Positioning and Platform-Based Implementation Path of Commercial Health Insurance in China's Healthcare Ecosystem

Author: Xiao Zhan, with a legal background and experience in operational management and investment within the healthcare and wellness sector, specializing in industry analysis and research on industrial implementation models. This article, originally 16,000 words in length, has been slightly abridged from the original text.

China’s commercial health insurance sector faces unclear positioning and ambiguous profitability models within the healthcare landscape. Since commercial insurance cannot address the fundamental challenges of basic medical insurance, relying on it as a supplementary mechanism should not be regarded as the primary development path. Furthermore, the much-touted U.S. Health Maintenance Organization (HMO) model essentially represents America’s version of basic medical insurance; it does not inherently resolve broader healthcare issues and therefore should not serve as a benchmark for China’s commercial health insurance industry.

The author believes that health management is the primary battleground for China’s commercial health insurance sector and represents one of the most critical business areas that commercial insurers should develop. To effectively establish a health management system with independent operational logic within the existing medical care and medical insurance framework, commercial insurers need to invest in health management based on performance principles and build four key platforms: a “Medical Insurance Integration Platform,” a “Health Management Service Platform,” a “Customer Operations Service Platform,” and an “Insurance Agent Training Platform.”

Note: For ease of expression, the term “commercial insurance” used hereinafter in this article refers exclusively to “commercial health insurance.”

China’s commercial health insurance sector suffers from unclear positioning, which has hindered the development of suitable business models in its transition toward the healthcare industry. The author argues that the primary task is to clarify the connotations of the current role of commercial insurance as a supplement to basic medical insurance, identify what basic medical insurance requires, examine what specific contributions commercial insurance has made as a supplementary payer, and assess the potential issues arising from positioning deviations. Secondly, it is essential to clearly define the relationship between commercial insurance and basic medical insurance. Based on an analysis of these issues, the author concludes that commercial insurance and basic medical insurance should each manage their respective domains.

1. Population aging has exacerbated the pressure of medical insurance funds running at a deficit.

(1) The cost of medical treatment for the elderly continues to rise, with a risk of sudden spikes.

First, medical expenses for chronic diseases, cancer, and other conditions. According to statistics from China's National Health Commission, more than 180 million of the approximately 249 million elderly people in China suffer from chronic diseases. Characterized by prolonged courses and difficulty in cure, chronic diseases often require lifelong medication and treatment for many elderly patients.

Second, the elderly have a high probability of suffering from major and severe diseases. Moreover, as life expectancy increases, the duration spent in old age will inevitably lengthen, which will significantly increase both the likelihood and the proportion of medical expenses paid by health insurance for the elderly population. According to relevant studies, up to 90% of an individual’s lifetime medical costs may be incurred during the end-of-life and terminal care phases for emergency interventions and treatment. It is conceivable that the payment pressure on health insurance is immeasurable.

Third is the cost incurred for elderly care. The total cost borne by society to address the medical needs of the aging population is an immense and difficult-to-quantify figure. For instance, China has approximately 40 million elderly individuals with disabilities or partial disabilities; if those with dementia are included, this number could reach 50 million or even more. In the future, the entire elderly population will require substantial human resources and facilities for nursing, rehabilitation, psychological support, and home-based care. A significant portion of these expenses, such as costs for rehabilitative nursing, will likely need to be covered by medical insurance.

As an increasing number of individuals enter old age and the overall elderly population base expands, the proportion of elderly people suffering from diseases and requiring medical services is likely to rise. Furthermore, due to the large baseline population, the number of people entering old age may surge suddenly, leading to an order-of-magnitude increase in health insurance expenditures and even posing a risk of sudden, sharp spikes in spending.

(2) As the working-age population declines, fewer individuals contribute to medical insurance, leading to a shrinkage of the medical insurance fund pool.

In China, social security contributions are legally mandatory; however, the primary funding sources are joint payments by employers and employees. Consequently, the growth of the medical insurance fund pool currently relies mainly on the young and middle-aged working population. The total inflow of funds is influenced by the contribution rates and willingness negotiated between employers and individual workers. Therefore, the financing sources for medical insurance remain relatively singular, subject to factors such as the total size of the working population, contribution rates, employer willingness, and the prosperity of the labor market.

Overall, as the working-age population declines, the medical insurance fund pool faces the risk of a shrinking contributor base.

2. Distribution channels, such as those for pharmaceuticals, have doubled medical costs.

One of the primary drivers of high medical treatment costs is the pricing of products such as pharmaceuticals and medical devices. Specifically, the price markup for a drug or medical device from factory gate to final patient payment can be tens or even hundreds of times the original cost. In the case of particularly scarce specialty drugs, severe shortages may arise, leading to issues such as scalping, price gouging, and smuggling, which further burden patients with additional inconveniences.

High costs in the pharmaceutical distribution chain: According to relevant studies, distribution costs account for approximately 45% of the total drug price in China, which significantly impacts medical expenditures borne by end patients and final payers such as health insurance programs.

Overall, distribution channels such as pharmaceuticals have an exponential impact on healthcare costs. A 1% reduction in costs can benefit countless individuals and significantly lower medical expenses for consumers. Given the vast range of stakeholders involved, this issue cannot be resolved by any single individual or within a short timeframe.

Meanwhile, global trends indicate that medicine and medical technology are becoming increasingly high-end and expensive. The rising cost of medical care, driven by more expensive diagnostic and therapeutic approaches—including innovative pharmaceuticals, medical devices, and cutting-edge treatments—along with high R&D costs, traditional marketing practices for medical products, and growing demand for advanced “high-precision, sophisticated, and cutting-edge” medical technologies, poses escalating financial challenges for healthcare payers worldwide.

3. Excessive Medical Treatment Caused by Hospitals' Profit Models

(1) The Issue of Hospital Profitability

China’s operational management system for public hospitals has been undergoing continuous change. The evolution from an initial model of full public welfare to attempts at market-oriented liberalization has triggered significant social issues.

Currently, China’s healthcare services are dominated by public hospitals, meaning that both in terms of quantity and resource allocation, non-profit medical institutions funded by fiscal appropriations prevail. However, with the advancement of reforms, the proportion of fiscal appropriations or subsidies in the total revenue of large public general hospitals is generally very low, and most hospitals are required to be financially self-sufficient. Consequently, some scholars argue that China’s public hospitals have effectively evolved into a “mixed-ownership operation” model driven primarily by revenue from medical services.

As public hospitals are required to bear the consequences of operating on a self-financing basis, they must take operational considerations into account. Influenced by modern traditional medical theories, particularly the academic orientation that prioritizes clinical practice, most large general hospitals still regard diagnosis and treatment as their core mission, with their revenue and profits primarily derived from medical expenses covered by health insurance funds. This implies that, under operational pressure, most hospitals need to increase profitability by admitting more patients and prescribing more therapeutic interventions.

The profit-driven “megatrend” will compel large hospitals to continue expanding their scale, recruiting higher-caliber physicians, and acquiring more expensive medical equipment, thereby creating a stronger siphon effect on patients. This will ultimately intensify the “strong get stronger” dynamic among these hospitals, squeezing out the development of other types of healthcare service providers.

(2) Issues Regarding Physicians’ Medical Practice

Physician Performance and Career Development. In the process of hospital marketization, physicians are the most important “production units.” Hospitals will use various performance assessments and incentives to attract physicians to improve service standards. Currently, this is mainly achieved by increasing revenue through higher volumes of consultations, patient visits, surgeries, diagnostic tests, and prescriptions. Moreover, under the strict management imposed by hospitals, physicians also need institutional support in areas such as job promotion, professional ranking, and access to research and academic resources. In summary, driven by the overall profit-oriented nature of hospitals, physicians often choose to operate within, or feel pressured by, an atmosphere that encourages “increasing patients’ financial burden” or shows “indifference to patients’ out-of-pocket expenses.”

(3) Issues with Payment Methods

Assessment of Physicians’ Treatment Outcomes by Hospitals. In addition to revenue, hospitals have established comprehensive assessment and incentive mechanisms for physicians that emphasize specific treatment outcomes for admitted patients and health-related performance metrics.

If there were a robust mechanism and effective means to balance the quality of medical services with healthcare revenue, it would also help curb medical costs. However, hospitals currently lack such motivation, particularly substantive financial incentives. A key reason is that patients are unable to monitor and provide feedback on treatment outcomes, while health insurance payers lack effective measures for incentive or oversight. As the above analysis reveals, reforming payment methods is not simply a matter of adjusting a few calculation formulas.

Why Commercial Health Insurance Is Favored by Capital: Understanding the Expectations and ChallengesCommercial health insurance has attracted significant investor interest because society places high expectations on it. But what exactly are these expectations? Many believe that commercial insurance is meant to supplement basic medical insurance, a phrasing directly taken from policy documents. However, how should this statement be interpreted? Does it aim to address issues within healthcare providers (the sellers) by introducing an additional healthcare payer? In the following sections, we will examine the approaches and specific methods by which commercial insurance seeks to complement basic medical insurance, as well as the challenges inherent in these strategies.

1. Supplementary medical insurance does not address the fundamental issues of basic medical insurance

Commercial Insurance Administration of Basic Medical Insurance, abbreviated as “Commercial Insurance Administration.” Its typical model involves local governments or medical insurance centers introducing commercial insurance institutions to participate in the administration of basic medical insurance through models such as service procurement, entrusted management, supplementary critical illness insurance, and “Hui Min Bao” (inclusive commercial health insurance). These institutions provide services for medical insurance funds or supplementary insurance products, including underwriting for supplementary critical illness insurance, policyholder registration, labor services and training for staff, underwriting services, and claims adjudication services.

Is the essence of commercial insurance’s involvement in health insurance administration to address issues within the public health insurance system, or to resolve challenges inherent to commercial insurance itself? The author argues that integrating commercial insurance with public health insurance represents a form of social-commercial collaboration, merely shifting the responsible entity to commercial insurers while they perform functions that should ideally be undertaken by the public health insurance system. The human resources, material assets, marketing efforts, software systems, and other investments made by commercial insurers are all directed toward building service standards for hospitals and physicians within the existing public health insurance framework. Consequently, commercial insurers lack substantial authority for proactive management.

For instance, the recently popular model of commercial insurance underwriting supplementary critical illness coverage for basic medical insurance essentially involves commercial health insurers providing supplemental coverage for gaps in the critical illness protection offered by basic medical insurance. The primary objective of this supplementary medical insurance is to share the risk associated with critical illness coverage under basic medical insurance; specifically, if an insured individual incurs expenses for specified critical or severe illnesses within the defined scope, the costs are jointly borne by the basic medical insurance account and the supplementary critical illness insurance account.

Typically, local medical insurance centers determine qualified commercial insurance companies with underwriting capacity through a bidding process. These commercial insurers then handle the operational aspects of the supplementary critical illness insurance under the basic medical insurance scheme, including underwriting and claims settlement. Both parties agree on the profit-and-loss sharing ratio based on specific circumstances. In terms of actual operations, commercial insurers generally do not need to provide capital, do not exercise substantive management over the fund pool account for the supplementary critical illness insurance, and are not responsible for fundraising for the medical insurance program. Their primary responsibilities lie in operational management tasks such as reviewing and auditing reimbursement claims for insured individuals with critical illnesses, which constitute the largest portion of operational costs.

Some argue that commercial insurers’ participation in the administration of public health insurance is driven by potential market opportunities such as data accumulation, underwriting experience, and customer acquisition. However, the author contends that, given the overarching conclusion that “the essence of commercial insurers’ involvement in administering public health insurance is to address issues within the public health insurance system,” and since the primary objective is squarely focused on resolving public health insurance challenges, any benefits accrued by commercial insurers are somewhat peripheral or incidental.

Taking the commercial insurance administration of supplemental critical illness insurance as an example: Critical illness insurance is a government public policy with a public-welfare nature, administered by commercial insurance institutions. It represents a transfer of certain public-welfare functions from basic medical insurance to commercial insurers for the purpose of “cost containment.” However, commercial insurers still operate within the basic medical insurance framework; for instance, penalties are imposed by aligning with the payment standards of basic medical insurance, and these penalty criteria remain within the scope of basic medical insurance standards. Therefore, within the supplemental critical illness insurance system, commercial insurers serve merely as a “proxy” for basic medical insurance—a “proxy” without substantive authority.

For another example, there is a favorable assumption in the industry that by administering basic medical insurance services, commercial insurers can access potential customers, thereby accumulating data and effectively expanding their client base. The author believes that the flaw in this view lies in the failure to clearly identify the sources and needs of these customers. Specifically, are customers of supplementary critical illness insurance under the public scheme also potential customers for commercial insurance (assuming customer sharing is feasible)? We observe that commercial insurers already offer critical illness medical insurance products, positioned to cover medical expenses not reimbursable by basic medical insurance. However, their growth has been constrained by the dominance of the public system, preventing them from achieving scale. Therefore, when encountering suitable customers, should insurers promote supplementary insurance under the public scheme or commercial supplementary insurance? Furthermore, why would individuals who have already obtained supplementary critical illness coverage through public medical insurance pay additional premiums for commercial insurance products? For patients with critical illnesses who face uncovered expenses due to limitations in public insurance reimbursement, there is indeed an insurance need. The question remains whether commercial insurers can provide appropriate coverage products at that time. If both systems target “the same customer base,” such conflict between commercial insurance and public medical insurance will persist.

In conclusion, the author believes that commercial health insurance and social medical insurance are fundamentally not products of the same system. It is difficult for an independent commercial entity to ultimately build its own structure by merely imitating the model of social medical insurance. Commercial health insurance still requires its own independent system, values, philosophy, objectives, organizational structure, personnel management, marketing system, fund management, and audit standards to address its unique challenges. This framework is exclusive to commercial health insurance, and social medical insurance itself lacks the capacity to customize solutions for it. Let alone discuss commercialization, profit margins, and data accumulation and sharing.

2. Post-event cost control in medical insurance case audits should be shifted to pre-event

Another supplementary service that commercial health insurance can provide to basic medical insurance is called “third-party medical record review.” In this model, commercial insurance companies act as third-party entities to assist government medical insurance audit departments in conducting medical reviews and controlling healthcare expenditures. The underlying logic and objectives are quite similar to those of critical illness supplemental medical insurance. Currently, the prevailing approach involves the medical insurance authority delegating commercial insurers to organize physicians from relevant specialties to conduct retrospective reviews of inpatient medical records at hospitals designated by the medical insurance program. The medical insurance department typically defines the standards and targets for cost audits. After the commercial insurer-organized physicians complete the reviews, if unreasonable treatments or other irregularities are verified, the medical insurance authority imposes penalties and deducts payments from the respective hospitals.

The author believes that cost containment in medical insurance should not rely on post-hoc audits, but rather on pre-emptive big data monitoring. There are several main reasons for this:

First, the issue of subjectivity among reviewing physicians. For instance, variations in how individual physicians interpret fee standards can undermine the authority of the review criteria. Additionally, since medical record reviews are typically conducted by physicians within the same department, and given that similar issues tend to recur within a single specialty, reviewers may be inclined to show leniency toward their peers or avoid actions that might cause interpersonal conflict.

Second, the issue of authority in audit standards. There are no fixed standards for physicians’ clinical practice levels or audit competency. Both the auditing physicians and the physicians whose medical records are under review are practitioners operating within the national healthcare insurance system. Consequently, regardless of who audits whose records, there is a inherent risk that the findings will fail to gain broad acceptance. In light of this, most experts tend to adopt a “follow-the-crowd” approach—aligning their reviews with the requirements set by healthcare insurance administrators—or maintain a mindset of “avoiding offense.” Furthermore, even if experts have objections to the healthcare insurance audit standards or processes, they typically do not communicate these concerns through the hiring commercial insurance companies. Under this model, healthcare insurance audits are unable to leverage the authority of recognized experts.

Third, issues regarding the efficiency and effectiveness of the audit process. Medical record audits are typically conducted in the year following the records' creation, meaning a one-year lag inherently compromises timeliness and reduces audit efficiency. Furthermore, audits rely on random sampling, covering only a small fraction of a hospital’s total medical records. The primary consequence for hospitals and physicians is financial penalties; however, these penalties are often insufficient, resulting in inadequate punitive and incentivizing effects. The audit process lacks continuity, as it is performed on a per-admission basis without follow-up. A patient audited during one admission may not be subject to audit in subsequent admissions, thereby minimizing the role of continuous oversight.

Third-party medical record audits for health insurance face challenges related to subjectivity, authority, efficiency, and effectiveness. They have yielded minimal results in controlling healthcare costs, whether in terms of actual impact, deterrent effect, or supervisory function. Currently, this remains only a minor business segment for commercial health insurance companies. Therefore, the author believes that health insurance oversight of medical record costs requires the integration of front-end big data, artificial intelligence, and other technologies. Retrospective supplemental audits do not appear to be a promising business area at present.

3. High-end medical insurance is an extension of commercial health insurance itself, rather than a solution to the issues within the public basic medical insurance system.

Can expanding insurance coverage to more people with diverse policies resolve the challenges facing public health insurance? For instance, encouraging more individuals to purchase various high-end, high-cost commercial health insurance products. The author believes that such measures are still positioned to address the specific needs of a small segment of the population, but cannot solve the universal issues inherent in public health insurance.

The segment that high-end commercial health insurance can supplement involves expanding the target audience of commercial insurance to include high-income individuals and those with higher medical demands, rather than addressing issues within the basic public health insurance system. Certain commercial insurance products are characterized by high-cost, premium, and special-needs medical coverage. If customers were to seek such services independently, they would likely face prohibitively high prices and struggle to access quality care. In contrast, commercial insurers can pre-select designated service providers, treatment modalities, and even specific physicians for their clients, thereby attracting an early wave of enthusiasts for commercial health insurance. A primary reason these consumers opted for commercial insurance is that these products offer superior coverage limits and more robust medical services compared to basic public health insurance.

(1) High-end health insurance remains a niche business

High-end commercial health insurance services are often characterized by high prices and a limited customer base. The coverage strength of high-end health insurance is primarily manifested through high-cost, premium medical service options, such as access to green-channel appointment resources at top-tier hospitals, overseas medical resources, advanced medical treatments, and cutting-edge therapeutic technologies. Premiums for high-end commercial health insurance are determined based on factors such as the sum insured and the policyholder’s age. Typically, even the most affordable plan with a coverage limit of RMB 200,000 requires an annual premium starting at RMB 10,000. Consequently, only consumers with sufficient financial capacity and willingness to pay can afford these policies, resulting in a relatively small target market.

Therefore, in terms of customer positioning, high-end commercial health insurance can only address the specific coverage needs of a segment of individuals who both have the demand and the purchasing power, as the majority still lack such financial capacity and awareness. For instance, the most common objection encountered in health insurance marketing is, “I already have basic medical insurance; why do I need to purchase commercial insurance?” This niche positioning also entails high marketing costs for high-end health insurance, which contributes to elevated premiums and chaotic marketing practices, thereby further constraining the market size of high-end commercial insurance products.

(2) High-end health insurance does not resolve issues related to medical insurance.

Within the scope of services provided by high-end health insurance, the premium benefits enjoyed by clients—who pay substantially higher premiums—are inherently excluded from the coverage of public medical insurance. Clients who purchase high-end health insurance products have elevated expectations for healthcare solutions and may show little interest in the basic coverage offered by public medical insurance. In other words, when facing medical issues, these individuals may not even be active participants in the public medical insurance system and would likely not consider using its funds. For this niche segment of customers, purchasing high-end commercial insurance is merely a fundamental necessity.

High-end health insurance customers purchasing and utilizing commercial insurance have a minimal impact on reducing public medical insurance expenditures. Even if this small segment of the population does not use public medical insurance, it fails to alleviate the substantial financial pressure on the system.

1. The primary issue that health insurance needs to address is structural adjustment within the existing scale.

Currently, the National Healthcare Security Administration (NHSA) has become the unshakable mainstream “buyer” in China’s healthcare market. With no strong competitors, it acts as an upstream player in the industry. Holding a high-status yet heavy-responsibility position within the healthcare industrial chain, the NHSA must represent the government as the purchaser to address market issues, such as reducing medical costs across the upstream and downstream sectors. This constitutes the primary landscape facing the NHSA.

In addition to the overall risk of deficits, the basic medical insurance fund fails to meet the growing public demand for healthcare services in terms of covered items and payment methods. The rapid escalation of medical costs has also imposed significant demands on the fund’s strategic positioning, management models, power structures, and technological security.

The primary issue that the current medical insurance system needs to address is resolving economic calculations within the existing scale and organizational structure.

First, there is an imbalance in the internal structure of medical insurance payments, characterized by a mismatch between revenues and expenditures. For instance, the level of coverage differs between urban and rural areas, and the balance between coverage for major and minor illnesses needs to be addressed. Medical insurance administrators in many cities are under significant managerial pressure. In terms of payment structure, the expenses incurred by medical insurance for a small fraction of patients with critical illnesses have consumed the majority of the pooled funds contributed by the general population, which hinders the growth of the medical insurance fund pool. For example, many healthy individuals believe that they are in good health and rarely utilize...

Second, regarding funds allocated to medical insurance, contributions are made at the statutory minimum level solely to accumulate reserves for covering end-of-life emergency treatment costs in old age, with no need for higher premiums. Similarly, if varying contribution levels hold little appeal for employees, employer sponsors, as key payers, may lack the incentive to provide higher-coverage insurance plans.

Third, the long-term effectiveness of health insurance cost-containment mechanisms remains to be observed. The complex relationship among health insurance providers, hospitals, and pharmaceutical companies is entangled with excessive subjective elements and vested interests. Recently, we have frequently witnessed health insurance agencies, as dominant cost-containment entities, negotiating prices with pharmaceutical and medical device manufacturers. While drug prices appear to be declining overall, hospitals and physicians still rely on pharmaceutical sales and surgical procedures for revenue generation. Therefore, whether the “aggressive price cuts” imposed by health insurance agencies on pharmaceutical manufacturers and distributors will effectively reduce overall healthcare costs requires long-term observation. On the other hand, health insurance agencies are also experimenting with various cost-containment measures for healthcare service providers, such as capitation and diagnosis-related group (DRG) payment models. However, as representatives of the government, health insurance agencies must balance healthcare expenditures with the quality of medical services and tangible public health outcomes, rather than relying solely on payment-based performance assessments for hospitals. Consequently, the actual effectiveness of these measures in practice also warrants long-term observation.

2. When it comes to medical insurance issues, commercial insurance faces even greater challenges

(1) China’s commercial health insurance sector developed later, has a weaker foundation, and remains smaller in scale, facing relatively more severe challenges than basic medical insurance:

First, the issues encountered by basic medical insurance have not yet been faced by commercial health insurance.

In China, the development of commercial health insurance has largely trailed that of public medical insurance, emerging as a “byproduct” of the latter’s growth. Many commercial health insurance products are direct copies of foreign models. Overall, commercial health insurance remains a novel offering and a new form of consumer spending, with limited market breadth and depth.

Second, the design and operational systems of commercial insurance companies largely replicate traditional foreign financial models, resulting in unclear product positioning and a lack of trust. Many commercial insurance products suffer from severe homogenization, unreasonable commission structures, and coverage and exclusion clauses that are directly copied from foreign counterparts. These practices often attract negative public attention due to overly stringent terms. In Chinese society, commercial insurance companies are perceived more as financial institutions focused on capital operations rather than as genuine providers of “health protection.”

Third, commercial health insurance products face difficulties in achieving profitability, suffer from high loss ratios and significant losses, and exhibit certain operational challenges. For instance, there are barriers between commercial insurers and the external environment (particularly the healthcare system and pharmaceutical companies). Due to their limited scale and lack of social responsibilities beyond market-driven objectives—a notable deficiency compared to basic medical insurance—commercial insurers have virtually no ability to control costs for medical services and drug prices. Furthermore, if commercial insurers were to build an independent healthcare service system, they would need to establish separate talent pools, teams, and institutions. This would create competition with existing medical resources, leading to reluctance or non-recognition from physicians when collaborating with commercial insurers. Therefore, it is nearly impossible for commercial insurers to establish an independent medical service system.

Fourth, commercial health insurance lacks official recognition of its social status. As previously mentioned, commercial health insurers are currently merely for-profit financial organizations that have not attained a certain level of social standing or official authorization. Consequently, although commercial health insurance and basic medical insurance are positioned as “complementary” in theory, in practice they have not only failed to achieve differentiation but often give rise to conflicts of interest. Moreover, commercial health insurance has not received tangible policy support.

(2) The primary issue facing commercial health insurance in the healthcare sector is one of positioning, lacking viable business models and operational strategies.

First, in China, public health insurance holds a dominant position, having already achieved substantial scale and operational depth. In contrast, commercial health insurance has yet to fully develop; it has not even encountered the challenges faced by public health insurance, let alone devised solutions for them. Thus, “coordinated development” remains a cautious term at best. Given the predominance of public health insurance, commercial insurers should not attempt to challenge or compete for its enrollees, data, resources, and established healthcare systems. Instead, they need to provide complementary services from other angles. This represents the most critical strategic adjustment that commercial health insurance operators currently need to make.

Second, in terms of its relationship with suppliers of medical services and products (such as hospitals, physicians, and pharmaceutical manufacturers), basic medical insurance has become the largest buyer upstream in the industry. To balance the issue of “public welfare,” basic medical insurance strives to reduce downstream profits (for example, by lowering drug sales prices through negotiations). These achievements are attributable to basic medical insurance, not to commercial health insurance. Moreover, commercial health insurance still needs to build relationships with medical suppliers; far from being able to reduce downstream profits, it is more likely to encounter resistance rather than cooperation. Without downstream product support, commercial health insurance is often “weak” rather than “profitable.” Can commercial health insurance provide supplementary support for the problems arising from basic medical insurance’s reduction of downstream profits? We will discuss this in Chapters 3 and 4.

Third, in terms of the market, participation in basic medical insurance is guaranteed and supported by national laws and policies. In contrast, commercial health insurance has not received comprehensive policy support and must rely on its own efforts to expand its market share, facing full-scale competition from public-welfare healthcare measures, including basic medical insurance. This means that commercial insurers must “snatch meat from others’ mouths,” a risky strategy for companies with shallow roots. By creating so many competitors for themselves, they appear to be “under attack from both front and rear.”

The preceding discussion highlighted the issues with China’s current positioning of “commercial health insurance as a supplement to basic medical insurance.” The author believes that, at least under current conditions, positioning commercial insurance merely as a supplement to basic medical insurance is a narrow path. This positioning leads to overlapping coverage logics between commercial and basic medical insurance, causing confusion and conflict between the two. Because commercial insurance still relies on hospitals, physicians, and pharmaceuticals within the basic medical insurance system, its operational approach mirrors the management philosophy and implementation measures of basic medical insurance. However, the ultimate goal of basic medical insurance is to provide public-interest-oriented services. As an entity outside the public-interest framework, commercial insurance, when positioned merely as a supplement, neither plays a significant role in resolving the challenges faced by basic medical insurance nor lays a solid foundation for its own profitability. We know that the United States has turned healthcare into a “business,” with most of its socially welfare-oriented medical services operated by commercial insurance companies. So, can the U.S. model of commercial health insurance be applied to China?

Managed care is the primary model employed in the United States to address public healthcare coverage through commercial insurance companies, and it has become a widely discussed and emulated approach globally. Its defining characteristic is the linkage between healthcare funding and the provision of medical services itself. The Health Maintenance Organization (HMO) is the progenitor of the managed care model. This article analyzes Kaiser Permanente (hereinafter referred to as KP), the pioneer of HMOs, as a benchmark for comparing U.S. commercial health insurance with China’s basic medical insurance system. The analysis leads to the conclusion that U.S. HMOs are functionally equivalent to China’s basic medical insurance, and therefore, China’s basic medical insurance system does not need to replicate the HMO model.

1. In terms of funding sources and financial security, Kaiser also collects premiums from corporate employers, local government budgets, and individuals.

Kaiser originated in 1933, was formally established during World War II, and experienced rapid expansion and development in the postwar era. A key factor behind its swift growth was the recognition and support of powerful U.S. labor unions. After World War II, American unions increasingly endorsed Kaiser’s payment model and healthcare management approach, particularly its classic capitation-based payment system. This model not only helped employers attract more employees by offering enhanced benefits but also effectively controlled employer spending on medical costs. It was precisely this strong financial backing from U.S. corporate employers that enabled Kaiser to successfully promote and scale its philosophy and the HMO (Health Maintenance Organization) system across the country.

At its inception, Kaiser Permanente provided private clinic physician services exclusively to 1,000 workers. However, as more companies sought to provide healthcare coverage for their employees, the organization gradually transitioned to a membership model, wherein members gained access to medical services by paying insurance premiums. Consequently, Kaiser Permanente remained the HMO with the largest membership base for an extended period.

In 1973, the U.S. Department of Health and Human Services enacted the Health Maintenance Organization Act (commonly known as the HMO Act). The legislation stipulated that the government would provide substantial loan support to health maintenance organizations, including Kaiser Permanente. This granted HMOs administrative backing, signifying that the HMO model carried a certain degree of mandatory influence on corporate employers, local finances, and individuals.

2. From an operational perspective, Kaiser has established its own healthcare system and manages medical services.

Kaiser’s healthcare system serves only paying members, and its core medical infrastructure—from hospitals to physicians—is wholly owned. Members are typically assigned a primary care physician (PCP) by the system, and all routine healthcare, outpatient visits, and specialist referrals must be coordinated through this PCP. Of course, if members pay additional fees, they may choose other Kaiser-preferred in-network providers (such as private clinics), though at a higher cost.

If we view the Chinese government as a single entity, then China’s healthcare security system can be understood as a super-large payer and builder. Specifically, local fiscal authorities have funded the construction of a network of hospitals, and all individuals become “members” by paying social insurance contributions. When members require medical care, local fiscal funds or the medical insurance funds managed by medical insurance agencies act as a massive insurance plan to negotiate and make payments. However, China’s medical insurance system offers relatively greater freedom and a broader range of choices. There are currently few restrictions on patients’ choice of healthcare providers; for instance, patients are not required to go through a family doctor for referrals between different levels of care. Furthermore, China’s medical insurance system provides reimbursement to all institutions that meet the designated provider standards, with nearly uniform payment rates, thereby avoiding excessively high prices.

3. In terms of management approaches, China's medical insurance system is also drawing on the U.S. HMO model.

China’s medical insurance system is currently drawing on various cost-containment strategies employed by Health Maintenance Organizations (HMOs). Regardless, the future objective of China’s medical insurance system remains the continuous reduction of healthcare expenditures.

(1) Lessons in Payment Methods.

Kaiser’s classic payment model is “capitation,” which shifts the pressure of controlling medical costs onto healthcare providers. The drawbacks include potential intentional restriction of medical services, deliberate compromise of care quality, excessively long wait times for appointments, and high out-of-pocket expenses for self-paid services. The capitation model is more suitable for primary care services within a family physician framework.

Diagnosis-Related Group (DRG) payment is a relatively common healthcare cost-containment method adopted by Health Maintenance Organizations (HMOs) in recent years. The primary mechanism involves insurers and healthcare providers negotiating payments based on predicted costs for various diagnoses. Once a patient is diagnosed with a specific condition, the HMO pays according to the agreed-upon rate, regardless of the actual expenses incurred. This payment model requires extensive scientific actuarial calculations and detailed classification of each stage of inpatient care. DRG payment is suitable for conditions with relatively straightforward cost structures and imposes cost-control pressure on hospitals.

(2) Lessons Learned in Other Areas.

HMO’s control over medical costs stems from its strong organizational control over healthcare providers. For instance, it features a highly verticalized management and organizational structure, placing significant emphasis on the role of primary prevention, health management, and lifestyle management in cost containment, with a focus on various health management measures. Additionally, it continuously strengthens team coordination in operations, enabling different departments and specialties to work together to reduce operational costs. Driven by the motive to control costs for profitability, HMOs have achieved favorable outcomes through these managerial measures.

1. Failure to address the synergy between healthcare costs and quality

HMOs did address issues in the U.S. public healthcare system, but they also introduced drawbacks, particularly in later years, when high costs became a defining characteristic of American healthcare.

Currently, the United States has the highest healthcare costs in the world and advanced medical technology, yet public perception of healthcare quality ranks near the bottom. In 2010, U.S. healthcare spending approached $2.6 trillion, ten times the $256 billion spent in 1980. According to relevant estimates based on the latest available data from 2009, approximately $210 billion was spent on unnecessary medical services that year. Hospitalization costs in the United States far exceed those in other countries, with average charges reaching $18,000. Even without hospital admission, simply calling an ambulance or visiting an emergency room can result in bills amounting to several thousand dollars.

Taken together, the proportion of U.S. healthcare expenditure to GDP may range between 20% and 30%, meaning that 30% of the total national income is consumed by medical costs—a scenario that is unimaginable in China. In 2018, China’s total health expenditure accounted for only 6.6% of its GDP. Although there is room for increased investment in medical services, most people would agree that allocating 30% of income to healthcare is problematic.

2. Failure to address the issue of healthcare accessibility

When discussing the healthcare coverage provided by the state, the primary indicator to consider is its coverage rate, namely, how many people’s healthcare needs have been addressed. According to relevant surveys, before the Affordable Care Act fully took effect in 2013, 13.3% of the U.S. population was uninsured. In other words, in 2018, approximately 27.5 million Americans lacked health insurance. Secondly, high per capita costs also pose a significant impact, turning healthcare into a “luxury” that only a small minority can actually afford. The average annual healthcare expenditure per person in the United States amounts to $8,000, which is 1.5 times that of Norway and Switzerland.

Secondly, in the United States, where commercial insurance companies serve as the primary operators, these market-driven entities effectively assume the role of national healthcare and medical insurance administrators. However, the fundamental issue lies in their choice to adopt a fully market-oriented approach, treating healthcare as a "business" rather than a "public good." It is evident that this path of commodifying healthcare fails to fundamentally address issues of service quality and may even exacerbate them, leading to adverse outcomes.

It is a general trend that commercial insurance contract coverage clauses are becoming increasingly complex, with longer provisions and more annotations. On one hand, this can be understood as a normal operational risk control measure adopted by commercial insurers to address the growing complexity of the social environment through enhanced preventive controls. On the other hand, this approach effectively increases the cost burden on customers, thereby affecting the industry’s “abnormal development.”

For instance, customers may require more extensive explanations from insurance agents or even engage lawyers when selecting commercial health insurance terms. This can increase the overall cost of product selection and purchase, leading to a scenario where commercial health insurance becomes increasingly expensive for a small segment of buyers, while the majority opt out entirely. Furthermore, when utilizing medical services covered by commercial health insurance products, customers may encounter various usage restrictions. To mitigate potential negative impacts, affluent individuals might purchase multiple policies, even if some coverage remains unused. Alternatively, other customers may feel compelled to choose inappropriate medical treatments or facilities solely to comply with insurance policy terms, resulting in poor experiences regarding their health outcomes, convenience, and overall satisfaction.

In summary, the author believes that healthcare delivered under a purely market-driven system has continuously driven up societal costs, rendering them unsustainable and placing an unbearable burden on society. Furthermore, the commercial health insurance model in the United States has turned private insurance into a “game for the wealthy,” excluding many low- and middle-income individuals from access to high-quality medical care. In China, commercial health insurance cannot replace the basic public health insurance scheme given its dominant position, nor can it be allowed to follow a path of purely market-driven healthcare services.

1. China's Medical Insurance System Need Not Replicate the HMO Model

The author believes that China does not need to establish a separate market-oriented HMO or replicate the HMO model. From a logical perspective, the U.S. HMO is equivalent to China’s basic medical insurance system. China’s existing medical insurance framework is comprehensive, robust, and enjoys broad social recognition with multiple institutional roles, making it even more powerful and systematic than U.S. HMOs. In terms of overall capacity and its driving force on society, China’s basic medical insurance represents an advanced version of the HMO model. While China may need to learn from U.S. techniques in cost-containment methods, it no longer needs to align itself with HMOs in terms of systemic strength and impact.

Conceptually, China’s healthcare system has a strong welfare-oriented foundation, and its medical insurance scheme has developed and established a service system primarily focused on public benefit. In the foreseeable future, public welfare and health will remain top priorities for government governance. It is inconceivable for either the government or the public to allow commercial health insurance to directly replace or assume primary responsibility for medical security, especially if operated under market-driven principles. U.S. commercial health insurance is not highly comparable to its Chinese counterpart in terms of status, scale, growth rate, or specific management measures. Under China’s current environment and institutional framework, it is unimaginable for commercial health insurance to fully replicate the U.S. development path by directly replacing or assuming the primary role in medical security.

2. HMOs merely established a market-based health insurance system, rather than pioneering commercial health insurance itself.

The U.S. healthcare system, dominated by managed care, merely represents a pathway devised by commercial insurers to address the absence of public health insurance in the wake of gaps in public welfare coverage, rather than an expansion of the scope and space for private insurance itself.

In the traditional healthcare sector focused on diagnosis and treatment, reducing costs and compressing profit margins downstream has become an inevitable trend. Particularly in a payment market dominated by a single payer—the national medical insurance system—cost containment implies that there is little room to compete for incremental market growth. Although the absolute number of patients with severe or critical illnesses may rise due to societal trends such as population aging, their overall proportion remains relatively stable. Therefore, the medical insurance system still has room and time for adjustments, and will ultimately resolve the issue of providing basic medical care.

The author believes that commercial health insurance can actively participate in the traditional healthcare market to find a foothold for incubating its business logic and enhancing its social status, but it should not make traditional healthcare its main arena. Commercial health insurance must identify its own core domain—a market that it can independently develop without facing excessive competition.

In Parts I and II, the author explored several potential pathways for China’s commercial health insurance sector. The positioning of commercial health insurance in China remains ill-defined: it neither resolves the challenges facing China’s basic medical insurance system nor can it simply replicate the U.S. commercial insurance model. There is no ready-made model to copy. As a “supplementary medical insurance,” its capacity to address the shortcomings of China’s basic medical insurance is limited. Likewise, adopting the U.S. managed care approach—where commercial insurers build their own integrated systems to replace or supplant public insurance—is not a viable path. The remainder of this article discusses an independent route for commercial health insurance: a self-developed pathway centered on health management.

Health management is the primary battleground for commercial health insurance. As an emerging service category with immense potential, health management offers a systematic approach to addressing public health issues. In its early stages of development, health management requires an organizer, and commercial health insurance is well-positioned to assume this role. Of course, this process cannot succeed without the support and feedback from basic medical insurance. Ultimately, basic medical insurance and commercial health insurance will each advance along their respective paths.

1. Health Management Is Primarily a Medical Issue

Health management is a medical theory aimed at preventing illness, reducing disease incidence, and enabling early detection and prevention. It is a “branch” that has grown out of medical theory.

Health management is grounded in medical theory, a foundation that is first reflected at the theoretical level. Traditional medical research has focused on cutting-edge technological advancements and medical techniques themselves, with relatively little attention paid to healthcare quality, health outcomes, and economic benefits. Clinical medicine has long dominated the field, hindering the comprehensive development of health management-related disciplines such as preventive medicine. However, with advances in medical theory and healthcare technologies, the branch of health management has acquired sufficient resources to separate from mainstream medical services, thereby securing ample space for its full development.

The second aspect is reflected in comprehensive industrial synergy. Health management is not merely wellness, healthcare supplements, psychological counseling, weight loss, exercise, or tourism; nor is it simply family doctor services, green-channel appointment registration, big data, internet-based healthcare, or online consultations. Furthermore, health management does not entail building numerous new clinics, primary healthcare service centers, or village health stations. However, it may require integrating these existing industries for practical application. Health management should be a long-term, all-age, and full-lifecycle service tailored to individuals. Among the factors influencing health, medical factors account for less than 30%, while the remaining 70% involve numerous industries that may appear unrelated to health management. These industries must be synergistically coordinated through the organizational logic of health management to collectively benefit individual health.

2. Health management requires full utilization of existing systems and is an organizational issue

As early-stage builders of health management, commercial insurers lack the capacity and have no need to establish a new medical service system and workforce from scratch. Such an approach would incur prohibitive costs and directly expose them to competitive pressure from public health insurance. The author argues that commercial insurers should leverage existing medical technologies and organize them according to health management principles—this is where they can create value. Rather than starting anew or developing entirely new products, commercial insurers should focus on reorganizing existing medical service offerings.

In the current health services market, a wide array of off-the-shelf products and services can be applied to health management. Among these existing offerings, some were previously used for disease treatment but are now applicable to prevention; others serve both therapeutic and preventive purposes; some, once fragmented, can now be organized into integrated service packages; and others, though appearing non-standard or outside the traditional medical domain, have been found through research to play a beneficial role.

For example, organizing regular, long-term dental scaling for a client can effectively reduce their future risk of developing dental diseases, tooth loss, and dental damage, thereby lowering the potential costs they may incur for treatments such as disease management, dental implants, extractions, and fillings. According to relevant studies, regular dental scaling can prevent oral diseases by removing plaque and calculus from teeth, maintaining healthy periodontal tissues, preventing and treating periodontal disease, and enabling early detection of subtle, hard-to-notice dental issues, such as hidden caries. In the stomatology departments of large hospitals, dental scaling is a low-cost, low-barrier service that often receives little attention or promotion, whereas expensive out-of-pocket procedures such as dental implants and orthodontic treatment are prioritized.

Therefore, if commercial health insurers develop a health coverage product targeting oral health issues—incorporating the requirement for regular dental scaling into the policy terms and linking customers’ adherence to such scaling with insurance benefits (such as sum-insured bonuses)—it may achieve favorable health protection outcomes.

The benefits of this product are fourfold. First, insurance companies provide tangible health services, allowing customers to perceive the value and benefits, thereby increasing their willingness to purchase. Second, since insurance companies have an existing base of policyholders who undergo regular, long-term dental cleanings, this leverages their negotiating power with service providers to establish long-term partnerships and reduce service costs (including those for dental cleanings and potential future dental surgeries). Third, the demonstrated effectiveness of the product enhances consumer recognition and drives greater adoption of this health insurance offering. Fourth, by improving customers’ dental health, the product statistically reduces the likelihood of claims, thereby lowering the loss ratio and expanding profit margins.

In summary, the primary role of commercial health insurance within health management is to organize and coordinate medical and healthcare providers using health management principles. Given the vast market potential and aligned interests, it is highly appropriate for commercial insurers to take the lead in establishing such a system. While commercial insurers may also market wellness products, build large comprehensive hospitals, or participate in the R&D of innovative drugs, their main investment should be directed toward curating products that can be effectively applied to enhance health management outcomes.

If commercial health insurance makes health management its primary strategic focus, it must design a mechanism to feed back into and support the traditional medical system underpinned by basic medical insurance, thereby reducing its burden and enhancing its efficiency. To secure a more optimized operating environment, commercial health insurance must provide support and feedback to the basic medical insurance system.

Commercial health insurance needs to organize the resources of the existing public healthcare system and reorganize resources and personnel within the current organizational framework centered on public welfare medical services to address health issues. The primary step is to resolve conflicts with basic medical insurance. Previously, it was believed that there was a certain degree of conflict between commercial health insurance and basic medical insurance, with one major factor being the competition for medical resources. Therefore, when commercial health insurance focuses on a health management system, it must ensure synergy with the existing public healthcare system and provide supportive capabilities. Key manifestations include:

1. Through health management, the payment pressure on medical insurance is alleviated by preventing illness, reducing its incidence, and ensuring that when illnesses do occur, they are minor.

The goal of health management is to reduce or delay the probability of people falling ill, which plays a significant role in alleviating the payment pressure on medical insurance and helps ease the financial burden on the system at its source:

First, some individuals who might otherwise have fallen ill can remain healthy through health management, and thus these healthy individuals will not utilize medical insurance.

Second, some individuals who might have fallen ill at age 45 were able to delay the onset of disease by 10 years through effective participation in health management programs;

Third, due to participation in health management, some individuals who might have otherwise developed serious illnesses or experienced severe disease progression saw a reduction in the severity of their conditions.

In summary, the above points align with the core principles of Traditional Chinese Medicine (TCM): “preventing disease before it occurs, preventing progression in those already ill, and preventing recurrence after recovery.” The resulting decline in illness and relapse rates significantly alleviates pressure on medical insurance payments. Moreover, once this concept gains broader social recognition, it will yield long-term, exponential benefits.

2. Channel surplus medical resources into health management to encourage patients to seek care at primary-level facilities, thereby optimizing the allocation of medical resources and alleviating the diagnostic and treatment burden on core hospitals.

Many people currently tend to seek care at large hospitals for both major and minor ailments. First, large hospitals offer greater accessibility; particularly in economically developed metropolitan areas, the time and cost differences between choosing large and small hospitals are negligible. Second, there is a higher probability of finding highly skilled physicians at large hospitals, which fosters greater patient trust. Physicians also prefer working at large hospitals for several reasons: first, these institutions offer better compensation and higher professional status; second, they provide exposure to a wide variety of patient cases, and managing a sufficient volume of diverse cases is conducive to professional growth; and third, large hospitals offer ample opportunities for career development.

The health management system established by commercial insurance can channel surplus medical resources into health management, offering the following benefits:

(1) Health management services do not have particularly high entry barriers and can be provided by physicians with general qualifications. Therefore, individuals can access health maintenance services at primary care hospitals or even clinics, significantly enhancing the convenience of healthcare and encouraging greater utilization.

(2) Health management is a relatively routine and convenient service that requires frequent visits. More importantly, its relatively low price ensures that customers can visit regularly and “afford to do so.”

(3) It benefits the career development of primary care physicians. If primary care physicians focus on health management as their core business and even serve as family doctors for surrounding communities, they can more readily access a diverse range of patients. By engaging with a wealth of clinical cases, they can build a competitive advantage rooted in comprehensive general practice. In contrast, when collaborating with senior physicians and large hospitals on patient management and bidirectional referrals, primary care physicians occupy a significantly disadvantaged position, lacking both control and substantial financial incentives.

(4) It facilitates patient diversion from general hospitals by redirecting patients who do not require care at large tertiary hospitals, thereby improving the clinical environment and allowing physicians to dedicate more time to managing serious diseases.

(5) In a comprehensive and robust health insurance system, health management products do not need to be delivered through physical institutions; instead, they can be realized through diverse product formats, thereby optimizing and enriching the supply channels for health services. Examples include online consultations, smart hardware, telephone-based services, and in-home customer support.

Positioned on the Main Battlefield of Health: How Can Commercial Insurance and Basic Medical Insurance Achieve Synergy? The Foundation Is That Health Management Yields Benefits for Both Basic Medical Insurance and Commercial Insurance.

1. The basic medical insurance system lacks the financial capacity to cover health management costs, which can be covered by commercial health insurance.

Health insurance does not cover health management services. It does not reimburse medical items used for non-diagnostic or non-therapeutic purposes, nor does it pay for services primarily intended for preventive care. Reimbursement from the health insurance fund is managed according to key standards such as the National Health Insurance Drug Catalog, diagnostic and therapeutic service items, and medical service facilities. While provincial-level certification is currently adopted, there is virtually no possibility of including health management expenses in the reimbursement catalog. Admittedly, health insurance cannot be said to play no role in health promotion or to lack the intention to improve outcomes; however, it faces significant challenges in organizing health-related initiatives. It lacks the capacity to coordinate a network of institutions and personnel dedicated to health management, or its current efforts are insufficient, leading to a public perception that such measures are ineffective.

2. Coordinate the utilization of funds from basic medical insurance and commercial health insurance to create synergistic effects.

Commercial health insurance needs to be integrated with basic medical insurance. If basic medical insurance can leverage financial resources to support commercial health insurance, it will send a clear signal that the government is promoting the development of commercial health insurance. Securing funding from basic medical insurance holds significant importance for health management organizations. Government investment can create a promotional leverage effect in the market, demonstrating governmental support for both the development of commercial health insurance and investments in health management. This also signifies that the government is guiding society toward a consumption pattern oriented toward health management.

If the management of an individual through commercial health insurance ultimately results in that person requiring fewer medical visits and experiencing better health, thereby saving potential medical costs, the basic medical insurance fund can use these savings to compensate the commercial insurer. This could be achieved through mechanisms such as commercial reinsurance arrangements or direct incentives. For health management organizations, expansion depends on the cultivation of a supportive social atmosphere, which takes time. However, this process is observable. In recent years, a “running boom” initiated by the middle class has gained popularity, fostering a society-wide culture that encourages physical activity. As participation has grown, it has attracted a greater share of social resources, including media promotion of running and increased investment from government agencies and sponsors in sports advocacy.

3. As health management delivers positive outcomes, society will channel more resources into the sector, thereby fostering greater development of commercial health insurance.

Commercial health insurance needs to champion the concept of health management, fostering a social consumption ethos that asks: If one is willing to spend money to “avoid getting sick,” why wait to spend money on treating illness? Therefore, commercial insurers should encourage individuals to allocate funds toward daily health management rather than post-onset or end-of-life treatments. In shaping public discourse around health management, commercial insurance must transform both the overall medical cost burden and payment mechanisms for healthcare expenses. It should help customers reallocate funds originally intended for future disease treatment into proactive, daily disease prevention. The benefit is twofold for customers: beyond purchasing future virtual insurance coverage, they gain tangible service entitlements. Furthermore, as the terms of such commercial insurance products are linked to the policyholder’s health status, the likelihood of choosing these products will increase.

Another aspect concerns the benefits to the medical supplier ecosystem. Since the future goal of the health insurance system is to reduce medical expenditures, it will inevitably necessitate measures to compress the profit margins of downstream suppliers, such as strictly limiting the scope of diagnosis and treatment and reducing the number of diagnostic tests. While this approach lowers medical costs, its drawback is that overly stringent rules governing the utilization of medical services and cost-containment measures for providers may dampen their motivation to invest in capability enhancement or optimize customer service. Ultimately, this could narrow the range of choices available to insured individuals—for instance, under Health Maintenance Organization (HMO) mechanisms, seeking care from out-of-network providers not only results in non-reimbursement but may also require patients to bear substantial out-of-pocket expenses. Furthermore, in efforts to control drug prices and lower medical device costs, the limited profit potential for downstream manufacturers and intermediaries may, to some extent, constrain their incentives and capacity for innovation.

Commercial health insurance may offset losses incurred by supply chain enterprises in the existing market, sustain market innovation vitality, and secure greater supply chain resources by creating a new market for health management.

In summary, the author believes that China’s commercial health insurance sector can choose “health management” as its primary strategic focus. The field of health management offers ample opportunities and requires an organization with capabilities in both service coordination and financial management to drive the overall development of this market. Furthermore, the implementation of health management by commercial insurers will provide valuable feedback to the government, the basic medical insurance fund, and the existing medical service system operated by medical insurance authorities, thereby generating benefits for these stakeholders. Therefore, commercial insurers should receive resource support from the government and the basic medical insurance fund during the operation of health management initiatives.