Muni Investing in Healthcare During COVID-19

Indonesia's Healthcare system is best known for its organizational fragmentation, corruption, and inefficiency. Only 50% of Indonesia's population – who can afford private insurance – use the Indonesian healthcare network, while the remaining 50% receive their basic public healthcare services from NGOs. The problem, reported by many in Indonesia, is the lack of suitable and affordable health coverage.

Jaminan Kesehatan Nasional (JKN) is Indonesia’s recently approved “Universal Social Health Insurance” program, administered by the BPJS Kesehatan (Healthcare and Social Security Agency). President Widodo alleges that his healthcare insurance coverage program will increase coverage from 50% to 100% of the population by 2022. Yet, as BPJS-healthcare facilities fail to meet their per annum quotas, therefore growing the JKN deficit each year, a number of issues threaten the system of universal healthcare:

1. Poor supervision over government-funding allocated to hospitals.

2. Trouble collecting premium payments from individuals and local governments.

3. People avoid paying premiums – electing to only receive service when they need it most.

4. No policies address the need for improving healthcare infrastructure in remote areas.

This is all to say that JKN has faced increasing costs and ongoing budget deficits that, if left unfixed, jeopardize the medium-term stability of JKN. - Jakarta Post

Before implementing a policy or investment solution, the issue of spatial precision is key for accurately targeting and reducing healthcare disparities in "healthcare deserts." Any investment into rural regions must solve issues related to effectively incentivizing and collecting payments for premium services. If the "premium issue" is solved, then investors are more likely to pursue muni investments. A more fundamental issue, then, is finding regions where demand is high and where local competition in healthcare services are absent. Thus, a GIS map on spatial- investment-targeting offers investors a precise and thorough visualization of key areas.

This map provides an entry-point for understanding COVID-19 related deaths in Indonesia. Deaths by population are represented by diamond size, whereas deaths are represented as the degree of diamond transparency. A highly visible diamond is a bad indication. And large visible diamonds indicate a higher death rate per population as well as a higher rate of death per total confirmed cases of COVID-19 (i.e., the worst indication).

We also see how COVID-19 related deaths are more distinct, and therefore more significant, in regions on the periphery of Jakarta. These are regions where COVID has impacted Indonesia's poor at greater levels of death by total reported cases. An express map shows Indonesia's poorest regions: Aceh in Northern Sumatra, Palembang in Southern Sumatra, and Jakarta's "Metropolitan Poverty Zone."

The answer lies in municipal bond strategies, or "muni investing," and spatially-oriented investment targeting.

Healthcare has historically provided a tax-exempt strategy for earning long-term profits in Tax-Free Bonds, with hospital bonds typically regarded as the industry favorite. As global bond markets make a bullish reversal, the time is right for buy-side arbitrage -- especially in global markets like Indonesia where 10-year bonds are likely to experience a decade of financial prosperity. But how does a Tax-Free Bond, or "muni bond," reduce healthcare disparities in the most at-risk regions of the world?

Amid a post-pandemic-surge in economic growth, and after the initial JKN expansion, many not-for-profit hospitals in Indonesia strengthened their balance sheets. In addition, the global bond market continued to grow, notwithstanding a short-term economic downfall due to the pandemic. While current issues facing the Indonesian healthcare system seem unsurmountable, there are foreign investment solutions, both for investors and Indonesia's remote populations in dire need of healthcare.

Moreover, a key concern for investors in locating areas with strong credit ratings for long-term investment-grade bonds is balancing a hospital's credit status with local demand for hospital services.

The typical muni investment analyst, for example, reviews hospital credit ratings for assessing investment opportunities. If a muni analyst detects bad, little, or no credit, then the option is usually disregarded. Generally, only high credit ratings are accepted as potential options. However, if the analyst notes an unusually high source of demand, or strong incentives for creating healthcare demand, then the option "still has profitable potential."

Ultimately, the focus of any muni investment is where reimbursement in healthcare premiums is most likely to yield a strong return. This means, for remote regions in Indonesia with little access to basic healthcare, that a centralized healthcare facility may experience high demand in hospital services. Of course, this estimate is predicated on the adaptability of JKN's insurance protocols.

Coupled with high demand and underutilized JKN-coverage, the muni investor is provided with an investment-grade muni-bond opportunity. Single site hospitals, if they have a dominant market share as well as a high percentage of revenue derived from commercial insurance, can be especially lucrative. These are the sort of investments that can radically reduce healthcare disparity in Indonesia.

1. Achieving Market Capitalization: small-scale investments across high-demand regions.
2. Growth Strategy: Targeting not-for-profit healthcare systems where rural geography and local insurance providers determine higher demand outcomes.
3. Hedging Bets: All debts and shortages are backed by the Indonesian government.

• All green targets provide suitable investments due to high local demand based on 1) high relative death rates 2) low relative recovery rates.
• Green Targets: Jawa Tengah, East Banten, Lampung, Sulawesi Tengah and Sulawesi Utara

References

• "Revealing Indonesian Corporate Bond Market potential News Desk," The Jakarta Post, 2020.

Onlines References

• https://tradingeconomics.com/indonesia/government-bond-yield
• https://www.thejakartapost.com/news/2016/08/11/news-analysis-revealing-indonesian-corporate-bond-market-potential.html
• https://www.thejakartapost.com/news/2016/08/11/news-analysis-revealing-indonesian-corporate-bond-market-potential.html
• https://www.thejakartapost.com/academia/2018/04/06/qa-bpjs-kesehatan-health-for-all-indonesians.html
• https://www.thejakartapost.com/news/2020/07/15/poverty-rate-rises-in-march-as-pandemic-hits-vulnerable-communities.html