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    Can Tax Breaks Boost Private Health Insurance in China?

    National tax incentives have produced a surge in inquiries, but eligible policies hold little appeal for most individuals.

    This article is part of a series about health care reform in China.

    SHANGHAI — Bao Wei was used to waiting hours at public hospitals, but this was the last straw: By the time her 11-month-old daughter finally saw a pediatrician at midnight, the little girl’s food allergy symptoms had disappeared. The consultation took minutes, but the wait had lasted four hours. Bao made up her mind that night to expand her family’s private health insurance coverage.

    Just a few weeks earlier, Chinese authorities had begun offering tax incentives to encourage middle-class families like Bao’s to purchase private health insurance. Beginning July 1, individuals who buy eligible insurance products can reduce their personal income taxes by up to 1,080 yuan ($162) a year.

    The tax cuts fall under a host of reforms aimed at rethinking health care provision for the nation’s vast and aging population. For most people in China, health care means public hospitals; treatment is partly paid out of pocket and partly reimbursed through compulsory insurance provided by their employers or state pension. Reforms aim to give patients more choices and ease the burden on the public purse.

    Market solutions are playing an increasing role in health care: According to state news agency Xinhua, the number of private hospitals in China more than doubled from 2010 to 2015. By the end of 2015, there were 14,500 private hospitals, accounting for 52.7 percent of total hospitals in the country. The government hopes that greater uptake of private health insurance, alongside the rapid growth of private medicine, will reduce pressure on overworked, overcrowded public hospitals.

    But public awareness of and consumer confidence in private health insurance is low, even among those who can afford it — and most of the products eligible for tax cuts under the recent policy still only reimburse treatment at public hospitals.

    Bao, 35, is a human resources manager in a German design company, while her husband works in an asset management company. Their annual household income is more than 500,000 yuan — significantly higher than Shanghai’s average of 369,131 yuan for people working in non-public sectors, which is already the highest in the country. However, their expenses are substantial, as the couple’s salaries are the main source of income for a family of seven. “We have four retired parents to support and a child to raise — plus, we like traveling,” Bao told Sixth Tone.

    Like many Chinese consumers, Bao viewed insurance more as a financial product to mitigate risk in emergencies than a method of paying for day-to-day health care. Her family previously spent 20,000 yuan each year on private health insurance on top of the coverage their employers were mandated to provide — but they had approached the market with caution, choosing a critical illness insurance policy that only covered certain conditions, not regular hospital consultations. “We purchased private health insurance to reduce the impact that any accident or disease could bring to the family,” Bao said.

    There are two main types of private health insurance on the mainland: The more popular products are life insurance-like critical illness policies that pay out lump sums if the policyholder is diagnosed with certain conditions. If the holder makes no claims within a set period, their premiums will be returned with interest, meaning the policy operates as a form of investment or retirement plan in addition to offering indemnity. On the other hand, health insurance policies that reimburse treatment are often seen as a waste of money, as there is no return if the holder makes no claims — though these policies typically offer more comprehensive coverage.

    Only about one in 20 people in China has a reimbursement health insurance policy, according to a 2016 joint report by global business consultancy Boston Consulting Group and reinsurance company Munich Re. Though the market for private health insurance saw consistent year-on-year growth of around 31 percent between 2010 and 2015, more than 70 percent of its 241 billion-yuan value in 2015 was made up of critical illness policies.

    But as indemnity policies for critical illness do little to support the growth of China’s burgeoning private hospital sector, authorities are working to promote private reimbursement health insurance that covers outpatient consultations as well as inpatient treatment.

    Wu Rong, a Shanghainese senior manager in a multinational pharmaceutical company, is more informed about health care options than the average person. She and her husband, a small-business owner, have a combined annual income of 1 million yuan, and they spend up to 30,000 yuan on reimbursement products each year, on top of 100,000 yuan on critical illness indemnity.

    Now 41, Wu started purchasing private health insurance more than 10 years ago. In the future, she plans to spend 10 percent of her family’s income on reimbursement policies and 20 percent on critical illness insurance.

    “For me, reimbursement policies mean access to better health care services at private facilities. I can’t endure hours of waiting in big crowds at public hospitals,” she told Sixth Tone. “Meanwhile, critical illness plans mean that in case of an unfortunate event, I won’t have to worry that my health issues will impose a financial burden on my family.”

    Wu’s father, who is in his late 70s, is a frequent hospital visitor. Without private health insurance — he is ineligible for most products because of his age and disease history — his treatment bills add up. One surgery in April cost the family 40,000 yuan out of pocket.

    Although Wu believes tax cuts could help raise awareness of private health insurance, she finds that the financial benefits provide little incentive: She pays more than 300,000 yuan in taxes each year, so a tax cut of 1,080 yuan makes a negligible difference.

    Tax incentives for purchasing private health insurance were piloted in 31 cities including Shanghai and Beijing beginning Jan. 1, 2016, but only a handful of domestic insurance companies have offered eligible products.

    Most of the eligible insurance products target employers rather than individuals, according to Zhao Zhigang, a sales manager at leading insurance provider China Pacific Insurance Company. For a resident making Shanghai’s average monthly income — 6,504 yuan in 2016 — the tax cut would amount to only 20 yuan each month, a sum hardly worth putting in the paperwork for.

    Zhao told Sixth Tone that as the tax cuts are paltry, these eligible products were created more as entry-level offerings to promote awareness and understanding of private health insurance. “The tax incentive is just bait to attract people to learn more about these plans and eventually get insured,” he said.

    His company offers a reimbursement insurance product catering to the new tax incentive policy; the plan costs 2,400 yuan per year, which is the maximum deduction from taxable income allowed under the reform. However, the plan only reimburses treatment at public hospitals — filling the gap left by compulsory public health insurance, which covers up to 90 percent of costs.

    For bank clerk Zhao Chunhui, such products hold little appeal. “I’d be happy to spend around 2,000 yuan a year on reimbursement products, but given that they only cover public hospital visits, I’m not that interested,” he said. The 29-year-old, who has an annual household income of around 200,000 yuan and a 4-year-old son to support, has never purchased private health insurance — but he does invest 10,000 yuan in life insurance each year.

    Reimbursement products offering tax incentives have little market advantage over other private health insurance that many companies already buy for their employees, according to Yao Xin’gen, an agent with Hong Kong-based multinational insurance company AIA Insurance.

    AIA Insurance doesn’t currently offer any products eligible for tax cuts, but Yao said that government policy on private health insurance is still in the early stages. “To make a real difference, I think the government will include foreign insurance companies in the plan and offer more inviting tax incentives to purchasers,” Yao predicted.

    The Boston Consulting Group and Munich Re report forecasts that the market for private health insurance in China will increase fivefold between 2015 and 2020, and that reimbursement policies will see the fastest growth.

    Bill Bossany, deputy chief executive of Munich Re, told Sixth Tone that awareness of private health insurance is growing, especially among people who have just started families and those who have been in the workforce for more than five years.

    Government tax incentives can help foster the mindset that health insurance is necessary and financially advantageous, Bossany said — and once people buy the incentivized insurance, they are more likely to research and consider other private health insurance options in the future.

    Bao is a case in point. Though she was disappointed to learn that the tax savings were low and burdensome to apply for, since she began looking into reimbursement products that offer tax incentives, she has come to see more inclusive private health insurance coverage as indispensable, at least for her young daughter.

    “Health care is a priority for any family,” she said. “As a new mother, I’m willing to pay whatever I can afford to get the best medical care for my girl.”

    Editor: Qian Jinghua.

    (Header image: Two women walk past signs that say ‘designated medical institution’ at a hospital in Zhengzhou, Henan province, March 28, 2009. Guo Yang/VCG)