20170814-三星证券-Healthcare_reform-Good_or_bad_or_a_little_of_both__20页_711kb

Sector Update Summary: Insurance (NEUTRAL)

Core Content

This document provides an analysis of the Korean healthcare reform and its implications on the insurance sector, particularly focusing on medical indemnity products. It outlines the government's plan to expand national health insurance (NHIS) coverage, the current state of public and private healthcare costs, and the potential impact on insurance companies' earnings and loss ratios.

Main Points

Government's Healthcare Reform Plan

• The Korean government is expanding NHIS coverage to reduce the financial burden on patients, especially for serious illnesses.
• The plan includes:
  • Covering all medical services except for medical aesthetics and plastic surgery.
  • Phasing out the top three uncovered services.
  • Implementing a new-case payment system to prevent new uncovered services from emerging.
  • Managing out-of-pocket limits and introducing a safety net for vulnerable groups.

Current Healthcare Landscape

• Public health insurance coverage in Korea is lower than in most developed countries.
• Out-of-pocket costs for Korean households are 1.9x the OECD average.
• The cap on out-of-pocket expenses for low-income households is higher than for high-income ones, exacerbating the financial burden on those with serious illnesses.

Impact on Medical Indemnity Products

• Medical indemnity products cover a significant portion of the uncovered services, leading to high loss ratios.
• The loss ratio for medical indemnity products has been over 110% for some insurers, contributing to major financial losses.
• Premium hikes have been implemented by most insurers since 2015, ranging from 20% to 30% annually.

Earnings Sensitivity

• The reform is expected to improve the long-term risk-loss ratios of insurers, with potential EPS growth for 2018 and 2019.
• Under base and bull scenarios, the EPS growth for key insurers is projected as follows:
  • Samsung Fire & Marine: 5.9% to 8.2%
  • Hyundai M&F: 13.9% to 20.7%
  • Dongbu Insurance: 8.4% to 13.3%

Key Information

Target Prices

• Samsung Fire & Marine: KRW320,000 (10.5%)
• Samsung Life Insurance: KRW140,000 (18.6%)
• ING Life Korea: KRW45,000 (14.5%)
• Dongbu Insurance: KRW90,000 (12.4%)

Changes in NHIS Coverage

• The number of patients with annual medical expenses exceeding KRW5m is expected to decrease from 391,000 to 132,000.
• For low-income patients, the number is projected to drop from 123,000 to 6,000.
• The government aims to cover all uncovered services, starting with 300 essential ones immediately and the remaining 3,500 partially over 3-5 years.

Policy Background

• The reform is expected to increase transparency by standardizing medical codes and establishing treatment guidelines.
• It will also reduce information asymmetry between medical staff and patients.
• The government's goal is to manage uncovered services and prevent overtreatment and doctor shopping.

Obstacles to Implementation

• Conflict of Interest: Medical institutions are likely to oppose the reforms, fearing a significant financial impact.
• Fiscal Constraints: The NHIS may face rapid deterioration in its financial status due to the high costs of transitioning uncovered services to covered ones.
• Uncertainty in Implementation: The reform may not take full effect until 2022, leading to potential financial strain on those relying on national health insurance.

Summary Table

Conclusion

The healthcare reform is expected to have a positive impact on the insurance sector by improving loss ratios and reducing the financial burden on patients. However, the implementation faces challenges, including resistance from medical institutions and potential fiscal strain on the NHIS. The sector's future performance will depend on how smoothly these reforms are executed and the extent to which they reduce the need for private medical indemnity products.