SHANGHAI Lu Yahu decided to buy health insurance from American International Group four years ago after his mother, a retired factory worker, caught a cold and spent half of her $124 monthly pension on a single hospital visit.
"Medical charges in China are so ridiculously high these days, you really can't afford to get sick," said Lu, the founder of Shanghai Good Faith Translation & Consulting, who pays about 30 yuan, or $3.74, a month for his policy. "I buy health insurance from AIG so I can get treatment when I need it without worrying too much about costs."
Overseas insurers, including AIG and Manulife Financial, are vying for customers in China, where 90 percent of citizens lack health care coverage. Medical bills are rising as changing lifestyles push up rates of diseases like cancer that are the costliest to treat. China's private health insurance market will swell 14-fold to $56 billion by 2020, estimates John Wong, Boston Consulting Group's Asia chairman.
"Medical insurance should become very attractive to middle-class families in China because they really don't want to undertake that risk themselves," said Wong.
New York-based AIG, the world's biggest insurer, is betting on China's undeveloped market.
"We see double-digit growth in the China health business," said Barry Stowe, the head of AIG's global accident and health unit.
By contrast, U.S. health insurance premiums probably grew 6.8 percent in 2005, slowing for a third consecutive year, according to the Centers for Medicare and Medicaid Services, a unit of the U.S. Department of Health and Human Services.
The health care burden on China's households has risen as the government dismantles its cradle-to-grave welfare system. The state began cutting hospital subsidies in the early 1980s, and by the mid-1990s it covered just 20 percent of urban state hospitals' costs, said Hana Brixi, an adviser to the United Nations' World Health Organization.
That leaves patients like Cha Guoqun, who works odd jobs on building sites in the eastern city of Hangzhou, vulnerable. Cha visited a state hospital in November after a cut on his leg got infected and prevented him from working.
The doctor gave him two options: Pay 1,000 yuan a day for treatment - his entire monthly income - or have his leg amputated. He ended up seeking treatment at a Christian charity hospital and was cured with a six-day course of medication that cost 250 yuan.
"I was lucky this time," Cha said. "But on the whole, medical treatment is too expensive for people like me."
In China, the majority of the uninsured - most of them rural residents - avoid going to hospitals for treatment because they cannot afford it, said Brixi. Most treat themselves with over- the-counter drugs, she said.
About 130 million people in China have health insurance, leaving almost 90 percent of the population without coverage, said Guan Ling, an executive secretary at the China Insurance Regulatory Commission's health and life insurance department. About 16 percent of the U.S. population lacked coverage in 2004, according to U.S. census figures.
Chinese patients paid an average of 56 percent of their own medical costs in 2003, up from 21 percent in 1980, according to the Health Ministry.
In the five years through 2003, the average cost of a hospital stay climbed 67 percent to 4,123 yuan, a ministry survey shows. During the same period, per- capita disposable income in urban areas rose 45 percent to 8,472 yuan, according to the China Internet Information Center, a government Web site.
In 2003, cancer was the leading cause of death in rural China, according to the Health Ministry. In 1999, respiratory disease had topped the list. Cancer costs dozens of times more to treat because it requires longer hospital stays, said He Yansu, an insurance professor at the Central University of Finance and Economics in Beijing.
In response to these changes, AIG plans to expand its 23,000-member sales force in China and may start advertising on television and billboards, Stowe said.
AIG, founded in Shanghai in 1919, is China's No. 2 overseas insurer by premiums after Assicurazioni Generali of Italy knocked it from the top spot in 2005.
Unlike Generali and other rivals, AIG has no license to sell group policies in China, so it relies solely on individual customers.
AIG's health insurance unit was not implicated in the accounting scandal that prompted the resignation of its chairman and chief executive, Maurice Greenberg, in March 2005.
AIG's 1.5 million health insurance customers in China paid $100 million in premiums in 2004, about 1 percent of the company's global accident and health business, Stowe said. The unit has a profit margin of about 10 percent, matching the companywide average, he said.
While overseas insurers charge less than $5 a month for some policies, they limit costs by offering capped payments rather than unlimited coverage.
Manulife-Sinochem Life Insurance, a venture of Toronto's Manulife Financial and the Chinese government- controlled chemical trader Sinochem, charges 500 yuan a year for a standard policy. Hospitalized policyholders receive a one-time payment of 4,000 yuan, plus 150 yuan for each day in the hospital. Outpatient treatment is not covered.
Health care costs in China are a fraction of those in developed markets, which also limits expenses for insurers, said Wong of Boston Consulting. A hip replacement costs about $400 in China, and more than $10,000 in the United States, he said.
To succeed in China, overseas insurers must overcome entrenched domestic rivals. Local companies like China Life Insurance and Ping An Insurance Group, the two largest, control more than 90 percent of the overall market, according to the insurance regulator.
China Life had 663,000 sales agents as of June 2005, while AIG has 23,000.
Hong Kong-traded shares of China Life have risen 46 percent this year, compared with a 6.3 percent gain in the benchmark Hang Seng index. Shares of Ping An have gained 43 percent.
"Size matters when you're an insurance company trying to grab market share," said Dorris Chen, a Shanghai- based insurance analyst at BNP Paribas Peregrine. "Foreign insurers have an edge over domestic rivals in risk assessment, but that does not make up for their lack of size."