China’s Health Care Reform: Far From Sufficient

Yuanli Liu is a senior lecturer on international health at the Harvard School of Public Heath.

Updated November 1, 2011, 8:30 AM

There are basically two ways to increase consumption in China: increase household income and reduce the high savings rate.

Despite the steady increase in average income -- albeit at a slower rate in recent years -- Chinese people still save compulsively for their old age, health care expenses and other needs because China’s social security system does not provide adequate protection, and medical bankruptcies pose a serious threat for many households.

China has managed to provide about 95 percent of its people with some basic insurance. But it has to design coverage for chronic diseases.

To be fair, the Chinese government has been trying hard to strengthen China’s social safety net, especially the health insurance system. Significant progress has been made, but much more needs to be done.

In 2009, China announced its ambitious plan to “deepen health care system reforms” and aimed to provide universal health care by 2020. With increased public spending totaling 127 billion renminbi over the 3-year period of 2009 to 2011 on insurance premium subsidies and health care infrastructures at the community levels, China managed to provide about 95 percent of its people some kind of basic insurance coverage.

This is a remarkable increase in insurance coverage from a mere 30 percent in 2003. Indeed, rapid expansion of insurance coverage and increasing investment in health facilities at the rural, county and community levels have helped increase demand for health care services and decrease the percentage of total health expenditure borne by out-of-pocket spending. For example, the utilization rate of hospital services by rural Chinese has almost doubled over the past 5 years or so, and the out-of-pocket spending as percentage of China’s total health expenditure went down from 55.8 percent in 2003 to 35.5 percent in 2010.

This is great progress. However, health insurance coverage in China is far from sufficient. To begin with, the benefit package is very limited, with average reimbursement rate of inpatient expenses being as low as 48 percent for urban residents and 44 percent for rural residents. Significant inter-regional inequalities also exist, as insurance plans are run by the local governments.

Moreover, given China’s health challenges -- a growing aging population and a rise in more complicated and expensive chronic diseases -- it needs to provide not just “nominal coverage," but more “effective coverage” by increasing the reimbursement rate and covering more cost-effective services for all Chinese.

Let us hope that the government's investment in “public goods” -- like universal health care -- can lead to increased consumption by people who would be less concerned about saving for current and future medical expenditures.