, for example, are considering how the country can develop its private health insurance sector in anticipation of petroleum revenues drying up.
Within mature markets, such as Western Europe, parts of South America and Asia, significant growth in medical services is anticipated to support increased outpatient care and private hospitals. Also, strong growth in private insurance is likely. For instance, according to the OECD, the average hospital days per capita in Japan is 4.1, while in the United States the average is only 1.1. This indicates that mature markets will focus on reducing the number of days patients stay in hospitals, resulting in the growth of smaller healthcare facilities supporting outpatient and post-hospital-stay care.
With these developments over the next eight to nine years, there is a corresponding opportunity in how health and life insurance products are designed. In addition to the segmented, or individual country, changes described above, there are opportunities on a global basis for health and life companies.
Research by PHM International indicates that opportunities exist for private companies that develop a global orientation and act according to market-segment characteristics. That is, these “winning” companies will create new products for different markets, but the products will provide coverage across arbitrary boundaries, such as nations, economic unions or employment.
The growth rate of world travel is astounding, and according to the World Tourism Organization, more than 636 million international trips are made annually. Today’s health insurance market has effectively conceded this market to the travel insurance industry. France had 75 million visitors in 2000, while the United States had nearly 51 million and Spain, 48 million. These visitors can cause havoc on a country’s healthcare system, particularly how to pay for any health care they may need during a Visit.
Spain’s health minister spoke at the International Hospital Associations Millennium Conference in Palma de Majorca in May 2000 about the challenges of the uninsured in Spain. Spain’s Balearic Islands alone receive 10 million visitors, and the healthcare system struggles under this financial burden. The challenge is that most of the 10 million visitors do not have private health insurance, government bureaucracies bungle insurance payment transfers, and many visitors have no coverage at all.
Prior to the terrorist attacks of Sept. 11, international travel was projected to increase 50% by 2010. Even with the relative short-term adjustments made for travel projections, astute health insurance companies will realize this fantastic opportunity, develop transnational policies and lay claim to a significant new type of market share.
In addition to an increasing use of private health insurance around the world, many governments are laying the groundwork to privatize their life insurance sectors. China’s policy changes in compliance with World Trade Organization demands are well known, but other countries also are advancing their life insurance sectors as a means of increasing standards of living. In Egypt and India, there have been recent legislative changes to support the growth of private life insurance. Such changes have included the removal of foreign ownership restrictions on life insurance companies and the removal of price controls. Discussions with two health and life carriers in Cairo last spring highlighted the excitement and growth opportunities in the private sector there.
It’s tough not to think the private health insurance industry has a bright future. There are many new and growing markets, new products are being developed to meet emerging trends and market share will be defined without borders. All this will take place in a global arena that allows private health insurance to operate in open and free markets.