As the GCC healthcare sector continues to develop on the back of compulsory health insurance, what strategies will boost sustainable growth? Can insurers cope with rising medical costs and changing consumer preferences?
The demand for healthcare in the GCC continues to grow steadily in recent years on the back of changing demographics, high per capita incomes, and rising cases of lifestyle diseases.
In the GCC countries, the average net medical trend rate is expected to rise to 7.3–11.9% in 2016 from 6.5–13.8% in 2015, according to Aon Hewitt’s Global Medical Trend Rates 2016 Survey report.
Projections based on 2016 growth rates puts the value of the region’s healthcare market at between US$90 billion and $130 billion by 2020.
In addition, healthcare spending in the GCC is expected to hit $69 billion by 2020, representing almost 48% of that of the MENA region, fuelled by significant investments in the sector to improve the range of medical offerings and services available.
Currently, GCC governments bear the chunk of the healthcare costs, covering around 65–80% of total health expenditure, higher than the global average of around 60%. To meet the growing demand for healthcare and reduce the burden of healthcare expenses on the public sector, they are launching various initiatives to improve healthcare delivery and growth. This includes introducing compulsory health insurance for both locals and expatriates.
Mandatory boost
Saudi Arabia took the lead in introducing mandatory health insurance in 2004 for the private sector.
The UAE followed suit with Abu Dhabi making it mandatory for all citizens to have basic health insurance cover from 1 June 2006. Subsequently Dubai also introduced a compulsory health insurance scheme in 2014 which aimed at implementing universal health cover for all Dubai residents.
In Oman, the government is planning to introduce mandatory health insurance for the private sector by January 2018. The new law will require employers to arrange medical treatment for expatriate employees by providing medical insurance through a third-party insurer.
The Chairman of the Supreme of the Supreme Council for Health in Bahrain has also announced plans to establish a national health insurance programme in early 2019, following a study of worldwide practices.
In Qatar, which suspended its national health insurance scheme in 2015, the Ministry of Public Health, Ministry of Finance and Qatar Central Bank have formed a committee to introduce a new compulsory health insurance scheme that would be managed by the insurance industry, according to a report by EY.
Amidst the push for compulsory health insurance, governments are increasingly turning to the private sector for support with both provision and financing which requires changing the GCC’s system of healthcare delivery, according to Al Masah’s report on “GCC’s Fast Evolving Healthcare Landscape”. The new system will involve reforms to engage the private sector in healthcare delivery to manage the burgeoning demand and provide a better quality of care in a more efficient manner.
Sustainable growth
The move towards compulsory health insurance is rapidly expanding the GCC’s health insurance business, with Saudi Arabia and the UAE being the region’s two fastest-growing markets. In 2016, health insurance accounted for 51% and over 40% of the total GWP in Saudi Arabia and the UAE, respectively.
However, the large number of local and foreign players in this segment has also created intense competition and limited profitability.
In addition, State-owned insurers dominate the market, having a competitive advantage given their history and existing relationships.
Hence, insurers face the challenge to be both efficient and effective, as well as to operate profitably.
Insurance players also need to differentiate themselves from competitors and grab market share, for example, by offering value-added services such as disease management and wellness programmes.
Ultimately the industry as a whole must focus on sustainable growth, said Mr Karim Idilby, General Manager, Bupa Global Africa, India and Middle East, noting that “market dynamics can make it easy to drive short-term growth. However, in the medium term, this will invariably have a detrimental impact on the industry. Ensuring the fundamentals are solid from the outset is crucial”.
Managing medical costs
The insurance market should also continue to keep a close watch on healthcare spending in relation to health insurance affordability, notably with regards to rising costs, inflation and potential investment in healthcare driving costs up, Mr Idilby said.
He said: “I think increased transparency and integration with local medical providers will help reduce medical care costs. This will also benefit medical facilities in bringing more efficiency in improved patient care outcomes, as well as help streamline the patient care journey.”
From a broker’s perspective, Mr Koen Van Kerckhoven, Mercer Marsh Benefits Leader, MENA, said that clients want to find an equilibrium between balancing the cost of medical insurance and the needs and wants of their employees. “Utilising benchmarking and claims data, we are providing our clients with a historical and future view of their coverages. The understanding of their medical plans enables them to better allocate capital, manage employee expectations, and achieve engagement results.”
The private healthcare spend in the GCC is approximately 32% of total health expenditure and medical inflation oscillates at 15%, he said.
“The trend towards increased medical costs will continue and eventually lead to provider consolidation and tariff setting within the insurance industry and to an increase in private hospital beds, specialties and technology within the healthcare industry”, Mr Van Kerckhoven observed.
Achieving well-being
In addition to the rise in regulation for mandatory insurance, the region is witnessing changing consumer preferences when it comes to health and wellness, said Mr Idilby.
From a consumer perspective, there is an increasing appetite for information about health in the GCC, he said. According to research conducted by Oman Insurance Company (OIC) and Bupa Global, 80% of respondents in the UAE said they would like more information about their health and wellbeing, and 57% want more support from their friends and family to manage their well-being.
The research also highlighted that 89% of UAE residents believe they could live a healthier life; nearly 40% of claim they do not have sufficient time to manage their well-being; and 58% of them cite work commitments as the main barrier to doing so.
These results strongly suggest that people want and have the aptitude to become more involved in their health, and want a more holistic overview of their well-being. “As a result, the insurance market will strive to support and advise consumers in their drive to becoming more informed and, as a result, healthier. I believe insurers will also play a key role in consumers’ health as they help businesses see the benefit of a healthier and happier work culture, through increased productivity and reduced absenteeism,” Mr Idilby said.
For businesses, including SMEs, the obligation to provide insurance to all employees may lead them to opt for more basic packages to keep costs down. However, with consumer attitudes towards health insurance changing, companies stand to benefit from offering comprehensive insurance as part of an attractive benefits package, he added.
Mr Van Kerckhoven said it is necessary to find a balance between meeting a company’s expense expectations and effective caring for employees, and this needs to be viewed as a long-term goal. “In order to achieve this, employers should adopt a strategy that focuses on prevention, access and quality of care, whilst using the power of analytics.”
Healthy prospects
Despite current challenges, compulsory health insurance is fast gaining traction in the GCC and is expected to be fully implemented in most of the GCC countries by 2020, which will be a significant driver of investment and expansion of health services as out-of-pocket expenditures decrease, according to Al Masah’s report.
Going forward, these legislations are expected to slowly shift the flow of patients from the public sector to the private healthcare facilities. In the long run, it would ease the burden of insurance on the State, resulting in a more competitive private health insurance market and forcing participants to provide higher quality health insurance products and also help to bring down premiums. M