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Maturing Chinese market gives WellPoint new prospects

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SHANGHAI—WellPoint Inc. has a massive market share in the United States, where it covers 33 million people—more than any other health insurer. But moving the needle on that number in such a mature market is a titanic challenge.

Then there’s China, where only 5 percent of the population has private health insurance. Premiums for private health insurers are expected to rise to $90 billion in 2020 from $9 billion now, according to McKinsey & Co., the New York-based consulting firm.

Domekia Domeika

WellPoint is angling for a big piece of the pie. It entered China in 2007, and its Shanghai-based outpost has 74 workers. So far, it focuses on consulting and third-party administration services, processing claims for others but not shouldering the risk.

That’s helped it gain an understanding of the nuances of the Chinese market—which is very different from the U.S. market—and paved the way for it to take the next step of forming a joint venture with a Chinese partner and offering insurance itself. It expects to establish the partnership soon and begin offering coverage later this year or in 2012.

“This is, without question, a significant market opportunity,” said John Domeika, CEO of WellPoint China. “But there are also many challenges. It’s important that we meet the market’s needs and do it in a way that provides sustainable future growth.”

Mitch Roob, Indiana’s secretary of commerce, is more effusive.

“I think the company that has the biggest opportunity in China that’s headquartered here is WellPoint,” he said.

Roob gained an appreciation for the opportunities for health care companies in China as a member of the Gov. Mitch Daniels-led delegation that visited the country last fall.

While the country has a vast, well-developed manufacturing sector led by giant companies—many much larger than their U.S. counterparts—health care is less-cultivated territory and the companies are small.

Roob said the sector will boom as the Chinese middle class continues to swell in size and increases its focus on quality-of-life issues. China spends just 5 percent of its gross domestic product on health care, compared with 17 percent in the United States.

It isn’t just health insurers that stand to benefit. Health care companies across Indiana—from orthopedics manufacturers in Warsaw to the Indianapolis drugmaker Eli Lilly and Co.—are seeing sales soar in China at rates they couldn’t achieve stateside.

“We all know the tremendous change China is going through,” said Matt Neff, president of CHV Capital Inc., an Indianapolis venture capital firm specializing in health care that is exploring Chinese opportunities. “And the fact that its population is four times the United States’ is pretty compelling.”

Roob said executives he met with during last fall’s trip were enthusiastic about American-style health insurance. Yet companies there lack the scale or expertise to offer insurance on their own.

But WellPoint and other U.S. insurers charging into the market will face challenges aplenty, McKinsey and Co. said in a study released last fall.

For starters, the health care system in China is in the throes of dramatic change. Until recently, the country lacked an effective system of providing primary care, leading many Chinese people needing treatment to flock to hospitals in big cities. That led to such severe overcrowding that the sick sometimes were denied care, McKinsey said in its study.

Even now, the quality of care across China is inconsistent. Large cities have quality hospitals, but many other cities and rural areas have only lower-quality facilities.

And health care providers don’t have the IT infrastructure that’s long been in place in the United States. In China, for example, data provided to insurers arrives on paper, rather than digitally, and the country doesn’t have a uniform coding system for medical procedures.

In 2008, the Chinese government announced the goal of providing basic government-provided health coverage to 90 percent of the population by the end of 2011—an ambitious target it already has met, or nearly has.

But coverage is limited, and customers typically pay about 40 percent of health care costs themselves, according to McKinsey

The best opportunity for private insurers may be to offer policies that pay for care not covered under the basic insurance or that kick in when customers hit their policy limits, McKinsey said in its study.

“Given that the coverage depth provided by public insurance programs will continue to vary significantly, additional products that provide supplementary coverage could be quite attractive to many Chinese consumers,” the McKinsey report said. One opportunity may be to offer access to high-end hospitals and other perks to affluent customers, the consulting firm said.

WellPoint’s Domeika sees similar opportunities. But he said WellPoint must make the case to Chinese consumers that it’s offering more than an insurance policy. It’s also providing programs and information that help consumers stay healthy and avoid chronic disease.

“Not only do we provide asset protection,” he said. “We want to make sure you are treating a medical condition at the right time in the right way so you avoid a more serious adverse consequence that could have been avoided with proper care.”

But getting consumers to pay more now for health coverage they may need later is a new concept for Chinese consumers. Some U.S. insurers, such as Minnesota’s UnitedHealth Group Inc., aren’t yet sure of the opportunity and aren’t lining up joint venture partners—a requirement for American firms wanting to enter the market.

But other insurers are salivating. Another WellPoint competitor, Cigna Corp., already has 2,000 employees in the country. In a conference call with analysts last fall, CEO David Cordina called China “a huge opportunity for us given its current size and rapid growth rate.”•

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