A large margin: Health coverage is modest but profitable

Although health insurance is an add-on sold by both life and non-life underwriters, it remains a profitable yet under-recognised product on the Indonesian market. The reform of the public health sector into one based on insurance has seen the role of state enterprises expand, but has also provided opportunities for private insurers. A regulatory grey zone allows both types of underwriters to offer these products. Although the 1992 Insurance Act opened the door for private underwriters to provide health coverage, it does not explicitly regulate health policy contracts.

PUBLIC HEALTH: Public schemes have long provided the majority of health care coverage in Indonesia, as initiation costs are high in such a vast territory. Under the Askeskin programme, later renamed Jaminan Kesehatan Masyarakat (Jamkesmas), basic coverage was radically extended in 2005 and now covers over 76.4m of Indonesia’s poor and nearly poor. A universal health care bill was approved by parliament in October 2011, and is set to come into effect in 2014.

Around two-thirds of Indonesians with formal health insurance are covered under this tax-financed scheme, and benefits under the programme are significantly higher than those of Jamsostek or Askes, the civil servants’ health programme. Jamsostek raised the maximum work injury medical claims from Rp12m ($1440) to Rp20m ($2400) in January 2011. Combined, the various state and private policies cover 108m Indonesians.

UNIVERSAL COVERAGE: The national implementation of the programme has been efficient, but many districts have been slow to establish the implementing institutions. Such insurance schemes have only been set up in about 100 districts. Regardless, Indonesia hopes to reach universal health insurance coverage by 2014, a timeframe still widely seen as optimistic.

With costs not shared with patients or local government, the central government currently pays Rp6500 ($0.78) per Indonesian covered. Jamkesmas remains the main insurer for health, but private coverage is growing. Unsurprisingly, most people covered by the scheme are concentrated in urban areas with formal sector employment, particularly around Jakarta. Only a third of health care establishments accept Jamkesmas coverage, while most private firms do not contribute to the scheme. This leaves ample ground for private health insurance coverage to flourish.

PRIVATE COVERAGE: The transition from a state-funded public health system to one based on insurance, in which government covers contributions for the poor, has opened up attractive opportunities for private insurers. Approximately 7m Indonesians are covered by a health insurance policy, according to insurers. While private employers must contribute to Jamsostek’s old age and death benefits, they are allowed to opt out of higher benefit payments, including health coverage.

Typically, companies that contribute more than Rp60,000 ($7.20) a month per employee for health benefits decline public health schemes and seek private coverage instead. Much of this private health insurance is made up of group coverage. Individual prepaid health insurance accounted for a mere 9.7% of all private health care spending in 2008, less than one-sixth that of out-of-pocket expenditure, according to the World Health Organisation. As most hospitals insist on proof of insurance or at least a patient’s ability to afford treatment, medical insurance is set to sustain its growth.

Leading players in the health sector include Allianz, AXA, China Life, AIA, Prudential, AVIVA, ManuLife and BNI Life, among others. Although rarely sold as a standalone product, health insurance generates attractive revenues and is usually viewed as a supplement for established underwriters. As standalone health insurers are unlikely to emerge in the short term, mainstream insurers will continue to target this segment. If anything, competition is likely to grow. Moreover, while government schemes will continue to play a key role for lower-income Indonesians, private insurers are vying for the middle and upper segments of the market.

Although profit margins may fall with the development of more health micro-policies, the market is set to grow.