June 22, 2021 republic
Half a cent each
How China is winding down "people's" insurance replacement
Mutual aid platforms, a cheap alternative to health insurance, are closing in China. Such services were popular - as a rule, they did not even require regular contributions, but they collected enough through crowdfunding to, for example, pay for someone's surgery for tens of thousands of dollars.
They were used by tens or even hundreds of millions of people in China. The idea was promoted by large technology companies, and it was even supported by the authorities. But the official attitude has changed - and now the services are being shut down one by one.
Not that the authorities have seriously decided to fight them. But against the background of tightening control over financial and technology companies that began last year (the example of Alibaba and its financial division Ant Group, for which this resulted in a failed IPO, fines and restructuring, not including rumors about the house arrest of its founder Jack Ma, was a telling example), "popular insurance" has attracted the attention of regulators.

Previously, the authorities turned a blind eye to the fact that popular services operate in a "gray zone"-as if insurance, but without strict requirements for the organizers. This suited the market leaders, who started such projects, even if it did not fit their core business (for example, transport or food delivery). But now these projects are an unnecessary headache for them.
In China, almost the entire population - about 97% - has basic health insurance. Some of it is paid for by the people themselves out of mandatory fees, and some is subsidized by the state (subsidies, for example, are given to people living in rural areas).

But for many, this is not enough. In a survey conducted by Ernst & Young among residents of major cities, about 40% of respondents said that government health care is not satisfactory to them. Many complained that basic insurance did not cover the drugs they were prescribed. There can be restrictions if a person wants to get help outside the place of residence - some of those who went to work in another city said that they had to return home to use the insurance.

China's population is gradually "aging. According to official forecasts, from 2010 to 2030, the proportion of people over 60 years old will increase from 13% to 25%, the proportion of the working-age population will fall from 70% to 57%. This increases the burden on official health care and the demand for medical services.

The additional costs - what people pay out of pocket - could be significant. McKinsey estimates that they are 20-30% for inpatient care under basic insurance, and much higher for some illnesses. Overall, according to the company, about a third of medical costs in China are what people pay directly. This can be supplemented by bribes, for example, to get a doctor's appointment faster.

Not everyone can afford extra insurance. Authorities say it can be quite affordable - for less than 100 yuan (less than $15) a year. But industry officials admit that more expensive products - insurance against serious illnesses - may be out of reach for many. Nor do people often have the savings (about a third of respondents in the Ernst & Young survey said so) to pay for treatment costs - including in addition to insurance - on their own.
People's insurance" is based on the same idea as conventional insurance: to gather more participants and distribute risks. The difference is that it can do without regular contributions and a constantly replenished fund. Only if one of the participants becomes seriously ill will others have to raise money for treatment or surgery. Another difference is the low administrative costs. To maintain such platforms in China, on average, it took about 8% of the collected funds (insurance companies have higher such costs - in the U.S. it ranges from 12% to 18%, in general about a third of U.S. health care costs are spent on administrative purposes)

Similar communities exist in other forms. In the Soviet Union there were mutual aid funds - members paid dues and could receive loans in return. In Egypt, neighbors or co-workers sometimes create "mutual aid funds," a kind of mutual loan society. Every month they pay dues and give the money collected to one of the participants in order of priority. In this way participants can get a large sum for them - for example, for medical treatment or a large purchase, although they have to pay it back in full.

One of the platforms was founded back in the early 2010s by Zhang Madin, a financier from Taian (eastern China). The idea came about after he had to borrow money for expensive medical treatment - he decided that others could use a kind of crowdfunding to do so. Zhang created a community in the messenger QQ (the equivalent of WhatsApp) to help each other with cancer and other diseases (the list was several dozen, including diabetes and Parkinson's disease).

The idea proved popular. Within a few years, the community had grown to 500,000 people. Participation was free - and everyone could claim up to 300,000 yuan (about $45,000) - with such a payment, the rest had to give less than 1 yuan (about 15 cents). However, to do this, one had to have been in the community for at least a year, and during this time, one had to help others. Applications were also thoroughly checked (one of the insurance companies was responsible for checking applications). On the whole, about a quarter of all submitted applications were approved.

People were attracted not only by the benefits - many liked the simplicity of the model (you could get the equivalent of insurance without too many formalities) and the opportunity to help others directly. "You could call it social innovation," said Hu Jinbei, professor of economics at Shanghai University. - We have enough good people in China, what's missing is the systems that would allow them to help each other.

Although the services are designed for the masses, they, like ordinary insurance, can have limitations. For example, as in the case of Xiang Hu Bao, age restrictions - the service was only open to users under the age of 60 (at the same time, parents, for example, could enroll their children older than one month). Other platforms, such as Shuidi Huzhu, were also designed for people over 60.

Others followed suit - hundreds of similar startups soon appeared in China. Many projects were short-lived, but large technology companies took their place - in 2018, Ant Financial, a division of Alibaba, launched its service Xiang Hu Bao (roughly translated as "mutual aid"). Meituan (one of the largest food delivery operators), transportation service Didi Chuxing, and even smartphone manufacturer Xiaomi got their platforms. Their customer bases provided new services with rapid growth - in a month Xiang Hu Bao had 20 million users, a year later - 100 million. Alibaba predicted that by 2021 there will be 300 million, and by 2025 such services in China will be used by 450 million - about a third of the population.
On this scale, the contributions-when they did have to be paid-remained small. When one Xiang Hu Bao participant, a girl from Shanghai who had suffered a head injury, needed an operation, 300,000 yuan was raised for her. It only took 0.03 yuan each (this happened soon after the platform was created) - about half a cent. Another participant, an entrepreneur from Hangzhou (a city in southeast China), said he took out two "people's insurance" policies for his family at once, and pays about 50 yuan ($7.7) a year in premiums. Another, a farmer from a small town in eastern China, had raised about 30,000 yuan ($4,600) from members of the Shuidi Huzhu platform; he himself had previously spent about 15 yuan ($2.3) a year on contributions.

"I joined Xiang Hu Bao because I wanted to help people," said a resident of southern Hunan province. - One or two yuan is not much. And I wasn't looking for any benefit for myself at all. But when I fell ill, it was good for me. When he was diagnosed with cancer, 100,000 yuan (about $14,000) was raised for him. He himself had spent about 4 yuan, less than $1, on contributions by then.

Most of those who used "people's insurance" were middle- and low-income people from small towns and rural areas. The creators of the largest platforms, Xiang Hu Bao and Waterdrop Mutual, admitted that they were not profitable. However, according to Ant Financial, such services are increasing people's interest in conventional insurance. According to surveys for 2019, about one in three Xiang Hu Bao participants were going to buy health insurance in the near future. Sales of companies that offered their products on Ant Financial's insurance platform increased by tens of percent after the launch of Xiang Hu Bao - and that, according to the creators of the "people's insurance," was its side effect.

The attitude of the authorities was generally favorable. The idea of mutual aid was endorsed in some official documents. "Such a community is a positive addition to the social security system," the official press wrote of one of the early projects.

The growing market for "people's insurance" required more resources from operators to verify applications. The creators of Xiang Hu Bao had recently been receiving about 2,000 applications for payments each week. Some users complained that checks on their cases lasted for months.

But last year, China began tightening control over the financial and IT sector (one of the reasons is the authorities' desire to limit the growing influence of large companies). This has also had an impact on attitudes toward "people's insurance. Last September, the Insurance and Banking Regulatory Commission called the market for such services "wild", stating that they operate "in a gray area with no oversight". And that the situation could turn out to be risky for both participants and companies.

In theory, the companies had an opportunity to resolve issues with the regulator - but they seem to have decided that it was easier to get rid of problematic services. In early 2021, Meituan announced that it was shutting down such a project at its site (according to the company, it had more than 10 million participants) and would "focus on its core business." Soon Waterdrop, an insurance company backed by Tencent, one of the largest investors in China, announced that it was stopping its own service (it had existed for several years, had gathered 80 million participants and helped tens of thousands of them). Xiaomi also announced its departure from this market. Several other platforms did the same. Some offered participants compensation - like Waterdrop, the usual annual insurance at the expense of the company.

The Ant Group admitted that they could also get rid of their service (according to the company, over several years, more than 116 thousand people received help there - for a total of $2.6 billion). But later it became known from unofficial sources that regulators considered the closure of the largest "people's insurance" undesirable - there were fears that it could cause a "wave of social unrest". One possible option is to reformat the service and turn it into a regular insurance business.