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An Olympic Post: The History of the Chinese Healthcare System

Jason Shafrin1 Comment

Jin Ma, Mingshan Lu and Hude Quan have a wonderful article in Health Affairs which summarizes how China’s healthcare system has evolved over the years. Today, I will review this article.

Pre-Reform Era: 1949-1978

The health care system during this time–like the rest of the Chinese economy–was centrally plan. There were no private clinics or hospitals in China. The goal of the Chinese government was to ensure “equal access to the health care system for all” regardless of each individual’s ability to pay. Providers were paid on a salaried basis and the government set medication and health care service prices. Emphasis was put on integrating Western medicine with traditional Chinese medicine (TCM). The “face” of health care during this time was the barefoot doctor. These doctors were trained for the needs of the rural population and typically lived within the village.

Health insurance was provided through a number of plans. The Government Insurance Scheme (GIS) covered government workers, the Labor Insurance Scheme (LIS) covered employees of state-owned enterprises (SOE). The majority of the rural population was covered by the Cooperative Medical Scheme (CMS). Private insurance did not exist.

Post-Reform Era: 1978-present

As the government began to decentralize its economy, health care was also decentralized. The central government started to make block grants to each province (similar to the U.S. Medicaid system) rather than the cost-reimbursement system that existed prior to 1978. Physicians were still paid a salary, but could work during their leisure hours for extra income. High service fees were introduced for medical services which utilized the new high-tech medical equipment which was imported into China during this time. The Chinese also allowed forprofit hospitals and cilinics. By 2004, for-profit hospitals accounted for 13.8% of all hospitals and for-profit clinics accounted for 72% of all clinics.

In the 1980s, China allowed commercial insurers to enter the market. Commercial insurers, however, are not overwhelmingly popular since only 5.6% of the population had commercial insurance in 2004. As the market economy ate away at many SOEs, the government decided to merge GIS & LIS and created a new urban employee health insurance plan. It is rare for employers to fully cover their employees health insurance cost. Instead, it is popular to offer employees a fixed amount of month to cover basic health insurance and employees are responsible for covering the rest. In rural areas, a laissez faire attitude was adopted and most rural individuals pay out of pocket for health care. In 1994, less than 10% of China’s rural population had CMS and most barefoot doctors ceased practicing.

China’s Major Health Care Issues

  • Access to Care. According to the results of the National Survey on Social Harmony and Stability conducted by the Chinese Academy of Social Sciences in 2006, the top social concern in China is “high medical expenses.”
  • The rural uninsured. “Some 700 million rural Chinese must pay out of pocket for virtually all health services, potentially leading to the deferral of care, untreated illness, financial catastrophe, and poverty. “
  • Quality of Care. While the amount of high tech medical equipment has increased, the quality of primary care medicine may have actually decreased over time. The number of MRI machines and CT scanners has increased 90% and 55% between 2002-05 respectively. On the other hand, the number of barefoot doctors has plummeted. Instead, village clinics are staffed mainly by fee-for-service (FFS) doctors. These doctors make most of their income on prescription drugs, and thus it should not be a surprise that many experts believe that the Chinese are often prescribed drugs they do not need.
  • Public Health. As private health care has advance, public health has lost resources. Since public education and infectious disease monitoring are unprofitable, they are ignored by practitioners. This could mean that China is at severe risk for some sort of contagious disease epidemic such as SARS.
  • AIDS. While HIV rates are lower than in many developing countries, China still had almost 40,000cases of HIV-positive individuals in 2004.

Moving Forward: Reform in China

In order to improve the quality of health care, China has looked to increase regulation, expand health insurance coverage, and try to reward doctors based on the quality of care they provide rather than the revenue they generate. A new urban insurance plan is set to start in 2007 and a nationwide roll-out is planned for 2010-2011.

A New CMS (NCMS) was launched in 2003 to expand rural health insurance. In the NCMS, funding is provided in equal parts by the Chinese national government, local government bodies, and individuals–10 yuan ($1.46) each. The government portion increased to 40 yuan in 2006. As of 2007, 79% of rural residents were covered under NCMS.

A paper by Sun, Jackson, Carmichael, and Sleigh (2009) find that the NCMS has helped to reduce the severity and frequency of catastrophic medical costs in China’s Shandong Province.