The Social Medicine Portal

China Commits to Publicly Financed Health Care

As the U.S just passed its “healthcare overhaul” – an individual mandate to purchase a private policy with lots of promises that the government will reign on the industry’s most egregious practices — China, with a population of 1.3 billion, is advancing a plan to provide universal access to all of its residents.  In January China announced that the government would spend $125 billion to jumpstart a new program that will provide comprehensive health services to 90% of the population by 2011, and to 100% by 2020.

China provides health care by dividing its residents into three pools: The Ministry of Labor and Social Security covering the urban health sector, The Ministry of Health covering the rural residents, and The Ministry of Civic Affairs covering the poor urban and rural populations. All three programs have in common that they are government-financed, social welfare programs that put both healthy and sick residents into shared pools of health risk.

In the mid 1980s, China had enacted a health reform that went the “market way”, and intended to increase the supply of medical treatment by allowing hospitals to profit from medical care. So far, and much like the US health care system, this has not allowed all residents, or even most residents, to access health care, due to increasingly high costs. In China, rural residents, many unemployed, and the elderly suffered from this lack of access.

As the 1990s progressed, the failure of a for profit model of health insurance led the Chinese to rethink health care reform.  Lack of access due to high cost is only a failure if the goal is to eliminate financial barriers to care, which for the Chinese it was, rather than to yield the greatest profit possible for health insurers.  What’s important about China’s reform is that the Chinese have taken profit out of the equation, and the centerpiece of their health care plan is public financing and universal enrollment.

Follow the money: How health care will be paid under China’s health care reform

Under this plan, all companies (private enterprises, joint ventures, or self employed) must pay 10% of their total payroll to the government for health spending.  Half of this goes to a fund accessible by all the ministries described above for social risk pooling, and the other half goes to their employee’s individual health accounts.  In addition, each employee must pay 2% of his or her wages directly to their individual account.

Employed residents, under the Basic Medical Insurance (BMI), would first use the money from their own account to pay for health services.  If the account were exceeded, the resident would pay out of pocket up to 5% of their annual wage, after which expenses would be covered by the social risk pooling fund.  Importantly, these subsidies and financing plans are different dependent on which Ministry you are under.

Because of the poverty and geographical separation of the rural population, the Chinese have developed the New Cooperative Medical Scheme (NCMS), a government run voluntary insurance program that provides an initial subsidy of 120 yuan per farmer, and the farmer is expected to pay up to 10 yuan our of pocket.  The government plans to increase these subsidies with the newly announced tripled public spending towards health.  Rural communities have a certain degree of autonomy in that they can spend their moneys on different types of services or distribute it differently from how the national government does in urban areas.

For children, the unemployed, disabled, or elderly, China has established the Urban Resident Basic Medical Insurance (URBMI), which, like the NCMS scheme above, also supplies each member with 120 yuan per year for medical expenses. Enrollment in the URBMI is at the household level in order to reduce administrative costs and adverse selection – enrolling only those likely to need health care and financially burdening the collective pool.

Lastly, similar to American Medicaid, there is a social risk pool for the poorest Chinese residents, known as Medical Assistance (MA), where all expenses are covered.

However complex these arrangements may seem, developed as they are to meet the diverse needs of a huge population, once again, they share the principle of universal enrollment and social insurance, thus taking profit out of the financing equation.

Controlling costs of health care

In an effort to control costs of health care, the Chinese are implementing caps on prices of essential drugs.  Already 307 drugs are under prices control, and the plan is to include 770 more this year. Prices for common treatments will also be under government control in order to prevent providers from charging different prices for the same treatments, but medical professionals will be largely paid fee-for-services. Further, the plan requires that all revenues raised by public medical facilities be funneled to the state in order to restrict profit and to finance the program.

Chinese economists argue that health care will stimulate domestic spending, critical given the current economic downturn.  Bai Zhongen, Chairman of the Economics Department at Tshinghua University’s School of Economics and Management in Beijing, has said that establishing universal health care with government-financed insurance will increase general consumer spending. Already in 2007, a survey at the School examined the effect of rural health insurance on consumer behavior and “found that in government-sponsored health insurance areas, people are spending more.”  Chairman Bai expanded on this finding saying that the government already gives many people a small subsidy to pay for their health care needs, but that a unified, national health insurance program would strengthen the economy, as people would have more money in their own pockets.

It will be exciting to watch China make this progressive change towards a universal right to health care with a plan built upon public model of financing, and contrast it with the American experiment of a universal obligation to buy a for-profit policy, which the Congressional Budget Office has estimated will leave 23 million people uninsured by 2020.

While the outcomes of the Patient Protection and Affordable Care Act for patients are anybody’s guess, William Hsiaso, a Professor of Economics at the Harvard School of Public Health, has said that China’s plan is likely to work because of its “strong role of government in health, commitment to equity, and willingness to experiment with regulated markets”.