Broadening health coverage: Expanding the net and extending benefits

As the government plans to begin reforming its social security system in 2014, private underwriters expect more profitable growth in health insurance. While there are five parallel schemes providing social security, some 37% of Indonesians, or around 88m people, have no health insurance and faced spiralling out-of-pocket medical expenses in 2012, according to the World Health Organisation (WHO). Meanwhile, private health policies are sold mainly as riders on life insurance, though intense competition on group health plans that account for the majority of premiums has constrained margins and caused high loss ratios. Following a pilot project in Jakarta in 2012, however, insurers expect the new system to face teething problems and prompt more individuals to buy private policies. “Universal health insurance will change everything in Indonesia. As more than 100m people will be joining the system quickly, there will be supply gaps and the greater timeline is 250m people by 2019,” Agus Benjamin, the president director of Lippo General Insurance, told OBG.

Existing Schemes

Of the five social security schemes, three provide some health coverage, but their scope remains limited. The Askes scheme covers some 17.2m civil servants, military and police officers and their families, according to the Ministry of Health. Jamsostek provides some 5.6m formal-sector employees with cover for health, work accident, pensions and death benefits, funded by a levy of 5.7% on employees’ salaries: 3.7% from employers and 2% on employee wages. Although Jamsostek membership is mandatory for firms with more than 10 employees or with monthly payrolls over Rp1bn ($100,000), compliance has been uneven. Informal workers can also participate in the scheme voluntarily, while formal-sector companies can opt out of the scheme if they contribute to a private health insurance scheme with better coverage.

A third scheme run by central and local governments was launched in January 2005 to cover the poor and near-poor with basic health benefits. This third scheme has driven coverage from 16.5% in 2004 to 56% of the population by 2012, with 76.4m people covered under Jamkesmas alone. Yet the three schemes only extend to public hospitals, government health centres and a limited number of private hospitals that have sought patient volumes. The Jamkesmas scheme earmarks Rp6500 ($0.65) per person per month, accounting for a quarter of the central government’s health budget in the five years to 2010, according to the World Bank.

Indonesia spent only 0.9% of GDP on public health care in 2011, according to the bank, compared to 1.2% in India, 1.4% in the Philippines, 2.7% in Vietnam, 2.9% in China, 3.1% in Thailand, 4.1% in Brazil and 5% in Turkey.

Private Policies

While both life and non-life underwriters are able to offer health insurance by law (the only policies alongside personal accident (PA) where both can compete), life insurers have held an edge by bundling health covers in life policies. “Life insurers frequently cross-subsidise losses on their health riders with proceeds from their life business,” Peter Phelan, president director of Pacific Cross, a third-party administrator servicing health insurers, told OBG. “Most of the market is corporate, where loss ratios can exceed 75%.” The main providers include foreign-linked life joint ventures like AXA, Allianz, Aviva, Manulife, Prudential and AIA. State-owned Jasindo bought significant market share in 2010 by offering discounts of up to 30% on premiums, but it has since curbed these excesses.

Premium growth figures in PA and health sales have been significant in recent years. Combined gross premiums near-doubled in the two years to end-2012, from Rp2.86trn ($286m) in 2010 to Rp5.17trn ($517m) by 2012, the year when growth reached 33.4%, according to figures from the General Insurance Association.

Yet while health insurance rates are growing by about 10% annually, medical costs are estimated to rise 10-15% annually, according to Pacific Cross. “While perhaps 7-10 % of the population has some kind of health insurance, most of which is provided by their employers, and premiums are growing roughly 10% annually, we believe this is mostly driven by population growth rather than an expanding market,” Phelan said. While the market is dominated by group policies, underwriters see potential in retail lines, particularly given the estimated 1.5m Indonesians seeking health care abroad, spending $11.5bn per year, according to the ministry.

Planning Universal

Wide-ranging reform was enacted in 2011 when parliament passed Law 24 on social security providers, creating the Social Security Organising Body (BPJS). The law requires all employers to provide five key benefits – health, workers’ compensation, pensions, provident funds and death benefits – to staff, while the government will extend coverage to all Indonesians by 2019. The new BPJS health department will integrate the health insurance components of Askes, Jamsostek and Jamkesmas, while the BPJS employment office will provide the remaining benefits. The health scheme will be funded by premiums from both employers and staff, with the former paying 4% of salary and the latter 1%, while the government will cover the poor. Non-poor informal workers will make flat monthly contributions. Despite initial proposals for monthly premiums of Rp15,000 ($1.50) per person, debate in parliament is still on-going for the final monthly premium. Care will only be covered at public hospitals, with service and drugs for major diseases like cancer and chronic conditions free at the point of service.

The government’s roadmap to 2019 expects some 121.6m people when it is rolled out in 2014, including 96.4m categorised as poor, 17.2m public employees and 5.5m Jamsostek-covered workers, and 2.5m covered under other government-run social security schemes. “If we calculate how many people have health coverage in Indonesia, it is relatively miniscule, which means there is great potential moving forward,” said Roy Ibrahim, the president director of Asuransi Jiwa InHealth.

The Ministry of Social Affairs will set criteria for those covered by the government and those required to make their own contributions. Foreign workers in Indonesia for over six months will also be required to join. “We’ve budgeted close to Rp24trn ($2.4bn) in 2014 for the universal health care scheme, starting with the poor and government employees, although this will rise in future years,” Luky Alfirman, director of the Ministry of Finance’s centre for macroeconomic policy, told OBG. Indeed, the World Bank estimates the scheme will cost $13bn-16bn annually once it is fully implemented.

Pilot

A pilot scheme was rolled out in the capital by the provincial government, known as Healthy Jakarta Card, from November 2012, with mixed results. Covering some 4.7m people categorised as poor and expected to cover all 10m residents by 2014, the scheme covers care at third-class public hospital wards at roughly 90 of the city’s 147 registered hospitals. This caused patient numbers to spike by a quarter within the first six months at some main hospitals. With long queues and scare stories of patient deaths due to refusal of treatment, insurers see this pilot as a sign of the teething problems the nationwide scheme will face given inadequate facilities and manpower. Indonesia has only six hospital beds for every 10,000 people, according to the WHO, four times less than the global average.

Retail Prospects

Insurers are gearing up for strong growth in retail health insurance demand as a result. “The roll-out of the government’s universal health insurance scheme could actually stimulate retail demand for health policies as it could raise insurance awareness and cater to more affluent people’s desire for top-ups on the government scheme,” Luc St-Amour, Sun Life Financial Indonesia’s chief actuary, told OBG. Although it is unclear whether firms will still get to opt out of the public scheme, underwriters are eager to expand.