Developing More Equitable and Efficient Health Insurance in China

Paulson Policy Memorandum Developing More Equitable and Efficient Health Insurance in China Shenglan Tang October 2014 Paulson Policy Memorandum About the Author Shenglan Tang Shenglan Tang is Professor of Medicine and Global Health at Duke University. He is Associate Director of the Duke Global Health Institute, USA and Founding Director of the Global Health Research Center of Duke Kunshan University in China. He has undertaken policy-oriented research on health systems development, particularly in China, over the past 25 years, and was senior health policy advisor at the China Office of the World Health Organization (WHO) from 2006 to 2009, supporting the Chinese government as it prepared its new round of reforms to the country’s health system. He has published on health systems reform, disease control, and maternal and child health care in developing countries, and provided consulting services to many international organizations and the national governments of many developing countries.1 Cover Photo: Reuters/David Gray Paulson Policy Memorandum Abbreviations NCD: Non-communicable Disease GIS: Government Insurance Scheme LIS: Labor Insurance Scheme CMS: Cooperative Medical Scheme UEBHI: Urban Employee Basic Health Insurance URBHI: Urban Resident Basic Health Insurance NCMS: New Cooperative Medical Scheme MFA: Medical Financial Assistance for the Poor MSA: Medical Savings Account MOH: Ministry of Health MOLSS: Ministry of Labor and Social Security MOF: Ministry of Finance MCA: Ministry of Civil Affairs NHFPC: National Health and Family Planning Commission MOHRSS: Ministry of Human Resources and Social Security Paulson Policy Memorandum Introduction hina is one of a few developing Many socioeconomic and institutional countries in the world that factors have contributed to these Chas managed to expand the inadequacies.5 For one, after the coverage of health insurance at a introduction of new health insurance remarkable pace. Just a decade ago, schemes over the past decade, hospital only about one-quarter of the Chinese admission rates have increased population had health insurance, but significantly. Indeed, many hospital today, over 95 percent has coverage admissions might not be essential (see Figure 1).2 from a medical point of view. In addition, out-of-pocket payments, as a Such an achievement has owed much percentage of household consumption to a few main factors. A first is strong expenditure, have risen in many political commitment. The Chinese provinces.6 government responded to public pressure, particularly throughout China is also undergoing a profound the 1990s, to improve the country’s demographic transition, becoming an healthcare system. A second is rapid aging society faster than anticipated. economic growth, which has yielded Non-communicable chronic diseases relatively healthy (NCDs) account for fiscal balance sheets Improving the performance of health over 85 percent of for both national and insurance schemes to ensure better the total burden of local governments equity and efficiency is an urgent need. diseases in China.7 for most of the And the demand past thirty years.3 Many studies have for quality healthcare, particularly for shown that the expansion of health sophisticated high-tech care, has risen insurance coverage has improved significantly in recent years. This is in access to healthcare. It has also large part because of an expanding increased, to some extent, financial middle class with higher living protection for people seeking health standards that now has a different services in China.4 set of expectations when it comes to quality of life and social services such But despite this success, the as healthcare. development and operation of health insurance schemes are far from For these reasons, improving the efficient. Nor has the current system performance of health insurance improved equity in the use and schemes to ensure better equity and financing of health services. efficiency is an urgent need. Developing More Equitable and Efficient Health Insurance in China 1 Paulson Policy Memorandum It is, too, a necessary part of factors affecting the performance of achieving the objectives set out in China’s current schemes. Finally, and the healthcare system reform that most important, it aims to offer a the Chinese government launched number of policy options for financing in 2009.8 Chinese decision makers and managing health insurance view this reform as the first step to schemes. ensuring healthcare access for the vast majority of Chinese in years to come. The central objective is to provide more financial protection for This Policy Memorandum begins China’s insured—and to improve the with a brief introduction of the efficiency of using limited resources evolution of Chinese health insurance for healthcare coverage. These schemes, including the achievement policy ideas are targeted mainly at of universal health coverage in recent China’s central and local government years. It then analyzes the political, policymakers, as well as health socioeconomic, and institutional insurance management agencies. Figure 1. Health Insurance Coverage in China Source: Center for Health Statistics and Information, Ministry of Health, 2013. Developing More Equitable and Efficient Health Insurance in China 2 Paulson Policy Memorandum Evolution of Chinese Healthcare Coverage hina has had a longstanding For their part, local governments could bifurcated healthcare system: no longer afford to contribute to an Cone for the urban population and increasingly expensive GIS through their another for its rural population. Prior local healthcare budgets. Consequently, to the launch of economic reforms in both the GIS and LIS became crippled in 1978, over 80 percent of the urban the 1990s. population was fully or partially covered by either government insurance This was not all: Since the 1990s, schemes (GIS), labor insurance schemes there has been a relative reduction (LIS), or other forms of health insurance. in government funding for Chinese Meanwhile, over 90 percent of China’s public hospitals, thus forcing hospitals rural population participated in the to increasingly rely on user charges. cooperative medical scheme (CMS).9 That change has ushered in a rapid escalation of individual healthcare GIS and LIS were, in essence, a social costs. For instance, by the late 1990s, health insurance scheme, jointly funded out-of-pocket payments accounted for by employers and employees, and nearly 60 percent of the total health provided virtually free healthcare to expenditure in China (see Figure 2). those covered by the programs. The This has imposed significant burdens on CMS, on the other hand, was supported the majority of Chinese seeking proper by commune collectives with modest and affordable healthcare, leading to premium contributions from rural much grumbling about how “getting farmers. healthcare is expensive and difficult”— in Chinese, kan bing gui, kan bing nan.11 But the transformation of China’s rural commune economy into the so-called Reforms to both GIS and LIS began in “household responsibility system” in the the late 1980s. First, the two schemes early 1980s led to the collapse of the CMS introduced more rigorous cost toward the end of the decade. By the sharing—for example, deductible and early 1990s, less than 10 percent of the co-payments—and adopted alterative rural population was covered by CMS.10 provider payment methods, such as global budget or case-based payment In China’s urban areas, meanwhile, to fee-for-service. The goal was to deepening market reforms and the effectively control healthcare costs overhaul of the state sector put and improve the efficiency of service significant pressure on state-owned provision. Later in 1998, the central enterprises to sustain support for LIS. government decided to merge the GIS Developing More Equitable and Efficient Health Insurance in China 3 Paulson Policy Memorandum Figure 2. Composition of Total Health Expenditure by Resource (1990-2012) Source: China National Health Development Research Center, Ministry of Health, 2013.13 and LIS into one Urban Employee Basic region and was also subject to the age of Health Insurance (UEBHI) scheme, after the employees. More elderly people often successful pilot projects in the cities have a larger percentage of the funds of Zhenjiang in Jiangsu province and given to their MSA. Jiujiang in Jiangxi province.12 In most places in China, the MSA fund The new UEBHI required individual can only be used for outpatient services, employees to contribute at least 2 while the risk-pooling fund is used for percent of their monthly salary into the inpatient care as well as for select NCD scheme, while their employers were services in certain areas. In a few cities, required to allocate at least 6 percent such as Shanghai, the risk-pooling fund can of payroll into the fund. The financial also be used for outpatient services, on resources from the contributions were condition that the beneficiaries have spent distributed into (1) individual medical all the money from their individual savings saving accounts (MSA) and (2) risk- accounts. The deductible and co-pay pooling funds. The percentage of shares rates vary greatly across localities, from 8 for the two pots varied from region to percent to 40 percent.14 Developing More Equitable and Efficient Health Insurance in China 4 Paulson Policy Memorandum Table 1. The Three Basic Health Insurance Schemes UEBHI URBHI NCMS Population Coverage Employees and retirees from Unemployed residents and

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