Southeast Asia

2014 International Private Medical Insurance Inflation Review

This is the first in a series of articles from Pacific Prime on International Private Medical Insurance (IPMI) premium inflation from August 2013 through July 2014. The entire review will cover a number of different territories and insurers all over the world. A proper introduction to the series can be found on the Pacific Prime website here. Put briefly, this review looks at international health insurance costs which allow people access to high end private medical facilities, as opposed to access to care through government-administered healthcare systems.

The first region of the world that we will address is the largest growth market for IPMI worldwide: Southeast Asia. The countries analysed from the Southeast Asia region included Hong Kong, China, Singapore, Indonesia, Thailand and the Philippines.

Premium inflation in Southeast Asia

	HK	China	SG	Thailand	Philippines	Indonesia	Average
2010	13.3%	7.3%	7.3%	6.9%	6.9%	6.9%	8.1%
2011	10.4%	10.6%	11.8%	9.2%	7.2%	11.0%	10.0%
2012	11.3%	11.2%	10.1%	8.8%	8.8%	8.8%	9.8%
2013	7.8%	7.3%	8.0%	7.2%	7.2%	7.2%	7.4%
2014	7.5%	7.4%	7.1%	7.5%	7.0%	6.3%	7.1%
Average	10.1%	8.8%	8.9%	7.9%	7.4%	8.0%	8.5%

From the data above, it is evident that the Southeast Asia region’s cost of medical treatment continues to rise, though not as much as it has in recent years. What's more, where the year-on-year inflation rate had shown a marked difference in rates between the high-cost Asian countries of China, Hong Kong and Singapore and the low-cost Asian countries of Thailand, Philippines and Indonesia in the past, there is now not as great of a divide.

In high-cost Asia in 2011 and 2012, the trend of higher premium inflation was evident, with double digit increases across the board. The low-cost countries on the other hand, maintained much more favorable inflation rates. Now that we have seen the IPMI inflation rates between the two groups come more into line with each other, it makes sense to wonder what may be the underlying causes for this new trend. Let's take a look at each individual country to address this question.

China

For the better part of the past 3 decades, China has witnessed stunning growth. However, while the country once had 10%+ economic growth that you could set your watch to, today China is having a hard time even meeting their reduced target of 7.5% growth. The relevance of this for the IPMI market is that reduced growth means reduced business, and the expatriates that are the cornerstone of the IPMI market tend to follow the money. This lower number of IPMI customers in China is leading to lower demand in the industry and therefore, is keeping prices and inflation down. In addition, increased competition among insurers in the country has further lowered premium inflation.

IPMI inflation in China has increased a scant 0.1% to 7.4% over the past year, as even though the overall economy is slowing, high net worth (HNW) individuals (the group of people that make up a large portion of patients in private healthcare facilities) are a demographic that is still growing quite rapidly in China. The expanding ranks of HNW Chinese are seeking access to the high cost medical providers that are typically serviced by IPMI. While the number of expats in the country is relatively stable, the additional demand created by HNW Chinese has keep inflation rising at the rate we’ve seen over the past year. To lower the rate further, the construction of new private medical facilities will need to occur to meet demand from this segment of the population.

Hong Kong

In decades gone by, Hong Kong had operated in a very different way from China, but in recent years the two have become inextricably linked. The effect of China's economy on Hong Kong cannot be denied, but Hong Kong still has its own unique differences. The first and foremost, with regards to IPMI, being that Hong Kong has the highest healthcare costs of any country in the world after the United States.

As a global expatriate hub, Hong Kong's IPMI providers know that keeping premiums low and competitive is key. It is clear that, like in China, healthcare costs have been rising and IPMI premiums have been forced to follow suit, thus there has still been IPMI inflation in Hong Kong. However, due to the stagnant growth in the net number of expats coming to Hong Kong, demand for IPMI has been similarly stagnant and inflation has slowed. This is exemplified in the drop from a rate of 11.3% in 2012 to the rate of 7.5% that we see today.

Singapore

Rounding out the high-cost countries is Singapore. Being a bastion of high-quality healthcare in Southeast Asia with a burgeoning economy has made it difficult for the city-state to control premium inflation at high end medical facilities in the past. However, over the past twelve months, Singapore has gone from the high-cost Asian country with the highest rate of IPMI inflation, to now having the lowest rate (7.1%).

Even so, rising medical costs at high end medical facilities are still a concern, as the 'silver tsunami' effect is taking its toll, and an aging population of HNW individuals is taxing the resources of high end health care facilities. This is especially true in Singapore versus other countries as the number of expats and high net worth individuals in the city-state has been steadily rising, yet additional private hospitals have not been built to support this increase.

Thailand

Thailand kicks off our coverage of the low-cost Asian countries. With an IPMI inflation rate increase of 7.5%, Thailand’s rate is the highest among the low-cost Asian countries. Thailand is also the only low-cost Asian country to see a rate increase over the past year.

With medical tourism growing in Thailand every year, foreigners have become a priority and private hospitals have formed which cater particularly to the needs of medical tourists. Thus, many facilities are going to great lengths to invest in amenities and medical technology, which has lead to an increase in prices at private hospitals. So catering to the expats and high net worth locals that are prone to using IPMI has lead to a higher rate of inflation than in countries like the Philippines and Indonesia.

Though inflation rates are up in Thailand, they are not out of control, as demand has been held in check somewhat. A contributing factor to keeping healthcare costs low in Thailand is perceived political instability that has prevented medical tourism in the area from achieving its full potential.

The Philippines

The Philippines nearly had the exact same rate of inflation over the past year as it did the year previous. A slight inflation rate drop from 7.2% to 7.0% makes the Philippines one of four Asian countries in the survey with a yearly inflation rate lower than the previous years.

Due to the Philippines' small expat population, demand is relatively low for high cost healthcare providers in the country. Additionally, expats and HNW locals are more likely to travel outside of the country (i.e. to Hong Kong or Singapore) to seek medical treatment than those living in a country like Thailand. This keeps both demand for and supply of high cost medical facilities low in Philippines, and aids in keeping demand high in high cost Asian countries. On the bright side for the Philippines though, the country’s economy performed quite well over the past year, marking 7.2% growth in 2013. Thus, the local population was able to generate demand enough to see healthcare costs rise overall.

Indonesia

There was no country in our review that had a lower premium increase in 2014 than Indonesia. In fact, its international private medical insurance inflation rate of 6.3% is the lowest of any Asian country for the past 5 years. Again, low healthcare cost inflation in the country is likely the reason for a similarly low IPMI inflation.

There is however, an anticipated change on the horizon for Indonesia. While it may take years, anticipated economic growth in Indonesia should result in more expats heading to its shores, and rapid growth in local HNW people who will want to access private medical facilities. Foreign investment, as well as investment from new high net worth locals, should lead to the establishment of these private healthcare facilities, which will charge higher costs as supply and demand in the sector rebalance. Furthermore, upgraded medical facilities in Indonesia will result in less medical evacuations to Singapore, which will keep more HNW and expat patients in-country. For the immediate future though, low inflation for IPMI should hold.

Conclusion

	Last 5 Years	Last 12 Months
Low Cost Asia	7.8%	7.0%
High Cost Asia	9.2%	7.3%

It is plain to see that the division between the high cost and low cost Asian countries is shrinking with regards to IPMI inflation. With an average rate across Asia of 7.1%, we are currently seeing the lowest IPMI that the continent has seen in the past 6 years.

The outlook for medical inflation in Singapore, Hong Kong and China continuing is encouraging for IPMI customers in particular. However, the general economic slowdown in some cases may not be good news to all.

The underlying factors related to the 7.1%-7.5% IPMI inflation rates seen in high-cost Asia today are growth in high net worth local citizens, the aging of local populations of high net worth locals, and growing or stable populations of expats. The rise in demand created by these combined factors is not yet being met in high cost Asian countries through the creation of new high end medical facilities.

Some countries have been proactive in addressing the need for such facilities. For example, China has very recently announced an initiative to establish foreign-owned hospitals in 7 cities and provinces. This is a large change for a country that had previously only allowed joint ventures with Chinese partners in order to build hospitals, and all part of China's stated goal of having private hospitals contribute 20% of the country's hospital bed capacity by 2015. While this is certainly a step in the direction of controlling healthcare costs, we still have yet to see if the impact of the new facilities will have be enough to bring China's healthcare costs under control, and further lower IPMI inflation.

It is especially important for clients and professionals in the IPMI industries of China, Hong Kong and Singapore to focus on trends in the cost of healthcare, as these increases seem to have a strong correlation to IPMI inflation rates. Fortunately for those living in Thailand, the Philippines and Indonesia, costs and inflation appear to be better controlled across the board, and have been for some time.