The Impact of Mandatory Health Insurance — A Chinese Curse?

Dr. Mussaad M. Al-Razouki
9 min readJan 16, 2020


In the last fifteen years, health insurance has made its debut in GCC — Saudi Arabia led the way with the introduction of mandatory health insurance for expatriates in 2005, followed by Abu Dhabi in 2007. Dubai and Qatar followed suit last decade, with Kuwait introducing a partial coverage of its citizens in late 2016 through the Afya program for retirees. Bahrain and Oman are expected to follow suit and have already taken steps to formulate policies for mandatory health insurance coverage. What does this mean for the broader healthcare environment in general and regulators in particular? This article aims to explore the impact of the introduction of health insurance and implications for policymakers


Thus far, the GCC countries have built fairly sophisticated healthcare systems and made tremendous improvements in healthcare since the 1960s and 70s without the use of health insurance. The healthcare systems of GCC countries are characterized by high public expenditure, the dominant role of the government, which is in most cases the regulator, owner of hospitals, as well as a direct/indirect employer of a majority of the population. The motivation for this was the need to build a welfare state where citizens are provided with all public services free of cost. Additionally, the state also provides essentially free (or heavily subsidized) healthcare for expatriates. The system is akin to most European National Health Systems albeit without the tax revenues.


However, rapidly growing healthcare inflation coupled with multiple forecasts of an even bigger overseas medical treatment bill in the future has forced the governments of the region to abandon this traditional model and transition to a competitive market-based system. It is important to understand the key drivers behind this increase in healthcare expenses:

Population explosion — The economic boom in the GCC coupled with high fertility rates amongst the local population has to lead to GCC possessing of one of the fastest-growing populations in the world.

Aging population — Along with population growth is the forecasted increase in numbers of elderly citizens— who are a key driver of healthcare expenses

Private providers — A cornerstone of the new health policies across the region has been for the government to exit from its current role of managing hospitals and handover that role to the private players. The region has witnessed the entry of world-famous brand names in this arena — the introduction of private players is likely to have an unpleasant side effect of an increase in prices. As for-profit private providers step into the space they will demand fair market-based compensation unlike their public counterparts — this is decidedly going to increase the cost of healthcare services

Inflation — The economies of the region have been plagued with inflation due to a variety of macroeconomic reasons — this has impacted healthcare as well. In addition to the broader factors, a shortage of talent and increasing focus on quality has further exacerbated healthcare inflation.

Infectious vs. chronic — While the GCC nations have done an impressive job of fighting infectious diseases, with increasing affluence have come new lifestyle-related afflictions like diabetes, hypertension and cardiovascular problems. The chronic nature of these diseases makes them costly to treat and increasing the prevalence of these diseases means a bigger healthcare bill for the exchequer.


The policymakers of the region have recognized the importance of health insurance in ameliorating their precarious situation and see health insurance as a means of alleviating their healthcare finance problems. The first step for most governments has been to transfer the cost and risk of healthcare expenses for expatriates on to employers. Given the high proportion of expatriates in the region, this represents a significant chunk of expenses. To be fair the government still subsidizes the premium for low wage expatriates while the first phase has been restricted to large employers who can afford the premiums and have indeed started fashioning health insurance as a recruiting tool. While governments recognize the other value additions that health insurance companies bring to the table notably risk pooling, network management, healthcare quality improvement, and improved customer satisfaction the key reason for introduction of healthcare insurance has been financial i.e., the need to transfer cost and risk of healthcare expenses — for starters to that segment of private sector that can afford it. Whatever the rationale the introduction of health insurance is going to impact all the stakeholders in the healthcare system i.e., employers, health insurance companies, providers and regulators.


Employers have had to quickly become up to date with the new regulations passed and provide cover to their employees. The rapid uptake of health insurance in the first few months in Abu Dhabi is a prime example. While currently, the premium levels are low (~25% of per capita health expenditure for the basic product) employers will need to track healthcare premiums that are bound to rise with rising healthcare expenses. HR departments will need to develop strategies to manage/ control healthcare expenses much like their counterparts in the US where annual healthcare expenses are a key discussion issue with many employers. We could see the introduction of self-insured products, enhanced products with high employee contributions coupled with aggressive employer-driven wellness initiatives to reduce employee risk profile. One way or the other HR departments have another item to track and think about.


Health insurance companies are a new introduction in the region — as such their current focus has been rightly so on operational issues i.e., claims processing, product design/ pricing, talent acquisition, and customer service. However, while the new legislation has generated an attractive business opportunity for health insurance companies it also presents certain strategic choices for the players — choices they make or don’t make will be critical for their performance in the market place. The key choices for payors can be summed up in 3Cs:

Competitive Positioning — Governments have not been shy about granting licenses to private players, indeed HAAD has licensed 27 players while in KSA 11 players have been licensed and an additional 14 players await their license. This promises to be an intense market place — differentiation is essential. With relatively small market sizes at hand, players will have to make two choices regarding which segments will they play in and how will they differentiate themselves within that segment. Will, for example, target the high-end segment and build a high touch service model differentiating themselves on customer service or will they target the mass segment and focus on costs and building accessible networks and position themselves as a mass-market leader?

Capital and Profitability — While the introduction of health insurance promises tremendous growth in the short run, in the long run, individual markets in GCC apart from KSA have limited potential. In conjunction with the point regarding intense competition made earlier, players will have to decide their investment horizon and how much they want to invest in the market. The case for profitability has not yet been established and there are significant impediments.

Firstly as mentioned earlier the size of the markets and the number of players who have an intention to enter this market do not add up. For example in the Abu Dhabi market with a population of 1.05MM expatriates even assuming 100% penetration of the product with 27 players we are talking ~38,000 policyholders per company. If we further factor in the fact that the National Health Insurance — Daman has a monopoly over basic products and 80% market share the number reduces to ~7,000 — a number that hardly justifies the investments required. Two other factors also impact profitability — Lack of actuarial data sets will make pricing difficult and predicting profitability yet more difficult and finally the government intervention regarding pricing to maintain reasonable price levels could further exacerbate pricing and profitability. Players will have to decide the strategic importance of these markets or health insurance as product categories when committing capital for the same. A perspective on the liberalization of other GCC markets, the potential of regulatory integration across GCC and the importance of health insurance in the benefit bundle will be critical to the willingness to invest capital.

Care and Cost — As mentioned earlier the primary rationale behind the introduction of health insurance in GCC has been to reduce the burden on public exchequer and facilitate private investment on provider front. The health insurance industry has to in due course add value to the delivery of care through improved outcomes and control healthcare costs. A pure risk pooling role will not sufficiently move the needle on cost or care. Much like more developed markets like the US, health insurance companies will have to drive broader healthcare objectives of improving provider quality, enhancing healthcare accessibility, developing healthcare database etc. — i.e., build a healthier society. How and what the health insurance companies impact health care and cost will be critical for the future of the industry


For providers the introduction of health insurance just as in other developed markets it will mean pricing pressure. The emergence of large health insurance players would mean providers have to sit on the table with entities that have significantly more bargaining power than them. On the other hand, the increase in demand healthcare delivery means that healthcare providers really do not have much to worry about unless the multiplicity of hospital projects launched recently result in a surfeit of supply. Additionally, the role of government as the owner of many public hospitals as well as national insurance companies would mean that the government would still have the ultimate pricing control — it will complicate the situation a little more. The payment systems are likely to continue to evolve with the government focused on outcomes and the introduction of P4P systems may not be too distant in the future. In such situations, providers that focus on quality and outcomes are likely to protect themselves from such pressures. On an operational level, administrative departments of hospitals will have to cope with new regulations, invest in billing systems, build electronic health records, contract with health insurers etc.


One certainly does not envy the position of healthcare regulators in this market — regulators face a plethora of issues each of which will require significant analysis, judgments, policy formulation, and implementation. For now, it will suffice to merely list the issues.

1. What should the health insurance strategy for nationals be?

2. How should coverage be extended to the self-employed, informal sector and personal workers?

3. What should the payment mechanism be in the new environment as the system transitions from a Fee-For-Service method?

4. What should the EHR strategy be?

5. What role should wellness and prevention play, given the rapid spread of chronic diseases?

6. How should the regulatory body control pricing for health services and health premiums to reduce healthcare inflation?

7. What are the most effective channels to increase awareness of health insurance and health regulation?

8. How can regulation ensure compliance with the principles of Takaful (Islamic Insurance)?

9. What policies are required to ensure that beneficiaries have the right set of incentives?

10. What will be the impact of health insurance on the utilization of healthcare services? How will that affect the hospital supply-demand situation?

11. What policies are required to protect the interests of beneficiaries-prevent cheery picking etc.?

12. What monopolies/ exclusivities are required in the market/ region?

13. How should regulatory bodies interact with each other and move towards an integrated GCC/ Arab insurance market?

14. What regulations are required to monitor insurance intermediaries like brokers and agents?

15. What is the potential role for PBMs in this market if at all?

16. What should the regulatory strategy be to ensure coverage of unemployed sections of society i.e., retirees, young adults, and unemployed?

The issues highlight the criticality for regulators to prioritize and focus on the key issues that advance their broader health system goals the most.

Overall the introduction of the health insurance and accompanying changes brings to mind an old Chinese curse “May you live in a time of change” is comes to mind. Yet it need not be so, deft monitoring by regulators can result in a positive outcome for all.



Dr. Mussaad M. Al-Razouki