SCMP: Government may compete for insurance. Government may vie for insurance business. Proposal aims to keep private firms 'honest' in volunteer medical plan

17 Feb 2010
The government is considering setting up its own insurance company to compete for the proposed voluntary medical insurance scheme in an effort to keep the existing players "honest".

A government official said such a "public option" could ensure there was real competition in the market, to guard against price-fixing. But the official said the government did not plan to turn its new programme into a social insurance scheme with itself as the sole provider.

The proposal will be put forward during negotiations with the insurance industry over the voluntary insurance scheme, which is part of the coming health care reforms.

The government will launch a public consultation later this year about the voluntary scheme, which it sees as a way to relieve the financial pressures on the heavily subsidised public health sector.

Insurance providers are in talks with health officials about the scope of the coverage, and on how to use the scheme's HK$50 billion start-up fund to attract more people to sign up for voluntary insurance.

The South China Morning Post reported last week that the issue of whether patients with pre-existing conditions will have to pay a higher premium has emerged as the major roadblock in the negotiations.

Now the government "does not rule out the possibility" of setting up a subsidiary insurance company to compete with the private insurers. There are concerns among officials that, as the six biggest companies control 80 per cent of the medical insurance market, they could easily co-operate to control the market and push up prices.

"To keep the insurance companies honest, the government may set up a company to compete with them so if their prices are too high, consumers can choose the public option," the official said. The insurance company set up by the government would run on "commercial principles", he said.

But Chan Kin-por, the insurance sector legislator, criticised the idea. "The government is not good at insurance services. It should leave it to the private sector I can't see the extra benefits in doing it. There will be a transparent mechanism on premium adjustment in future, to guard against any possible cartels."

But Peter Tam Chung-ho, executive director of the Hong Kong Federation of Insurers, said the industry "would not feel threatened" by the public option. "It will be good to have more competition in the market {hellip} but we need to know the details before commenting further, such as if the company will operate on commercial principles or with a public subsidy," he said.

In a recent submission to the government, the insurance sector outlined an agreed "basic plan" that removes exclusions for mental illnesses and congenital diseases, and makes premiums age-specific. But the sector is standing firm on not including people with pre-existing conditions in the basic plan, meaning chronically ill patients would have to pay a higher premium for coverage.

The insurance sector has called on the government to use some of the HK$50 billion start-up fund to subsidise the higher premiums for people with pre-existing conditions. But the government official said that was unacceptable.

"The purpose of insurance is to share risk: what is the point of selecting only the healthy people in the pool? Before asking the government to commit to any subsidy, the insurance companies have to do their work in cost control first," the official said.

The government has also, for the first time, revealed some key ingredients for a "basic" voluntary medical scheme:

Clear, standard coverage and benefits large enough to pay for medical services in the private sector; Standardised claims structure providing packaged benefits for certain kinds of operations or illnesses, for higher transparency and predictability, such as fixed compensation for operations and hospital stays; Transparent premium adjustment mechanism; Savings element to encourage people to get prepared for their future medical expenses;


Various incentives to encourage policyholders to stay with their plans. For example, insurance companies should not terminate plans after claims or policyholders' retirement, and should provide no-claim benefits and discounts for those who enrol with the plan earlier; 
Insurance companies must share risks with each other through reinsurance; 
Patients will be required to pay part of the medical bills to avoid abuse of services;
Insurance coverage is limited to local medical expenses only. 


The official said the move by the insurance sector to remove exemptions for mental or congenital diseases has very limited benefit for the overall population. "People suffering from these diseases make up a very small portion of the population. Only a very small number of mental patients require hospital care and there is no such service in the private sector," the official said.