The study by research firm Business Monitor International Ltd (BMI) states that Indonesia's objective of achieving universal healthcare by 2019 will be highly difficult.

Indonesia's pursuit of universal healthcare will remain difficult in 2017. First rolled out in January 2014, the authorities aimed to have fully enrolled the population into the national health insurance scheme Jaminan Kesehatan Nasional (JKN) by January 2019 while ensuring that 'high quality healthcare services' are equally accessible to the entire population. Reinforcing our long-held caution on the government's ambition for JKN], latest estimates suggest that only 66 per cent of the population were enrolled as of December 2016. This leaves the authorities two years to expand coverage to over 80mn people in the country - a challenging outcome given the experience of other emerging markets such as Vietnam and the Philippines as they move towards 100 per cent coverage.

Instead, we anticipate a more incremental expansion to the number of Indonesians under the JKN. This will continue to have a positive impact on the healthcare sector - dovetailing with rising household incomes, an integral driver of the overall market in value terms. The introduction of a coordination of benefit (COB) scheme, which allows more affluent Indonesian patients to supplement coverage under the JKN with private health insurance, lends further weight to the role of private health spending to drive growth. We are forecasting healthcare spending in Indonesia to rise from IDR366,323bn (USD27bn) in 2016 to IDR1.1trn (USD70bn) by 2026, with a compound annual growth rate of 11.5 per cent in local currency terms and 9.9 per cent in US dollar terms.

Incremental Expansion In Coverage To Facilitate Growth

Extending coverage to informal sector to be difficult

The Social Security Agency (BPJS) managing Indonesia's JKN will not be able to sustain the current rapid increases in the population enrolled. Progress made thus far, while significant, has largely been driven by an uptake among workers in the formal sector and the transfer of members enrolled in existing schemes - such as the Asuransi Kesehatan, the social insurance scheme for civil servants - into the JKN. The remaining 34 per cent thus largely represents workers in the informal sector - people that are difficult to identify, for whom enrolment is not automatic and who may lack the necessary documents to register. This segment also has less incentive to participate in the scheme, as healthcare provision has historically been provided for by non-governmental organisations.

Full impact of JKN limited by healthcare infrastructure

Moreover, Indonesia's underdeveloped medical system will impinge upon its ability to achieve universal healthcare as defined by the government. The level of healthcare access diverges significantly across the country, with regions such as the Special Region of Yogyakarta having 13 hospital beds per 10,000 in 2016 while Central Sulawesi has eight. This is even more acute when it comes to the distribution of medical specialists, with the University of Melbourne reporting that Jakarta has 640 paediatricians in 2013 - almost triple the number in North Sumatra despite being home to 3.4mn less people. While the expansion of private healthcare providers such as Siloam International Hospitals will improve healthcare access, it is unlikely to significantly alter the current healthcare landscape in the short term.

JKN to shape competitive landscape

The more gradual expansion of Indonesia's universal healthcare scheme will shape opportunities in the pharmaceutical sector. Notably, with the year-on-year increase in patients slowing, the primary benefit of JKN to the sector - boosting volume growth of low-cost, unbranded drugs - will wane over the medium term. Coupled with authorities' growing emphasis on ensuring the financial sustainability of JKN, competition will increasingly be focused on price. This will favour drug manufacturers in Indonesia with large production capacities that have the ability to leverage their economies of scale to compete effectively in the market. Given the heightened level of competition, multinational pharmaceutical firms will have to be highly selective in their commercialisation strategy to differentiate their product offerings from local drug makers. Eisai has focused on developing a highly-specialised product portfolio, while Sandoz has launched generic medicines for which there were no generic alternatives.