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From “0 yuan for the first month” to “drug conversion to insurance” and then to “Magic Cube Business”, innovations in short-term health insurance have always been controversial, and regulators have repeatedly taken action to rectify the chaos.

Now, a new variant of "drug-to-insurance" has emerged. A reporter from the China Times learned from the industry that the Financial Regulatory Administration recently issued a "Notice on Conducting Self-Inspection of Short-Term Health Insurance Business" (hereinafter referred to as the "Notice") to all property and casualty insurance companies. It mentioned that during the on-site inspection and data extension investigation, it was found that some property and casualty insurance companies, in the "insurance + medicine" cooperation, covered the medical expenses of pre-existing diseases that were certain to occur and the degree of loss was certain through group supplementary medical insurance, making the property and casualty insurance companies essentially the channel for relevant institutions to issue drug purchase subsidies to patients, promote drugs and obtain sales commissions.

Long Ge, deputy director of the Innovation and Risk Management Research Center of the University of International Business and Economics, told the China Times reporter that "group supplementary medical insurance" is only slightly different in product design responsibility, and its essence is still "drug transfer insurance". Through this model, the insurance company plays the role of "payment channel" and completes the payment of drug expenses through insurance claims, that is, drug expenses are transferred to insurance premiums.

“Drug transfer insurance” suffered a heavy blow

In recent years, as the insurance industry has laid out the big health industry chain, insurance and medicine are no longer separated by mountains. Many insurance companies have cooperated with third-party TPA platforms and pharmaceutical companies to open up the health management and medication service chains to enhance market competitiveness. However, in the design of this type of insurance products, some insurance companies have become "drug sales" channels.

The "Notice" points out that some property and casualty insurance companies, in the "insurance + medicine" cooperation, have covered the medical expenses for pre-existing diseases that are certain to occur and have a certain degree of loss through group supplementary medical insurance, making the property and casualty insurance companies essentially the channel for relevant institutions to issue drug purchase subsidies to patients, promote drugs and obtain sales commissions.

In addition, some property and casualty insurance companies adjust the waiting period settings and artificially adjust the occurrence of claims to create the illusion that the insurance company's insured persons' premium income is different from the drug expenses, and that some insured persons do not suffer accidents, which appears to be in line with the principle of insurance speculation, and the violations are more covert.

In this type of business, insurance companies cooperate with relevant institutions and use short-term health insurance products to actually bear the medical expenses of confirmed customers with a certain frequency and degree of loss, thereby alienating the insurance business and making the possible event characteristics of insurance an inevitable event.

"It is difficult for insurance companies to make profits from this type of business, and they may even suffer losses, but they are still willing to participate in it. The main reason is that some insurance companies attach great importance to business scale when evaluating performance, which will guide relevant business departments or branches to carry out this type of business in order to quickly expand the scale." Li Wenzhong, former deputy director of the Insurance Department of Capital University of Economics and Business, told a reporter from the China Times.

Bai Wenxi, vice chairman of the China Enterprise Capital Alliance, told the China Times reporter that in addition to causing financial losses to insurance companies, these actions will also seriously affect the overall image of the industry. At the same time, they will also trigger vicious competition, further disrupt market order, and be detrimental to the healthy development of the industry.

In addition to the "drug-to-insurance conversion", the previous "first month 0 yuan" and "magic cube business" were all tools used by insurance companies to pursue scale, but they all encountered regulatory rectification without exception. The so-called "first month 0 yuan" actually spreads the premium collected in the first month to the subsequent 11 months, and does not actually benefit consumers; while the "magic cube business" is regarded as an upgraded version of the former, circumventing the illegal part of "first month 0 yuan" and increasing the premium of low-cost products by increasing the insured amount/insurance liability in batches.

In August 2021, regulators required all insurance institutions to conduct comprehensive self-inspection, self-correction and rectification work, and to completely remove Internet health insurance businesses with problems such as "N yuan in the first month"; in August 2022, the former China Banking and Insurance Regulatory Commission once again revealed the problems of some insurance companies alienating short-term health insurance and launching "drug-to-insurance" business, and carried out a comprehensive stop; in November 2023, the Financial Regulatory Administration issued a notice targeting the "magic cube business", strictly prohibiting insurance companies from having "0" rates and other situations that are obviously inconsistent with actuarial principles.

The issuance of the Notice is undoubtedly another round of investigation by the regulator on the pseudo-innovation model of "drug-to-insurance" in short-term health insurance. The regulator requires property insurance companies to immediately stop operating short-term health insurance business that does not conform to insurance principles and loses insurance probability, and submit a self-examination report before August 31.

The Notice particularly emphasizes that the focus of this self-examination is on the related businesses carried out in cooperation with related business clusters that have Internet hospitals, health technology companies, and insurance brokerage companies. The self-examination mainly includes three aspects: whether there are insurance accidents that are determined to have occurred under the insurance, which does not conform to the basic principles of insurance; whether the entire business process is passively restricted and the insurance company cannot control the risk; whether there is a false impression of conforming to the insurance speculation principle by artificially adjusting the claims, etc., to deliberately evade supervision.

“Pseudo-innovation” is not desirable

Under high regulatory pressure, some insurance companies are still "taking risks", which may be related to the development difficulties of short-term health insurance. Official data show that in 2021, 2022, and 2023, the original premium income of health insurance operated by property insurance companies will be 137.8 billion yuan, 158 billion yuan, and 175.2 billion yuan, respectively, up 23.7%, 14.66%, and 10.89% year-on-year, respectively, bidding farewell to the "surge" era.

However, in Li Wenzhong's opinion, through "pseudo-innovation" such as drug transfer insurance, insurance companies will only end up with inevitable losses and false prosperity of premium growth. In the actual operation of such business, insurance companies give up the right to underwrite and settle claims, which easily leads to the risk of uncontrolled claims.

"Moreover, this type of business is basically loss-making. If the scale is too large, it will erode the company's profits, affect the company's long-term healthy development, and damage the company's solvency," said Li Wenzhong.

The regulatory authorities have also pointed out two major problems and risks in the drug insurance transfer business. First, insurance companies insure medical expenses that are certain to be incurred, which does not conform to basic insurance principles such as the law of large numbers and the principle of speculation, and cannot pass major risk tests; second, insurance companies lack risk control, and core links such as front-end underwriting and back-end claims are all controlled by relevant institutions. Insurance companies do not have independent pricing power and do not actually participate in risk management, which cannot reflect the basic functional role of insurance business management risks.

Zhu Junsheng, a member of the expert committee of the China Insurance and Social Security Research Center of Peking University, once told a reporter from the China Times that the regulation targets the insurance for sick patients that directly compensates the drug expenses of sick patients. Some innovative pharmaceutical companies use insurance as an accounting tool to subsidize patients and promote high-priced special drugs. To a certain extent, it is "selling drugs" for pharmaceutical companies instead of "buying drugs" for patients, which is not entirely in line with the patient-centered value of health insurance.

In Bai Wenxi's view, the innovation of short-term health insurance needs to start from the combination of insurance products and the pharmaceutical industry to truly achieve differentiation. For example, new health management service models can be explored to provide more personalized health management solutions. Cooperation with pharmaceutical companies can be strengthened to explore health insurance products that are more in line with market demand and insurance principles.

"Insurance companies can also use technologies such as big data and artificial intelligence to improve risk assessment and claims efficiency, and enhance business quality and competitiveness. In addition, they must strengthen the review and supervision of cooperating pharmaceutical companies to ensure their compliance operations and fulfillment of social responsibilities. Only through the joint efforts of all parties can we promote the healthy development of the short-term health insurance market," said Bai Wenxi.

A senior industry insider pointed out that commercial insurance has its basic rules, and any business model cannot violate the basic principles of insurance. Insurance companies should also adhere to the basic functions and attributes of risk protection in the process of business innovation and truly provide risk protection for customers.

Editor-in-charge: Meng Junlian Chief Editor: Zhang Zhiwei