VB Salon Series No.7: Gu Xuefei on Medical Insurance, Health Management, and Internet Healthcare

I. Basic Introduction

(1) Current Situation 1: China’s Medical Insurance System of “Three Insurances + One Assistance”
China's basic medical security system comprises three medical insurance schemes and one medical assistance program. In rural areas, the scheme is the New Rural Cooperative Medical Scheme (NRCMS), while in urban areas, it includes the Urban Employee Basic Medical Insurance and the Urban Resident Basic Medical Insurance. Among these, approximately 100 million individuals receiving subsistence allowances participate in the urban and rural medical assistance program. Additionally, commercial health insurance serves as a supplementary component.

Figure 1. China's Basic Medical Security System

(II) Current Situation 2: Excessively Rapid Rise in Medical Costs
From 2003 to 2013, over the course of a decade, healthcare insurance funding increased from less than RMB 200 billion to more than RMB 1.2 trillion, representing a relatively rapid growth rate. Hospital expenditures and healthcare insurance costs often exhibit a mutually reinforcing relationship; however, the current challenge we face isHospital Costs Are Rising Faster Than Medical Insurance ExpendituresIn terms of the level of medical insurance coverage as reflected by health insurance fundraising and hospital revenues, the rate was 30% in 2003 and rose to 60% in 2011. From 2011 to 2013, it entered a plateau phase, during which the release of pent-up demand for medical services caused healthcare expenditures to grow at a faster pace than funding.

Figure 2: Basic Medical Insurance Expenditures and Hospital Costs (2003–2013, in RMB 100 million)

Figure 3: Medical Insurance Funding as a Percentage of Hospital Revenue (2003–2013)

(3) Current Situation 3: Inadequate Coverage and Benefit Levels of Medical Insurance
According to reports from various sources, we have nearly achieved universal health insurance coverage. However, from a research perspective and using the World Health Organization’s indicator for Universal Health Coverage (UHC), we have only fulfilled one of the three dimensions: population coverage, which has reached over 95%.However, there is still significant room for improvement in terms of the scope and depth of coverage.For instance, the coverage is primarily limited to medical treatment, excluding pre- and post-hospitalization services. Thus, current medical insurance can only be regarded as narrow-sense medical insurance or disease insurance, rather than health insurance.

According to World Health Organization standards, coverage should also encompass health promotion, disease prevention, treatment, rehabilitation, and palliative care. Within our current system, not all of these services are covered by insurance; public health initiatives also cover certain areas such as health and disease prevention. While hospital-based care offers a relatively adequate level of protection, pre-hospital and post-hospital services, such as rehabilitative nursing, remain insufficient. In terms of reimbursement levels, the Employee Basic Medical Insurance achieves approximately 70% coverage. However, for Urban and Rural Resident Basic Medical Insurance and the former New Rural Cooperative Medical Scheme, the current reimbursement rate stands at around 57%, falling short of the target range of 80%–85%.

Figure 4. Three dimensions of universal health coverage by the World Health Organization

(4) Current Situation 4: Unreasonable Structure of Medical Insurance
From a structural perspective, 80% of our funds are allocated to inpatient care reimbursement, 17% to outpatient care reimbursement, and 3% to high-cost reimbursement for special diseases. In comparison, outpatient expenses should exceed inpatient expenses, as the frequency of outpatient visits is significantly higher than that of hospitalizations.However, under China’s policies, the level of coverage for inpatient care is significantly higher than that for outpatient care., which has led to an incentive for hospitalization. Consequently, when faced with the choice between hospitalization and non-hospitalization, patients tend to opt for inpatient care. For instance, in the case of chronic diseases, inadequate coverage in outpatient settings drives patients to choose hospitalization. This also reflects, from another perspective, that there is still significant room for improvement in China’s healthcare structure.

Furthermore, the utilization of employees’ individual accounts warrants further discussion. For instance, funds in young people’s accounts may lose value due to inflation, while those for the elderly are often insufficient. This raises the question of whether these funds could be used to purchase commercial insurance. Additionally, could individual account balances be applied toward fitness-related expenses? Although this would improve capital efficiency, it introduces boundary issues. If the funds are not designated for medical purposes, what is the rationale for maintaining them under centralized management, given the associated administrative costs?

II. The Dilemma of Traditional Medical Insurance

(I) Three Dilemmas of Traditional Medical Insurance

1. Accelerated Population Aging
Pharmaceutical and medical expenditures among the elderly far exceed those of younger populations. With the rapidly growing elderly demographic, immense pressure has been placed on fund utilization, leading to deficits in local employee basic medical insurance schemes where expenditures outpace revenues. Addressing this challenge requires not only controlling hospital costs but also elevating the pooling level of medical insurance funds and establishing a risk-adjusted redistribution mechanism for healthcare risks.

2. Chronic Diseases Have Become the Primary Disease Burden
Many related reports state that chronic diseases account for 60%–80% of the burden on medical insurance; however, our calculations in certain provinces indicate that the burden attributable to chronic diseases exceeds 90%.

3. Risks of Fund Expenditures

Where Do the Risks to Fund Expenditures Lie?We have established a "triangular-quadrilateral" framework. The triangle refers to the three key stakeholders: providers (medical institutions), demand-side participants (patients), and insurance agencies, with the government playing a supervisory role. In the absence of insurance, all payments are borne by individuals. However, when insurance becomes the payer, it creates the potential for collusion between physicians and patients, thereby exerting pressure on the insurance system. For instance, prior to 2003 in China, farmers had to cover all medical expenses out-of-pocket. After 2003, this shift contributed to an imbalance between supply and demand in healthcare, leading to explosive growth in the medical market. Reports indicated that the market would reach a scale of 8 trillion yuan by 2020, a expansion partly driven by health insurance coverage. Overall, the transition from individual payment to insurance-based payment aligns the interests of patients and physicians but introduces moral hazard into the insurance system. From the provider’s perspective, this creates risks of insurance fraud and over-treatment; from the demand side, it leads to the risk of uncontrolled disease progression.

Figure 6. The “Triangle and Four Parties” Relationship in Medical Insurance

◆ Moral Hazard: Fraud + Abuse
◆ Disease Risk: Uncontrolled Disease + Management

(II) How the United States Responds: Managed Care and Disease Management
1. Managed Care:
Managed care refers toA series of contractual arrangements and management measures formed among health insurance agencies, healthcare institutions, patients, and other stakeholders to control medical costs and improve the quality of healthcare services, including establishing integrated healthcare delivery networks, implementing prospective payment systems for healthcare institutions, conducting reviews based on the utilization rates of optimal clinical pathways, and managing the health of insured individuals.

If Health Maintenance Organizations (HMOs) or health insurance companies operate their own hospitals, this addresses the issue of physicians acting solely as patient health advocates without considering cost containment for payers. Surveys indicate that average premiums decreased by 20% for HMOs, 14% for Preferred Provider Organizations (PPOs), and 8.8% for Point-of-Service (POS) plans.

However, as the new century dawned, traditional “managed care” approaches appeared to be losing momentum. There are two reasons for this:
1) Chronic diseases and obesity are becoming increasingly severe;
2) The excessive intervention of medical insurance agencies in healthcare institutions has triggered a strong backlash from the healthcare industry.

Therefore, health management has become a new cost-control measure, as shown in the figure below.

Figure 7: Structure of Health Management in the United States

China’s chronic disease management framework is structured as follows, incorporating health management as one of its key approaches. However, there are discrepancies between the domestic definition of health management and international standards, which indicates that China has not yet placed sufficient emphasis on this field.

Figure 8: Framework of Chronic Disease Intervention Strategies in China

2. Disease Management
Disease management adopts a demand-side approach; for instance, the Affordable Care Act under President Obama made “promoting and strengthening preventive public healthcare” one of its core components, aiming to reduce or delay the rapid growth of healthcare costs through comprehensive preventive care.

(3) How the UK Responds: Commercial Health Insurance
Although the United Kingdom has a universal healthcare system, it also maintains a commercial health insurance sector that serves as a complement to the National Health Service (NHS). Unlike in Germany and France, where the focus is on higher levels of coverage, the priority in the UK is access to care—such as earlier appointment scheduling and shorter waiting times. In fact, China’s commercial health insurance industry has room for development in both of these areas, but it has not yet reached a mature stage.

Figure 9: Commercial Health Insurance in the United Kingdom

(IV) Areas in China That Urgently Need Change
1. Transform the Concept of Medical Insurance
Based on the experiences of other countries, the concept of medical insurance needs to be transformed:
(1) A shift from medical insurance to health insurance, and from risk pooling to health improvement.
(2) The responsibility for health is shifting from a physician-centered model to an interactive model involving both physicians and patients.
(3) Shifting from a primary focus on symptom management to a dual emphasis on both symptoms and underlying causes

Furthermore, it is essential to clarify that the functions of healthcare security are multifaceted and extend beyond mere financing. For instance, while the Diagnosis-Related Group (DRG) payment system in the United States has not effectively controlled disease incidence, it has served as a tool for allocating medical resources. From this perspective, the role of healthcare security is multidimensional and not limited to funding issues alone.

2. Improving the deficiencies in the medical insurance system regarding chronic disease prevention and control:
(1) China’s medical insurance funds primarily cover hospital services, rather than disease prevention and control.
This has resulted in an excessively high proportion of hospitalization costs, while funding for prevention remains negligible.

(2) There is a lack of a rational payment mechanism to support the efficient collaboration among public health institutions, primary care facilities, and hospitals within the chronic disease prevention and control system.
Hospitals also advocate for preventive management, but this is incompatible with their incentives; if prevention is highly effective, the number of patients seeking medical care will decrease. Furthermore, health insurance, as the payer, has not leveraged economic mechanisms to incentivize both physicians and patients to actively participate in chronic disease management.

3. Clarify the Positioning of the Medical Security System
The positioning of the medical security system: It is part of both the social security framework and the healthcare system, possessing both economic and health-related attributes. Previously, less attention was paid to its health-related attributes; however, these are closely linked to its economic attributes. For instance, the cost of chronic disease intervention is significantly lower than that of treating established diseases.

Figure 10. Positioning of the Medical Security System

III. The Relationship Between Medical Insurance and Health Management

(1) There are mainly two aspects of the relationship
1) By anticipating risk factors, reducing the incidence of chronic diseases and their complications, and mitigating moral hazard, thereby lowering healthcare costs.

2) Utilize risk-adjustment techniques to improve the fairness of the medical insurance system. This is primarily achieved by predicting each individual's medical risk to generate a risk score, which is then used to reallocate healthcare resources. For instance, medical insurance funds may be insufficient in regions with aging populations, while they may be in surplus in regions with younger demographics. Balance can be attained through such redistribution, as illustrated in the figure below.

Figure 11. Relative Risk Score

(2) Relevant policies also encourage service models for health management:
1. "Opinions of the China Insurance Regulatory Commission on the Insurance Industry's In-Depth Implementation of the Healthcare Reform Guidelines and Active Participation in the Development of a Multi-Tiered Medical Security System" (CIRC Document [2009] No. 71)
Explore Health Management Service Models. Encourage the exploration of integrated assurance service models that combine health insurance with health management, gradually achieving comprehensive pre-, intra-, and post-event management of health maintenance and diagnostic and treatment activities. Actively promote services such as health education, health consultation, and chronic disease management to enhance public health awareness, encourage lifestyle changes, and prevent the onset and progression of diseases.

2. “Several Opinions of the State Council on Accelerating the Development of Modern Insurance Services” (Guo Fa [2014] No. 29)
Encourage insurance companies to vigorously develop commercial health insurance products, including various medical and disease insurance policies and disability income loss insurance, ensuring their integration with basic medical insurance. Promote the development of commercial long-term care insurance. Provide health management services—such as disease prevention, health maintenance, and chronic disease management—that are integrated with commercial health insurance products. Support insurance institutions in participating in the integration of the healthcare industry chain, and explore methods such as equity investment and strategic partnerships to establish medical institutions and participate in the restructuring of public hospitals.

3. Several Opinions of the General Office of the State Council on Accelerating the Development of Commercial Health Insurance (Guo Ban Fa [2014] No. 50)
Encourage commercial insurance institutions to actively develop health insurance products linked to health management services, strengthen health risk assessment and intervention, and provide services such as disease prevention, health examinations, health consultations, health maintenance, chronic disease management, and wellness care, thereby reducing health risks and minimizing disease-related losses.

(3) Several Key Issues

1) Who Pays for Chronic Disease Management?

Since all funding ultimately comes from medical insurance, individuals, and fiscal subsidies, the key question is: which payer is the most efficient?

2) Coordination of the chronic disease prevention and control system?

As just mentioned, coordination and collaboration among public health institutions, primary healthcare facilities, and hospitals.

3) The reimbursement mechanism for healthcare institutions and physicians must be reformed: shifting from fee-for-service to pay-for-performance.
Fee-for-service, while having historically promoted significant growth in the healthcare sector, incentivizes resource consumption rather than the quality of care, thereby leading to the waste of medical resources. Bundled payments for service items also present challenges; although they reduce costs, they have been associated with a decline in quality. Integrating these models with pay-for-performance—incorporating multiple dimensions such as cost, quality, and patient satisfaction—could yield better outcomes, though this approach is highly complex.

Figure 12. Evolutionary Strategies for Payment Method Reform

(4) Explorations Conducted
Some regions, such as Shanghai, Tianjin, and Zhuhai, have begun exploring the purchase of health management services through social medical insurance. However, certain issues still warrant discussion, such as whether chronic disease management falls within the domain of public health. For infectious diseases, preventive measures like vaccination do not need to be administered to everyone; vaccinating a portion of the population can generate positive externalities. In contrast, chronic disease management does not produce such positive externalities. Therefore, it should be integrated with medical care rather than being incorporated into the public health system.

IV. Mobile Internet + Chronic Disease Management

(I) Policy Support
“Guiding Opinions of the State Council on Actively Promoting the ‘Internet Plus’ Action” (Guo Fa [2015] No. 40) clearly states: promote new models of online medical and health services.
1. Actively leverage mobile internet technologies to provide convenient services such as online appointment scheduling, wait-time notifications, price estimation and payment, access to diagnostic reports, and medication delivery.
2. Actively explore the application of online medical and health services, such as extended internet-based medical orders and electronic prescriptions.
3. Encourage qualified medical testing institutions and healthcare service providers to partner with internet companies to develop health service models such as genetic testing and disease prevention.

(II) Classic Case: Welldoc (USA)
1. Welldoc, a U.S.-based diabetes management platform leveraging mobile apps and cloud-based big data analytics, has successfully obtained FDA clearance. It is the first FDA-approved mobile application designed to assist physicians in optimizing prescription practices.

Insurance companies incur substantial annual costs for diabetes diagnosis and treatment. They anticipate that this app will reduce the frequency of physician visits, thereby controlling overall healthcare expenditures by effectively managing blood glucose levels and minimizing complications. In 2014, many Fortune 500 companies in the United States also included “Bluestar” in their employee health insurance coverage.

2. In its second year of establishment (2006), WellDoc conducted its first clinical trial. The trial had a small sample size, including only 30 patients with type 2 diabetes. The mean reduction in glycated hemoglobin (HbA1c) levels among patients in the intervention group reached 2.03% over three months, significantly higher than the 0.68% observed in the control group. This marked the first validation of the feasibility of DiabetesManager for diabetes management.

3. WellDoc subsequently expanded the sample size to 163 patients with type 2 diabetes in a second clinical trial, extending the trial period to 12 months. Patients were still provided with feature phones featuring unadorned user interfaces. The results further validated the efficacy of DiabetesManager in managing diabetes: the mean reduction in glycated hemoglobin (HbA1c) levels was 1.9% in patients receiving maximal treatment and 0.7% in those receiving usual care, representing a statistically significant difference.

4. WellDoc ultimately demonstrated the economic benefits of using DiabetesManager to future payers in its pilot project: among 16 patients with type 2 diabetes, hospitalizations and emergency department visits decreased by 58% within 12 months after adopting DiabetesManager, compared to the period prior to its use.

(3) Other Models
1) U.S. Coaching-Style Management Application: Vida—Categorized as a currently popular coaching-based chronic disease management application in the United States, it assigns each user a health management coach or so-called mentor (which may also be a team) based on their individual needs, providing 24/7 round-the-clock healthcare services.

2) Twine Health: A Human-in-the-Loop, Coaching-Oriented Chronic Disease Management Platform: Twine Health is a cloud-based healthcare platform designed to transfer partial management of chronic diseases to patients. Through a health coaching model, patients and physicians can jointly develop treatment plans. Using a synchronized application, both parties can collaboratively formulate therapeutic regimens and monitor treatment and rehabilitation processes to achieve desired clinical outcomes.

(4) Internet-Based Chronic Disease Management in China
Currently, user acquisition channels include imports from the physician side, hospital side, and consumer side; there are also models employing cross-subsidization through product sales, as well as O2O models that charge service fees to users. All these models are still in the exploratory stage. However, a viable business model must at least address the following three issues:

1. What is the appropriate model for China?
Empirical research is needed, as the national conditions in China and the United States are, after all, different.

2. What is the cost-effectiveness of these models?
What are the differences between offline and online models, and what distinguishes a combined model?

3. Who pays? Individuals? Medical insurance? Healthcare institutions?

(V) Insurance Company + Internet Model
There are many models for the collaboration between insurance companies and the internet. So, what drives insurance companies to engage in this? They are motivated by cost-control considerations or by leveraging internet platforms to reach more users, thereby creating a closed loop.

Figure 13. Insurance Company + Internet Model

V. Medical Insurance + Mobile Internet + Chronic Disease Management
Medical Insurance + Mobile Internet + Chronic Disease Management: These three elements should be tightly interlinked. For medical insurance, it serves as the potential payer for internet-based healthcare and chronic disease management, and will become the most sustainable payer in the future. For chronic disease management, if it can reduce the incidence of subsequent diseases, it will improve the efficiency of medical insurance fund utilization. For the internet sector, if it can enhance the cost-effectiveness of medical services, internet-based healthcare will become a tool to improve the outcomes of chronic disease management. Only through the integration of these three—by establishing a more scientific payment system and reconstructing a more rational and efficient diagnosis and treatment system—can we achieve optimal results. Similar to Kaiser Permanente in the United States, a tiered referral system ranging from online platforms and mobile terminals to small clinics makes the entire system more efficient.

Figure 14. Medical Insurance + Mobile Internet + Chronic Disease Management

Figure 15. Kaiser Permanente

The integration of medical insurance, mobile internet, and chronic disease management is an inevitable trend. It is insufficient to rely solely on commercial health insurance; social medical insurance should also actively explore this area. The synergy of the chronic disease prevention and control system must be leveraged.

VI. Outlook on Internet Healthcare

Internet healthcare will at least address the following issues:

1. Improve the patient's healthcare experience.For instance, while online appointment registration via the Internet does not increase physicians’ service capacity, it can reduce patients’ waiting time in offline queues. By leveraging mobile apps to integrate appointment scheduling, payment, and medical guidance services, healthcare providers can optimize service workflows and deliver an “integrated” patient experience, thereby enhancing the “service quality” of medical institutions. Medical quality encompasses not only “clinical quality” but also “service quality” as a critical dimension.

2. It may help promote the implementation of tiered diagnosis and treatment.For instance, simple online consultations via the internet can serve a “triage” function, helping patients identify appropriate solutions rather than blindly seeking care directly at large hospitals.

3. “Online + Offline” to Improve Service Efficiency.If a doctor-patient relationship has already been established through offline consultations, can some follow-up visits be conducted via the internet? This would certainly greatly improve doctors’ service efficiency. The State Council’s Guiding Opinions on Actively Promoting the “Internet Plus” Action Plan clearly states that we should “actively explore online medical and health services such as internet-based extended medical orders and electronic prescriptions,” providing a basis for initiatives in this area.

4. Improve the disease prevention and control model.For instance, chronic disease management based on mobile internet technology could improve upon or replace traditional models if proven more cost-effective. The ability to collect larger volumes of health “big data” further enables the upgrading of disease prevention and control models.

Guest Speaker: Gu Xuefei