Fast fact

Saudi Arabia was the first GCC nation to insist on medical insurance for expatriate workers

Compulsory health insurance is slowly spreading across the GCC. Starting in Saudi Arabia and quickly followed in Abu Dhabi, the move towards compulsion has been a catalyst for the region’s burgeoning insurance market.

With a population of almost 25 million, Saudi Arabia was the first GCC nation to insist on medical insurance for expatriates when, in January 2006, a law was passed requiring all employers of more than 500 expatriate workers to have private health cover. This was soon extended to firms with more than 100 expatriate employees, and in September 2008 it was extended again, to firms with more than 50 international employees.

According to Saudi Arabia’s National Commercial Bank (NCB), the insurance industry
in the kingdom is worth more than $8bn and rising as the compulsory insurance rules are extended.

NCB also says the growth of the insurance sector has been a catalyst for a further $30bn investment in private healthcare facilities.

This is just what the government intended. The move to compulsory insurance is part of a wider strategy in the kingdom to transfer healthcare funding from the public to the private sector.

Extending cover

On 17 October, MEED reported that all 220 Health Ministry hospitals were to be transferred to the General Organisation for Hospitals.

With more than 100 private hospitals already in operation, the kingdom has a wealth of experience to draw on. The next step, according to the Saudi Arabian General Investment Authority (Sagia), is to extend health insurance to tourists and nationals.

Given that 24 million people will ultimately be insured, it is little wonder that the Co-operative Council of Health Insurance (CCIH) is regulating the sector closely.

To date, 26 insurance firms have been licensed by the organisation, which covers both insurers and the private health providers upon which they rely to treat their clients. Each licence must be renewed every three years and the cost of registration is SR150,000 ($40,000).

Meanwhile, the Health Authority for Abu Dhabi has phased in its criteria for health insurance. The first stage came into effect in July 2006 and demanded cover for all companies with more than 1,000 expatriate employees.

This was followed on 1 January 2007 by regulations that made it mandatory for companies to provide all expatriates with health insurance, and also covered the dependents of the sponsor. The policies must be reviewed annually.

However, insurers say annual renewal is not always the most cost-effective way to plan long-term healthcare. “Customers must understand provision in a long-term form and plan over a five-year period, not year on year,” says David Youssef, regional managing director of London-based insurance firm Goodhealth Worldwide.

“Customers must also choose the right supplier based on their financial security and proper infrastructure. One GCC employer was paying $4m a year for insurance five years ago; now it is $17m. It did not manage its programme well.”

Dubai’s own insurance requirements will come into force from January 2009 and are part of a wholesale restructuring of its healthcare system. Rather than demanding that expatriates have health insurance, the Dubai Health Authority (DHA) is applying its new regime to all residents and workers in the emirate.

“The DHA health funding structure will be largely employer or sponsor-funded,” the authority says in a strategy briefing on healthcare funding published in August this year.

“However, individuals, using either their own resources or their employer’s, will be able to buy private ‘top-up’ health insurance, although this will not exempt anyone from the obligation to contribute in full to the basic system, which will be compulsory.”

Health cards

Employers will contribute the bulk of the funding by buying health cards for all their staff for a flat fee, called the Health Benefits Contribution (HBC). This is expected to cost AED500-800 a person each year. Patients will also make a small payment when they visit their designated primary care facility, or outpatient care practice.

According to the DHA, the insurance industry will act as a conduit for collecting HBCs through three new health management companies currently being established.

“The three health management companies will help practices manage their budgets to meet quality and cost targets, and provide support for the negotiation of financial arrangements with hospitals and specialist clinics,” says Howard Lyons, international director for London-based PA Consulting Group.

PA worked with the Executive Council in establishing the Dubai Health Authority and restructuring the health system.

Contracts for the health management companies are currently out to tender and insurance firms are expected to be high on the list of bidders. Contracts will be awarded by 1 January 2009.

According to the DHA, there are other opportunities for health insurance companies in providing additional coverage for those employees who are likely to want more than the basic health cover provided under the funding scheme, and providing malpractice liability and other cover for outpatient care practices.

Not surprisingly, given the wealth of new opportunities and the expectation that the requirements will spread to other Gulf states, international insurance firms are flocking to the GCC, and an increasing number of local firms are setting up in the region.

“We have been around the longest,” says Youssef. “Five years ago, there were one or two [international] firms, now there are about 10.

“There is a mad rush but the markets are small. There will be an overabundance of insurance companies and a lot will fall by the wayside. There is already an oversupply.

There are maybe 69 or 70 firms in the UAE, with another four or five waiting for a licence, but only 4.5 million people. This constitutes an oversupply.”

Regulation of the healthcare market varies between states. In Saudi Arabia, the CCIH gives prescriptive and detailed requirements on expectations of the insurance firms and private healthcare providers used by insurers. These go as far as to insist that independent auditors verify the solvency of the firm and that it can meet all its financial obligations.

Youssef says the UAE needs stronger regulation. “There has to be proper regulation, not just of the insurers but also of the healthcare providers,” he says.

“There is a huge moral hazard if there is a lack of transparency. In the UAE, there is no proper medical association with guidelines for provision. You can have a consultation for AED50 and then go to another area and get exactly the same treatment for AED500. The cost varies drastically. There is no vetting of standards.”

QUOTE 2: In the Middle East’s private sector, you ave six diagnostic tests, three of which will be a waste – Linda Marshall, Enaya Healthcare

Investment criteria

Youssef says insurers must also be more heavily regulated. “Insurers should make sure they have proper reserves and tighten their investment strategies,” he says. “Investment criteria in mature markets are very strict. This is topical at the moment, considering the current international environment.”

In Dubai, the system of regulation is still being worked out as the restructuring continues, but private providers say the free market mechanics create natural regulation. “It is not in a provider’s interests to price itself out of the market,” says Linda Marshall, director for operations at private UAE-based healthcare provider Enaya Healthcare. “It is good practice to provide services cost-effectively.

In the absence of strong regulation, Youssef says insurers must apply their own standards to the health providers they use. “There has to be some self policing, this is why we have 28 medically qualified experts on the staff,” he says. “Private hospitals can over-utilise by charging more. We have to know where to draw the line.”

“One example is in the UK where the NHS rations healthcare in a stepped approach. If you have a headache, you take an aspirin. If that does not work, you have another portion of diagnosis. It is not all done in one shot.

“In the Middle East’s private sector, the first thing that happens is you have six diagnostic tests, three of which will be a waste and, essentially, the insurer then pays the cost and passes it on to the client through their premium.”

Marshall says private providers generally follow international healthcare standards and refutes the suggestion that unnecessary work is carried out. She says that, in some cases, it is the insurer’s demands for pre-approval of tests that delays treatment.

“Providers monitor their practices to ensure efficacy of services,” she says. “The reluctance of insurers to pay for tests or seek pre-approval can delay treatment, which is frustrating for patients.

“One major expense for insurers is staff required to process claims. Through this they have a wealth of data that would highlight any practices outside the norm, or that are unnecessary. The only feedback a provider gets is very basic, along the lines of ‘this is costing too much’. Sharing more information would help.”

In the longer term, the challenge for insurance firms will be to generate the volume of work required to maintain profitability. Insurers say health insurance is a low-margin/high-volume industry, so obtaining a large market share will be critical.

To date, it is uncertain just how the states will choose to regulate the sector and just how far the health insurance industry will spread. But what is certain is that people will continue to need healthcare services.

“Health insurance is a misnomer,” says Youssef. “It is more cash-flow management than insurance. When a building is insured it might never catch fire, but with health insurance someone will always get sick.”

  • David Youssef and Linda Marshall are presenting at the MEED Healthcare Conference, at the Al-Murooj Rotana Dubai, 3-4 November.