Unbiased Analysis of Today's Healthcare Issues

Health Reform in China

Written By: Jason Shafrin - Jul• 07•13

What is health insurance like in China?  A 2011 paper by Zhong in Health Economics provides a nice overview, which I discuss in today’s post.

Between the 1950s and the end of the 1970s, three primary insurance schemes covered almost all Chinese citizens.

  • Cooperative Medical System (CMS).  This program existed in 90% of Chinese villages.  It is funded by contributions from participants in largely rural areas and subsidized by the collective welfare funds.
  • Government Insurance Scheme (GIS).  GIS was available to people working in government organizations,
  • Labor Insurance Scheme (LIS). LIS was available to employees of state or state-owned enterprises (SOE) and their immediate family members. The plan was funded by the state or by SOEs at the firm level.

After economic reform at the end of the 1970s, the CMS collapsed and its coverage fell to less than 5% of the population by the early 1990s.   By 2003, over 95 percent of rural Chinese households did not have any kind of medical insurance. In the 1990s, the LIS suffered as well.  As more and more SOE  began incurring financial losses, partial due to soft budget constraints, the state bankrupted, restructured, or privatized many SOE.  With the poor performance of SOEs, many employers could not maintain their LIS play.   By 1998, almost half of urban Chinese were uninsured.

As unisurance has risen, so has the cost of care.  According to Zhou 2006:

Some have claimed that the stark increases in health-care are due to provider profit-seeking behavior in China’s fee-for-service system.  The government sets these prices.  The author states:

The prices for basic health interventions are set below cost so as to make them affordable even to poor patients, while prices for more sophisticated health interventions are set above cost to enable health-care provision to remain financially sustainable. This price structure that was originally intended to cross-subsidize the delivery of basic interventions creates perverse incentives for providers to supply sophisticated care wherever possible, by shifting demand from low-margin basic services to high-margin high-tech diagnostic services and drugs. Unsurprisingly, there is widespread evidence that health providers purchase unnecessarily sophisticated medical equipment and prescribe large amounts of expensive drugs.

To combat rising prices and insurance, China reformed the healthcare system using the New Cooperative Medical Scheme (NCMS) and Urban Employee Basic Medical Insurance (UEBMI).

Between 2003 and 2008, China introduced the NCMS, which aimed to provide health insurance to the rural Chinese. The program is voluntary and requires beneficiaries to pay premiums, which are subsidized by both central and local governments. Like Medicaid, the central government provides broad guidelines for NCMS, but the bureau of health in each county operates their NCMS autonomously.  Thus, the programs’ design and benefit packages vary geographically. Despite this variation, most NCMS benefit packages include a a modest household medical saving account (MSA) for outpatient expenditures and a social pooling account (SPA) for inpatient expenses with high deductibles.  By the end of 2008, 95% of counties in China had been covered by NCMS and government subsidies have increased.

In 1998, China launched UEBMI in an effort to replace LIS and GIS.  UEBMI expanded coverage to private sector employees and pools its risk at the municipal—rather than the firm—level, which provides more stable financing. As described in Liu 2002, UEBMI is financed by employer contributions (6% of the employee’s wage) and employee contributions (2% of their wage); the UEBMI benefit includes an MSA (3.8% of the employee’s wage) for outpatient expenditures and an SPA (4.2% of the employee’s wage) for inpatient expenses after exceeding deductibles. By 2007, UEBMI covered 180 million urban enrollees by 2007 (Lin et al., 2009). To date, UEBMI has not replaced GIS, and in fact GIS insurance coverage is more generous the UEBMI.  In recent years, the share of urban Chinese covered by the private and ‘other’ insurance plans has increased significantly.  Despite the existence of these insurance schemes, 420 million urban residents remained outside of the health-care insurance in 2007, most of these individuals did not have a formal sector job.

However, China enacted its own health reform to reduce the number of uninsured.  In 2007, China enacted the Urban Resident Basic Medical Insurance (URBMI).  This voluntary program aimed at providing health insurance to primary and secondary school students, very young children, and other unemployed urban residents. Financed jointly by individual contributions and subsidies from central and local governments, a URMBI policy covers about 45% of related inpatient medical costs and some outpatient services for chronic or fatal diseases. URBMI is administered by local governments and thus benefits and subsidy levels vary significantly across cities.  “URBMI was initially launched in 79 cities in 2007, and was to be expanded to 50% of cities nationwide by the end of 2008, and to 100% of cities by 2010.”


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