June 2008 O Volume 2 O Issue 3 PARDEE RAND GRADUATE SCHOOL Policy Insight Caring for a Third of the World’s Population Challenges for the Health Systems of China and India hina and India together have more than 2 ularly in improving birth outcomes and preventing Cbillion residents, accounting for nearly 40 communicable diseases. percent of the total world population. Over Overall, people in China live longer, healthier the past 50 years, both of these countries have made lives than people in India. The difference between substantial gains in health, including increases in women is larger than that for men, resulting in life expectancy, reductions in infant mortality, and part from the 10-fold greater maternal death rate Sai Ma, Ph.D. PRGS Alumna the eradication of several diseases. Yet China and for Indian compared with Chinese women.1 Assistant Scientist, Johns Hopkins University India still lag behind many countries on key mea- Significant differences exist in causes of death sures of health, and the health gains achieved have as well. In China, noncommunicable diseases, been uneven across subpopulations. particularly chronic obstructive pulmonary dis- Comparing the health systems in China and ease and cancer, account for 77 percent of all India illuminates the health challenges common to deaths. In India, however, more than 40 percent both nations as well as those that are distinct to of all deaths are due to communicable diseases— each of them. Such a comparison is also timely, as including HIV/AIDS, diarrhoeal diseases, respira- health care reform is high on the political agenda tory infections, and perinatal conditions (Liu, Rao, Neeraj Sood, Ph.D. Economist, of both countries. and Hsiao, 2003)—which can be addressed by RAND Corporation Health systems include not just health care but more-effective health policies. also many other factors that affect health, such as 2. Ineffective Financial Risk Protection in Both poverty, education, nutrition, and sanitation. In Countries. Poor health can increase poverty and this Policy Insight, we focus our comparison along reduce material well-being through a number of two essential dimensions: health system goals pathways, including excessive medical expense, and the policy levers that are used to accomplish impaired labor market participation, and loss these goals. of productivity (Liu, Rao, and Hsiao, 2003). Unfortunately, the health systems in China and Goals India provide little protection from financial risk. The World Health Organization’s (WHO’s) 2000 In China, medical expenditures have become an report, Health Systems: Improving Performance, important cause of poverty, increasing the num- The Pardee RAND Graduate states that a health system should have three fun- ber of rural households below the poverty line School is a recognized damental objectives: (1) improving the health of leader in doctoral education by 44 percent (Liu and Rao, 2006). Similarly, in in policy analysis. Using a the population it serves, (2) providing financial multidisciplinary approach, India, up to a third of hospitalized patients are protection against the costs of poor health, and students and faculty examine impoverished by medical costs (Krishna, 2004, a wide range of policy issues, (3) responding to people’s expectations. How do including health, education, and Peters et al., 2002). energy, public safety, and national China and India fare in achieving these goals? and international security. The heavy burden of health costs in China Graduates pursue careers in 1. China Has Achieved More Gains in Health. universities, think tanks, public and India is not surprising, given the lack of service, government, and the While China and India face very different demo- well-developed health insurance schemes in both private sector. PRGS currently enrolls approximately 90 students, graphic and health challenges, both countries have countries. This situation is exacerbated by two drawn from more than 20 achieved substantial gains in life expectancy and countries around the world. the prevention of certain diseases since the 1940s. These improvements are reflected in the key health 1 Maternal death rates are correlated with rates of childbirth. Therefore, the indicators for each country shown in Table 1. The large difference in maternal death in the two countries is attributable to both better health care and Chinese women’s low fertility rate, a result of China’s gains in China have been more substantial, partic- “one-family-one child” policy. Table 1. Key Health Indicators Maternal Low-Birthweight Life Expectancy Probability of Dying (per 1,000) Death Rate Rate 0–1 Years Under 5 years old 15–60 Years Old (per 100,000) (%) Old Both Both Both Male Female Male Female Male Female 2000 1999 sexes Sexes sexes China 72 70 74 27 31 27 36 158 99 56 6 India 62 61 63 58 85 81 89 275 202 540 30 SOURCE: World Health Organization, The World Health Report 2006: Working Together for Health, 2006, and other WHO statistics. key factors. First, the lack of access to affordable in China has been on social or public insurance; care means that people defer preventive and other in contrast, India is betting on the emergence of necessary care; consequently, when they do seek private micro–health insurance. care, they typically have a more serious and costly 2. Payment. The fee-for-service (FFS) payment medical condition. Second, for those who seek care, method, in which health service providers are reim- physician-induced overutilization of care further bursed a fee for each service provided, dominates increases the financial burden of care. in both China and India. FFS creates incentives for 3. Consumer Satisfaction Understudied in the overuse of health care services, further increas- Both Countries. Consumer satisfaction has not ing the burden on consumers. In China, these been widely studied in either country, suggesting problems are exacerbated by the use of government- that perhaps neither country has yet employed administered price-setting rather than bilateral patient satisfaction as an important measure of negotiation between the government and providers. quality of care. In contrast, India’s government and professional associations have little influence on price-setting. Five Policy Levers for Improving Both countries face the challenge of reforming the Health Systems payment system to reduce overuse and to increase As William C. Hsiao (2003) argues, financing, pay- use of more cost-effective health care technologies. ment, organization of health care delivery, regula- Savings from such reforms could be passed on to tion, and behavior are the five essential policy levers consumers, reducing their health care expenses. in a health system, since they are the key forces for 3. Organization. influencing the ultimate performance of a health Starting in the late 1940s, both system and can also be affected by policy. Below, countries worked to develop public health care we compare China’s and India’s performance with systems that provided basic medical care, disease respect to each of the five policy levers. A summary prevention, and health education. Government of these comparisons is shown in Table 2. provision of health care was largely successful in China but less so in India. As a result, China expe- 1. Financing. Financing refers to the mechanisms rienced much larger gains in health through to the by which resources are mobilized to fund health- 1980s. In the 1980s, both countries faced pressure sector activities. Financing has the most important to increase the role of the private sector in providing and direct effect on the performance of a health health care services. India was more successful than system (Roberts et al., 2003). China in this, in large part because India’s private As Table 2 indicates, in both countries, the main sector was much more mature than China’s. mechanism for financing health care is individual However, the privatization of health care has had out-of-pocket spending, followed by general gov- negative effects in both cases. Citizens of both coun- ernment expenditures. Since out-of-pocket pay- tries now bear greater burdens and risks in financ- ment does not pool the financial risks associated ing their health care needs. In addition, the private with health care, it places heavy financial burdens sector has a greater incentive to provide curative on the poor and the sick and often bankrupts rather than preventive treatments. This reduction in patients and their families. In recent years, the attention to public health, especially on the preven- function of health insurance, either private or tion of communicable diseases and the promotion of social, as a way to pool risk has drawn policy- healthy lifestyles, may be one of the most important makers’ attention in both countries. The focus health issues emerging in each country. 2 Table 2. China and India: Policy Levers Used in Health Systems Policy Lever Indicator China India Total expenditure on health $61 $27 per capitaa (2003) % of GDP (2003) 5.6% 4.8% Out-of-pocket as a % of total 56% 73% Financing medical spending (2003) General government input as a % 36% 25% of total medical spending (2003) Health insurance Reliance on public insurance Emerging private micro-insurance Payment FFS Dominant; governments set price Dominant; providers set own price Public providers 96% 30% Organization Public providers 4% 70% Enforcement Many regulations, little enforcement Fewer regulations, little enforcement Regulation Regulatory structure Diffuse Very diffuse Behavior Education and promotion campaigns Somewhat effective Limited by illiteracy aPer capita total expenditure in U.S. dollars at average exchange rates. 4. Regulation. Regulation refers to the govern- from out-of-pocket to prepayment mechanisms ment’s use of coercive power to impose a full range is the key to reducing financial catastrophe.” of legal constraints on organizations and indi- This can be accomplished by providing nation- viduals (Roberts et al., 2003). Both countries lack alized or social insurance, as is common in a coherent regulatory framework for their health Europe, or encouraging private insurance, as is systems.