China: A question of equity

While the economic reforms instituted to transition China from a planned economy to a market economy have produced extraordinary economic growth, they have also resulted in public access to healthcare becoming more inequitable. The Chinese authorities are very concerned about this problem and are grappling with it.

Heather Mullins-Owens

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IN the past few decades, China's economy has transitioned steadily from a planned economy into a market economy. This shift has created many changes in the availability and access to health services for poor and middle-class citizens. Although overall, the country has gained tremendous wealth under the market economy system, the inequity of wealth has never been greater. Reforms in public and government institutions in China have made public access to health services for populations more inequitable (Gao, Tang, Tolhurst & Rao, 2001).

From 1950 to 1980, China had 'a healthcare system that provided almost all its citizens with access to basic health services at an affordable price' (Gao et al., 2001, p. 302). Two primary healthcare services entities provided coverage to many people in urban areas, the Governmental Insurance Scheme (GIS) and Labour Insurance Scheme (LIS; Gao et al., 2001). The GIS covered government and public sector workers as well as university students (Gao et al., 2001). The LIS provided coverage for state-owned and collectively owned enterprise workers (Gao et al., 2001). Although these plans originally provided full coverage at no cost to the employees and students, changes were later made to some plans to control costs, introducing co-payments such as those familiar to American workers with employer-based insurance plans (Gao et al., 2001). Adding to the inequity issue in urban China are the increasing numbers of migrant workers in urban areas, increases in unit costs for healthcare and drugs, and larger numbers of people working for small private or collectively owned firms (Liu, Hsiao & Eggleston, 1999).

According to Yuanli Liu (2004), from 1949 to the early 1980s, 'China's health policies emphasised prevention and public health, wide entitlement and access to medical care, and the use of minimally trained health personnel ("barefoot doctors") to provide basic health services ... [which helped lower infant mortality] from about 250 per 1,000 live births in 1952 to 34 per 1,000 in 1985 and increase life expectancy from about 35 years to 68 years during the same period. However, improvements in health stagnated during the period of economic reforms, and inequalities in health and access to healthcare have increased.' (p. 533)

During the mid-1980s, commercialisation of the health sector began as the government tightened public hospital budgets and reduced funding for other health service organisations (Liu, 2004). Providers were expected to generate enough in revenues to cover the difference between the public funding and their costs (Liu, 2004). Providers were also permitted to mark up the price of drugs by 20%, giving incentives to providers to prescribe more frequently than may be medically necessary (Liu, 2004). Not only did this further increase disparity in care among different income groups, it also shifted the nation's health services system from a more historically preventive system to one focused on 'revenue-generating activities' (Liu, 2004).

Rural health services

China's historical rural healthcare system had been a three-tier system, utilising a village health station, township health centre and county hospital (Liu, 2004). This system had used a referral process for patients, which began with the 'barefoot doctors' who treated the simplest illnesses and diseases, and referred patients to the upper-tier facilities for those things they could not adequately treat themselves (Liu, 2004). Under the Cooperative Medical System, health services financing came from a pre-payment plan through which farmers paid 0.5% to 2% of the family's annual income, a village Collective Welfare Fund, and governmental subsidies (Liu et al., 1999). Ninety percent of rural citizens were included in one of these plans in the late 1970s (Liu et al., 1999). By the early 1990s, less than 10% had access to healthcare insurance (Tang & Bloom, 2000).

During the economic reforms of the previous two decades, the rural Cooperative Medical System became increasingly fragmented as various facilities began competing for patient-generated revenues, with some of the entities becoming privatised (Liu, 2004). As the Third Plenary of the Tenth Congress of the Communist Party 'ratified a programme of economic reform aimed at implementing China's transition to a market economy with socialist characteristics' (Mechanic, 1978, p. 190), changes began which sought to decentralise the rural health system (Tang & Bloom, 2000). As Tang and Bloom (2000) explain, the economic restructuring of the early 1980s played a large role in what has become a rift in health services equity (and overall economic equity) between rural and urban Chinese:

'[In 1983-84] ... the rural economy was de-collectivised and all townships and villages adopted the "household responsibility system", which entitled each household to work an amount of land in proportion to its size. Households now have full financial responsibility for production. This has reduced the capacity of local administrative bodies to mobilise resources for collective use. In the meantime, local governments and state enterprises have been given greater autonomy. An important aspect of financial reform was a re-arrangement of revenue sharing between the central and local governments. This has allowed particular regions and sectors to race ahead, whilst some poorer regions have experienced major financial difficulties.' (p. 191)

Health service management centres now receive their funding from their township government rather than from the county (Tang & Bloom, 2000). This has greatly reduced the level of funding, as well as likely increased corruption and poor management practices driven by other (non-health) interests. Tang and Bloom (2000) cite an example: '[A] Deputy Director of one health centre reported that the township government asked local public institutions to assign their staff to working groups put together to undertake tasks, such as purchasing grain during the harvest season and forest protection. The government threatened to hold back its grant if the health centre refused to provide staff for these activities. He had to comply, to the detriment of service provision.' (p. 191)

The Ministry of Health attempted to prevent the number of dedicated healthcare workers in the health centres from falling too low by passing regulations requiring that no more than 25% of health centre employees be non-medical employees; however, by the mid-1990s, it was clear that even these guidelines were not being enforced in rural areas (Tang & Bloom, 2000).

Healthcare after the economic restructuring of the 1980s

Although urban populations overall fared better financially during the 1980s economic restructuring, they are not without major problems in equitable access to health services. Between 1993 and 1998, data collected from more than 16,000 households in a survey study showed the changes in access to health services among different income groups in urban China (Gao et al., 2001). During these years, the income gap increased, while there was a decline in the population covered by the LIS and GIS (Gao et al., 2001). The number of people during this time frame who paid out of pocket for health services increased from 28% to 44% (Gao et al., 2001).

One of the most telling facts obtained from this study was that use of outpatient services decreased from 4.5% in 1993 to 3.0% in 1998 (Gao et al., 2001). During these years, the proportion of people covered by the GIS and LIS declined from 52% to only 39%, and those without any insurance rose from 28% to 44% (Gao et al., 2001). Those 'less likely to be able to cover the costs of healthcare were also less likely to have health insurance' by 1998 (Gao et al., 2001, p. 306). The gender gap also appeared to widen, with only 41.9% of women with insurance in 1998 compared with 46.3% of men (Gao et al., 2001). The primary reason cited for not seeking outpatient services among those who had an illness that went untreated was financial difficulty (70% in 1998 vs. only 38% in 1993; Gao et al., 2001).

Inpatient hospital services are typically the most expensive services and may also provide a strong indicator as to economic barriers to care (as patients are less likely to be admitted if they do not have insurance or means of out-of-pocket payment; Gao et al., 2001). Surveys show a strong drop from 1992 to 1997 from 4.5 inpatients per 100 people to 3.0 inpatients per 100 people (Gao et al., 2001). In 1992, 68% of those in the lowest economic group needing inpatient services but not utilising them cited financial difficulty as the reason; in 1997, that percentage grew to 86 (Gao et al., 2001). Perhaps more interestingly, this difficulty in affording hospital care grew dramatically among the highest income group as well, from only 7% in 1992 to 31% in 1997 (Gao et al., 2001). Gender-based difficulty expressed itself with 55.6% of men and 64.8% of women attributing lack of services used due to finances (Gao et al., 2001).

Gao et al. (2001) have concluded from the data analysis that 'access of the urban population, particularly the poor, to formal health services has worsened and become more inequitable since the early 1990s. Among possible reasons for this trend are the rapid rise of per capita expenditure on health services and the decline in insurance coverage.' (p. 302)

This has been attributed in part to the rapid growth in health expenditures and lack of adequate mechanisms with which to control 'service providers' behaviour, heavy provider reliance on fee-for-service payment methods, and price distortions in the health sector' (Gao et al., 2001, p. 309). Health providers are permitted to 'make profits from drug sales and the provision of sophisticated diagnostic tests, while they keep prices of basic services at a lower level than real costs' (Gao et al., 2001, p. 309). As such, over-prescribing of prescriptions and misallocation of resources towards inflated uses of expensive drugs and technologies are driving economic inefficiency in China's healthcare system (Gao et al., 2001).

The Chinese government has continued to exhibit a weakened role in terms of ensuring citizens have access to healthcare. China's national spending on health services as a percentage of GDP rose from 4.11 in 1991 to 4.82 in 2000 (Liu, 2004). However, government spending on healthcare as a share of total health spending diminished from 22% in 1991 to just 14% in 2000, while costs for care increased substantially (Liu, 2004). Out-of-pocket spending skyrocketed from 38% in 1991 to 60% in 2000 (Liu, 2004). Governmental spending on public health efforts also decreased 5% overall during the same nine years (Liu, 2004). Experts in the field of public health agree that China's continuing environmental pollution, lack of clean water supply, and easing of internal travel restrictions, in addition to more international travel threats and potential epidemics such as severe acute respiratory syndrome (SARS), should have called for increased spending during these years (Liu, 2004). The increasing migrant labour force in China's urban areas may add to the concerns of future epidemic outbreaks as they often suffer from poor health conditions, low wages and reduced access to care (Liu et al., 1999). These factors are worsened by the fact that this population is highly mobile, and epidemics may be faster-spreading and harder to trace.

What has been done about the lack of access to care?

The Basic Health Insurance Scheme (BHIS) was launched to fill the void of the existing GIS and LIS systems (Ramesh & Wu, 2009). Unfortunately, BHIS was offered only to urban employees and was not available for informal sector workers or migrant workers (Ramesh & Wu, 2009). Dependents were also left uncovered by BHIS. BHIS was funded by employees at a rate of 2% of their salary and by employers at 6% (Ramesh & Wu, 2009). Only 28% of all urban populations were covered by BHIS as of 2008 (Ramesh & Wu, 2009).

In 2002, an attempt was made to improve rural care as well (Ramesh & Wu, 2009). The New Cooperative Medical System (NCMS) was offered at HK$1.25/year with the government spending an additional HK$2.50/year in subsidies (Ramesh & Wu, 2009). The government subsidy was increased to HK$6/year by 2007, amid concerns of financial vulnerability, which increased voluntary enrolment in the plan to more than 80% (Ramesh & Wu, 2009). In 2010, the fee increased to HK$4.50/month for participants, with local and central governments contributing HK$18.00/month (Ma, Zhang & Chen, 2012).

NCMS offers three schemes, chosen by the local government. The first funds hospitalisation expenses and some expenses for the treatment of serious illness. The second scheme funds hospitalisation and some outpatient costs not restricted to serious illness. The third and most comprehensive scheme covers hospitalisation costs and provides health savings accounts for other medical expenses. Although the third scheme offering comprehensive coverage is very popular in the regions in which it is offered, the programme would not be sustainable if offered in all regions (Ma et al., 2012). Unfortunately, offering the least expensive option, Scheme 1, results in the lowest levels of participation in poor rural areas (Ma et al., 2012).

The Urban Resident Basic Medical Insurance (URBMI) was initiated in 2007, modelled after the State Council Policy Document 2007 No. 20's guidelines (Lin, Liu & Chen, 2009). URBMI appears to benefit the lowest-income participants the most, along with those receiving inpatient care (Lin et al., 2009). Enrolment in URBMI is a voluntary decision made by each household, and coverage focuses on chronic and fatal conditions (Lin et al., 2009). Premiums are set at higher rates than similar NCMS (Lin et al., 2009) schemes. On average, URBMI covers 45% of inpatient costs (Lin et al., 2009).

Is insurance the answer?

Perhaps the most troubling aspect of the various attempts to provide medical insurance coverage in China is that insurance coverage may be resulting in higher out-of-pocket costs for the insured than they would have experienced if they were uninsured (Wagstaff & Lindelow, 2008). According to Wagstaff and Lindelow (2008), results from 'three separate household surveys suggest that in China health insurance is more likely than not to increase out-of-pocket spending and to increase the risk of catastrophic and large expenses' (p. 1002). There are several possible reasons for this, including the increased likelihood of the insured to seek care, a preference by the insured to prefer more expensive providers, and likelihood of medical providers delivering more expensive medical tests, drugs and interventions to the insured (Wagstaff & Lindelow, 2008).

China's healthcare challenges for the new millennium

China's performance as a leader in Asian health services has been deteriorating steadily since the early 1980s compared with other developing countries. China is now behind several other Asian nations, according to the World Bank, despite 'massive increase in total healthcare expenditures' (Ramesh & Wu, 2009). Its population is now rapidly aging compared with other BRIC (Brazil, Russia, India and China) countries. This is in part due to its one-child policy and in part due to low wages for many Chinese even as others are becoming economically prosperous (Cao, Chen & Fan, 2011). The number of people aged 65 or older is 8.3% of the population, or more than 109 million people (2009; Cao et al., 2011). By 2050, it is estimated that 25% of the total population will be senior citizens (Cao et al., 2011). Concerns are now surfacing in China about the inevitable 'intergenerational injustice' as the young voice their objection to potentially paying more for healthcare to offset costs of caring for the elderly as that population grows (Cao et al., 2011). Recent surveys show that healthcare costs and equity are among the top concerns among the public (Cao et al., 2011). Due to the public concerns, the Chinese government has recently made efforts to analyse the situation and put a plan into place to provide insurance to more citizens and increase equitable access to care (Ramesh & Wu, 2009).

In 2007, nine organisations (including the World Bank, World Health Organisation and Peking University) made formal recommendations for reforming the health system (Ramesh & Wu, 2009). Later, in a 2008 State of the Nation address, Prime Minister Wen Jiabao announced a 25% increase in health services spending by the government (Ramesh & Wu, 2009). Proposed measures include increased government expenditures to provide free or low-cost routine care at publicly funded hospitals, or increased funding to provide government-subsidised health insurance to the 80% of the population currently lacking health insurance (Ramesh & Wu, 2009). Although more public spending appears to be needed, it is unclear what, if anything, these measures will do to restrain the quickly growing cost of providing health services (Ramesh & Wu, 2009). The government has now committed to achieving universal health coverage by 2020 (Ramesh & Wu, 2009).   

Heather Mullins-Owens is the director of Global and Integrative Health at HERO Network LLC, a member of the Clinical Ethics Committee at Eskenazi Health Services, a research compliance consultant at Indiana University, and a PhD student at Indiana University's School of Health and Rehabilitation Sciences. She received her JD from the University of Dayton and her MA in bioethics from Indiana University. The above is extracted, under a Creative Commons licence, from an article published in SAGE Open (January-March 2015, DOI: 10.1177/2158244015575187, sgo.sagepub.com).

References

Cao, Y., Chen, X. & Fan, R. (2011). Toward a Confucian family-oriented healthcare system for the future of China. Journal of Medicine & Philosophy, 36, 452-465.

Gao, J., Tang, S., Tolhurst, R. & Rao, K. (2001). Changing access to health services in urban China: Implications for equity. Health Policy and Planning, 16, 303-312.

Lin, W., Liu, G. & Chen, G. (2009). The urban resident basic medical insurance: A landmark reform towards universal coverage in China. Health Economics, 18, S83-S96. doi:10.1002/hec.1500.

Liu, Y. (2004). China's public health-care system: Facing the challenges. Bulletin of the World Health Organization, 82, 532-538.

Liu, Y., Hsiao, W.C. & Eggleston, K. (1999). Equity in health and healthcare: The Chinese experience. Social Science & Medicine, 49, 1354-1356.

Ma, Y., Zhang, L. & Chen, Q. (2012). China's new cooperative medical scheme for rural residents: Popularity of broad coverage poses challenges for costs. Health Affairs, 31, 1058-1064.

Mechanic, D. (1978). Ethics, justice, and medical care systems. Annals of the American Academy of Political and Social Science, 437, 74-85.

Ramesh, M. & Wu, X. (2009). Health policy reform in China: Lessons from Asia. Social Science & Medicine, 68, 2256-2262.

Tang, S. & Bloom, G. (2000). Decentralizing rural health services: A case study in China.  The International Journal of Health Planning and Management, 15, 189-200.

Wagstaff, A. & Lindelow, M. (2008). Can insurance increase financial risk? Journal of Health Economics, 27(4), 990-1005.

Healthcare and financing in China under economic transition CHINA'S gross domestic product (GDP) has grown rapidly in recent years (an average of 10.2% per year from 2000 to 2007). This growth is largely taking place in the industry and services sectors. Value added in these sectors (48% and 40% of GDP respectively in 2007) far outweighs the value added in agriculture (12% of GDP in 2007). Household consumption expenditure as a proportion of GDP is quite low by international standards (much lower than in India, Brazil and Russia), while gross capital formation has been very high by international standards; in other words, a relatively small proportion of profit and tax has gone to households; a relatively large proportion has gone to capital investment. Average per capita gross national product (GNP) increased from $800 in 1990 to $6,020 in 2008. However, income inequality has widened greatly since the commencement of economic reform; the Gini coefficient rose from 0.31 in 1978/79 to 0.45 in 2004, similar to that of the USA. In 2000-07 around 16% of Chinese were living on less than $1 (international dollars) per day. Per capita GDP in 2000 varied from less than 5,000 RMB in Guizhou to over 25,000 RMB in Shanghai, with corresponding differences in life expectancy from 66 in Guizhou to 78 in Shanghai. In terms of health development, the indicators are mixed. Aggregate data are good by international standards, with life expectancy in 2008 (74 years) well above the average for the high-middle-income countries (71 years). Under-five mortality is just below the average for the high-middle-income countries (21 per 1,000 live births compared with 23). Stunting among under-fives is comparatively high, at 21.8% in 2000-09. However, these average figures obscure wide variation, with child malnutrition three to four times more common in the rural areas than in urban areas. Maternal mortality in China is less than half the average for the high-middle-income countries (45 per 100,000 live births compared with 91). China spends a relatively small percentage of GDP on healthcare (4.3% of GDP, $233 per head in 2007), with a high proportion of this being out-of-pocket expenditure (51% in 2007). There have been massive increases in government funding for healthcare since 2007. In technical terms the breadth and depth of specialist tertiary care in the leading hospitals is world-class. However, poor people face significant price barriers to accessing care; resources are inequitably distributed; quality and safety are uneven; and there are significant inefficiencies in service delivery. Primary healthcare is poorly equipped, staffed by less well-trained practitioners and generally not trusted. Healthcare financing and economic transition Under the 'socialist planned economy' (1949-76) healthcare was a responsibility of the 'work unit', the factory or school or government department in the city and the collective farm or commune in the country. The work unit employed the primary healthcare staff (health centre or clinic) and larger enterprises also ran secondary hospitals. The work unit also contributed to the cost of tertiary care if employees accessed such care. The military and the railways and some other sectors administered their own hospitals. Hospitals were budget-funded and user charges were very limited. These arrangements were referred to as the Government Insurance Scheme, the Labour Insurance Scheme and the Cooperative Medical Scheme (CMS) in the country. Under the CMS the cost of primary healthcare (a part-salary for the barefoot doctor or village doctor) was met out of the general revenues of the collective farm or commune, and a small contribution could also be made to meet user fees if the patient needed attention in the township or county hospital. These enterprise-based welfare arrangements ensured universal coverage at a relatively basic level. Healthcare was overwhelmingly provided at the primary level, with a small proportion of cases being referred to secondary hospitals and a very small proportion being admitted to tertiary hospitals. There was a much greater emphasis on doctors from tertiary and secondary hospitals actually travelling out to provide training and advice at the primary level than on patients moving from primary to secondary to tertiary. However, it was basic care. The village doctors were commonly six-month certificate-trained; the doctors in the clinics in the cities and in the hospitals in the country were largely secondary or tertiary diploma-trained. Only in the tertiary hospitals were bachelor-trained doctors employed and in the early years there were very few of either. With the commencement of economic reforms (from 1978), enterprise welfare came to be referred to as 'all eating from the common pot' and the reforms included 'smashing the iron bowl'. The main concern was not enterprise welfare per se; rather it was the low productivity of the planned economy. Pre-1978, enterprises were assigned staff, budget-funded and given output targets. Since the prices of inputs and outputs were all administratively determined and surplus revenue belonged to the administering ministry or bureau, there was no incentive to increase volume or reduce unit costs. The reforms sought to improve productivity by giving enterprise management greater discretion with respect to the procurement of inputs, the production process and output levels and keeping 'profit'. However, state-owned enterprises (SOEs) were still operating within a complex regulatory framework with staffing levels and prices closely controlled by different government authorities, which made the reform of production very slow. During the 1980s it became clear that internal reform was not moving very fast and the focus shifted to corporatisation and competition, encouraging private enterprises, including joint enterprises with foreign firms, to compete with the newly corporatised SOEs. One of the big differences between the private enterprises and the SOEs was enterprise welfare. Unless the SOEs were able to reduce the 'burden' of education, housing, health and aged care for their employees, there was no way they were going to be able to compete with the new private enterprises. Smashing the 'iron bowl' became a necessary condition for the survival of the SOEs. Another feature of the 'iron bowl' was secure lifetime employment. This was recognised by the reformers as a major brake on enterprise productivity with overstaffing, often inappropriate staffing (due to lack of hire power) and lack of management levers to encourage greater individual productivity (lack of firepower). It was also a major brake on labour mobility, a key prerequisite for efficiency at the system level. It was recognised by the policy-makers early on that the establishment of autonomous social 'sectors' (education, housing, healthcare and social security) and the divorce of welfare functions from employment were conditions for allowing greater labour mobility. The move from a planned economy to a market economy had profound implications for government revenues. Under the planned economy government revenues were based on top-slicing economic transactions controlled by the state. Prices and volumes were controlled in accordance with the plan and the plan made provision for transfers to general government revenues. As the SOEs were required to compete with private enterprise within a market economy, SOE revenues came to depend more on market demand and market-determined prices and government revenues necessarily moved towards a greater dependence on formal taxation. One of the earliest and most dramatic reforms was the return to family farming (following the collapse of collective farming). The return to family farming is widely regarded as part of the reason for dramatic improvements in farm productivity in the 1980s, which provided the basis, in terms of food and labour, for the spurt in industrialisation. However, the collapse of collective farming also led to a compete collapse of the funding base for rural healthcare, and it has taken almost 30 years for the policy-makers to put in place an alternative funding base (the New CMS or NCMS). During this time farming families have been largely without any form of health security while the costs of healthcare have escalated. The demise of enterprise welfare and the winding back of micro-regulation of SOEs have also been long-drawn-out affairs and are far from finished. There was a long delay between the elimination of enterprise-based healthcare and the development of functioning health insurance. This commenced with the establishment of the Urban Employees Health Insurance Scheme (UEHIS) in the late 1990s. This was a contributory scheme (with employee and employer contributions) administered through the Labour and Social Security portfolio at the municipal level. This scheme extended the existing coverage of the Labour Insurance Scheme (covering SOEs) to other large employers. The UEHIS does not cover the informal sector and many small or struggling enterprises are allowed to remain outside the scheme. It does not cover rural migrants working in the cities, the 'floating population'. The benefit levels provided are limited and patients commonly face high out-of-pocket costs. Over the last five years there has been a dramatic increase in government support: for rural healthcare (through the NCMS); for safety net provision for poor people through the Medical Assistance scheme (MA) and through budget support for urban community health. The NCMS, based largely on government funding, is moving towards universal coverage (including in some cases urban migrants), although the depth of cover remains thin with high out-of-pocket payments. The Urban Residents Insurance Scheme extends similar coverage and benefits to the floating population and the informal sector in the cities. The necessary condition for the increasing flow of funds to healthcare over the last five years has been growth in GDP and the availability of resources. However, of comparable importance has been the rising concern in Beijing regarding 'social instability'. The Chinese government and the Chinese Communist Party are concerned that rising inequality, anger at corruption and frustration with the healthcare system could contribute to disaffection and instability.  The above, extracted from Global Health Watch 3: An Alternative World Health Report (2011), was written by David Legge, Chairperson of the People's Health Movement. Global Health Watch 3 was produced by People's Health Movement, Medact, Health Action International, Medico International and Third World Network, and published by Zed Books.

*Third World Resurgence No. 296/297, April/May 2015, pp 28-33