Health-care reforms in the People's Republic of China - CiteSeerX

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Health-care reforms in the People’s Republic of China Strategies and social implications Victor C.W. Wong and Sammy W.S. Chiu Department of Social Work, Hong Kong Baptist University, Hong Kong

International Journal of Public Sector Management, Vol. 10 No. 1/2, 1997, pp. 76-92. © MCB University Press, 0951-3558

Introduction Since 1949, the People’s Republic of China (PRC) has achieved significant improvement in health for its own population. Despite a low GDP of US$385 per capita in 1993, the country reduced infant mortality from 250 to 22 deaths per 1,000 live births, and increased the average life expectancy from 35 to 69 years within nearly 45 years since the start of the PRC[1]. China’s achievement in improving the health status of its people with its limited resources has been universally recognized[2]. With the death of Mao Zedong in 1976, and the resolutions adopted by the 11th Communist Party’s Central Committee’s 3rd Plenum held in 1978, China began a series of economic and social experiments largely shaped by Deng Xiaoping and his associates, oriented towards greater free-market dynamics. All this has radically altered the socio-economic context within which healthcare policies are developed and transformed[3]. Since the 14th Central Committee of the Chinese Communist Party held in 1992, an emphasis has been placed on applying various market and managerial strategies to reforming China’s health-care system, for example, introducing cost recovery measures and profit-making incentives, decentralizing planning and financing functions, promoting the diversification of services, and developing alternative health financing mechanisms[4]. However, it is argued by the authors that these strategies have created new problems before solving the old ones; and that a new balance of responsibility has to be developed as a top social priority between the state, enterprises, and health-care users in China in order to meet the health-care needs of the people. This paper is based on an extensive documentary study and a series of intensive interviews with state officials and hospital administrators in China. The paper is divided into three sections; the first of which presents a brief description of communist China’s health-care system and policy before the late 1970s. The second discusses the health-care reforms in China since early 1980s and their problems and social implications. The last raises some preliminary ideas to improve the equity and cost-containment aspects of the Chinese health care system.

Communist China’s health-care system and policy before the late 1970s The health-care system of the PRC was developed not only as a measure to promote health, but also with a symbolic meaning which signalled the realization of people’s liberation and collective ownership in China[5]. Four guiding principles of health services were laid down at the First National Health Conference in August 1950: (1) to focus on serving workers, farmers and soldiers; (2) to give priority to preventive medicine over curative medicine; (3) to foster unity between traditional Chinese medicine and Western medicine; and (4) to combine health work with mass movements[6, p. 25]. These four guiding principles were used to make the most of resources available (e.g. materials, medical personnel and mobilized free labour) so that the basic health and medical needs of the Chinese population could be met. In order to achieve these socio-political objectives, a three-level health-care protection system was developed. The first level is public medicine. This is a state-owned, state-provided, and state-financed medical and health protection programme initiated in 1951. It aims at providing free medical and health-care services for the serving as well as retired state officials, civil servants and workers in public agencies and universities, handicapped military officers above a certain rank and university students. Health services are mainly provided by public hospitals. Financial budgets are planned in the central government level and allocated to provincial and local governments according to state-planned indicators. Deficits, once unfortunately prevalent, would be underwritten by the finance bureau of different levels of government. The second level of the system is called collective medicine targeted primarily to employees and retirees of state and collective enterprises. Medical and health services are still largely state-provided, but are financed, wholly or partially, by the enterprises by drawing a designated portion of “welfare funds” set up by them. In case of deficits, the enterprises may draw a greater portion of “welfare funds” beyond the portion originally designated for medical and health services. A major difference between public and collective medicine was that a nominal fee had to be charged in the latter since 1966, but the fee was symbolic and minimal. The third level of the protection system is called co-operative medicine. In the Maoist era, co-operative medicine schemes collected funds from individual peasant households, brigade (village) and commune (county) welfare funds and a small subsidy from various levels of government. In return, patients were entitled to free or subsidized medical and health services provided by brigade health stations, commune health centres or county hospitals which together formed a three-tier rural health network. Being the lowest rural health unit, the brigade health stations staffed by barefoot doctors – who had received three or

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more months of training in health care, and allocated some of their farming or production time to health activities – took charge of most of the preventive health services undertaken at brigade or village level and of the treatment of nearly 60-70 per cent of the county’s out-patients[6]. The co-operative medicine system also relied on political mobilization and health campaigns in support of the public health approach. By the mid-1970s, more than 90 per cent of rural brigades had a co-operative medicine scheme[7]. The establishment of cooperative medicine was a very important development in China which guaranteed the majority of rural population access to essential health care on the one hand, and on the other consolidated the three-tier rural health network in which disease prevention and health promotion were afforded a high priority. Transformation of China’s health-care system and its problems The centrally planned, state or collectively owned, provided and financed health-care system in China has been radically transforming since the early 1980s, following the trend of economic reform advocated by Deng Xiaoping. This section focuses its discussion around the collapse and re-development of the rural co-operative medicine system; the introduction of various market and managerial strategies to reform hospital care and public and collective medicine; and finally the promotion or experimentation of different kinds of quasi-public health-care insurance programmes. The collapse and re-development of the rural co-operative medicine system Before the late 1970s agricultural reforms, co-operative medicine was an integral part of the collective agriculture production system. To liberate incentives of peasants to increase agricultural production, the household contract responsibility system was instituted in December 1978. By the end of 1983, the collective system of production brigades and communes largely disappeared[8], and consequently co-operative medicine suffered from a drastic decline of participation rate. The percentage of villages with co-operative medicine schemes dropped from the peak of about 90 per cent in 1979 to less than 5 per cent in 1989[1]. With implicit approval of the government, financing and delivery of rural health care at the village level has shifted towards a free market system. Following the decollectivization of agriculture production system, the collective “welfare fund”, which was collected and managed at village level, also largely disappeared. There has also been a trend towards privatizing village health stations or clinics. In 1992, among 796,523 health clinics, about 55 per cent (434,375) were sold to individuals or were let on contract to private practitioners on an individual or group basis; only about 37 per cent (294,417) were collective facilities[1]. All this is a blow to the once strong power of villages to co-ordinate production activities and manage health care and other social services on a collective basis. Without the support of a strong administrative infrastructure at village level, local leaders (e.g. members of the Communist Party) could no longer easily mobilize free or nominally compensated labour for

public health campaigns as they could do so prior to the start of the agricultural reform. The fall of co-operative medicine is also accompanied by the disintegration of the rural three-tier health network. First, many village doctors or health aides (formerly known as barefoot doctors but officially abolished in 1986) left the health profession since most of them could no longer be compensated by cooperative medicine schemes. For example, the total number of village doctors in practice decreased from 1.8 million to 1.3 million between 1978 and 1993[1,9]. As China has a very large rural population, and as township health clinics are not so geographically accessible to many peasants, the decrease of the number of village doctors has become a barrier for rural patients to seek medical care. Second, both township and village health workers are reluctant to provide preventive services because of too little compensation. According to a countrywide survey done by the Ministry of Public Health in 1990, 77 per cent of the income of village doctors came from providing curative services, in which the sale of drugs accounted for the largest part[10]. The fact is that the government allows a mark-up of 15 per cent for Western drugs. Although 30 per cent of mark-up is given for traditional Chinese medicine, it is less attractive to township or village doctors since the unit cost of Western drugs is much higher than that of Chinese medicine. Unless the incentives structure is changed, the emphasis placed on making the most of cheaper Chinese medicine over more expensive Western drugs, and on preventive over curative care can hardly be achieved. Third, a fee-for-service system has now become the dominant method for paying village doctors. As a result, poor patients may find it difficult to afford medical care when there is a need. According to a survey on 1,013 poor households, about half (48.9 per cent) of the respondents cited illness of their family members as the reason for their suffering of poverty[11]. So a major health policy issue is the financing of medical care for the rural population especially in the poorer areas of the country. Alongside the boom of rural non-agricultural enterprises in the 1990s, various levels of government have gradually realized the importance of cooperative medicine to cater for basic health needs and economic development in rural area. Approaching the mid-1990s, the percentage of villages having cooperative medicine has increased to about 10 per cent[12]. The re-development of co-operative medicine is mostly shaped by the financial capacity of townships or villages, which is notably supported by the profits of nonagricultural industries or enterprises[13-17]. The enlarged disparity of wealth brought forward by different pace of rural economic development has caused a greater diversity of health care – from private health care to the absence of protection[7,18]. Moreover, partly because of the lack of central government policy, and partly because of the devolution of financial responsibility for the health services, various types of co-operative medicine, characterized by their varying standards of management, provision and degree and scope of protection, have been developed.


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In spite of its recent re-development, the road to consolidating co-operative medicine and the three-tier rural health network is anything but smooth. There are still some fundamental problems or issues that need to be addressed. First, there is an urgent need for the state to accept the constraints of the market mechanism with respect to the provision or financing of preventive and promotive health services. For example, many poor villages are even unable to afford some “innovations” of co-operative medicine which only insure maternal and child health[12]. Second, one of the fundamental weaknesses of co-operative medicine is its small risk pooling base. Whatever the type of co-operative medicine scheme, funds designated for medical and health care are accounted separately at the village level. Because of the small pool of population, even relatively well-off village committees may find it very difficult to provide a comprehensive cooperative medicine scheme without risking financial loss. A rapid rise of medical costs may finally lead to a drastic increase of premium paid by each insured household. In such a scenario, poor households may face the problem of being excluded from joining a co-operative medicine scheme unless the collective financial base is strengthened. Moreover, as there is no risk sharing between villages, it all depends on the financial capacity of each village to finance its own co-operative medicine scheme. This implies a serious equity problem characterized by the uneven distribution of co-operative medicine schemes which favour well-off villages but prejudiced against poor villages. Notably, those villages which are deprived of infrastructure and opportunities for developing non-agricultural enterprises suffer the most. Thus, how to strengthen and expand the base of co-operative medicine in pooling risks is one of the challenges. The respective role and commitment of central versus local government need to be well defined and clarified. Poor areas should be given preferential allocations of government, provincial or county budgets or a mix of them to support or sustain co-operative medicine schemes[19]. The third barrier to the development of co-operative medicine is the lack of local peasants’ participation and control[7,20]. Although there is a need for different levels of government to emphasize its role in financing co-operative medicine, it does not imply merely state control. A continuing practice of marginalizing people’s participation would create a sense of mistrust towards co-operative medicine. Some people may therefore be enticed to adopt an “exit” strategy, and the strength of co-operative medicine in pooling risks would then be largely undermined. Coupled with the suggestion of a desirable move towards “centralization” of fiscal responsibility, there should be a devolution of control or monitoring activities to the level of beneficiaries. Finally, what is most worrying is that state’s financial resources devoted to rural health services as a proportion of its total medical and health expenditure dropped from 21.5 per cent in 1978 to 18.1 per cent, 12.1 per cent and 10.5 per cent in 1980, 1985 and 1991 respectively[21]. If the devolution of financial responsibility continues to a state strategy, it is unlikely that rural health services can be significantly improved.

Reforming hospital care and public and collective medicine: strategies and problems Prior to hospital reforms, the central government controlled the price of health service at a level well below the cost. However, health service providers or hospitals failed to control the use of resources since any deficits were finally covered by the government. Following the trend of economic and social reforms, the finance bureau of the state has altered its contractual relationship with health service providers or hospitals. In addition to the enforcement of stricter budgetary control, allocation of state subsidy to each hospital has also been inadequate. State subsidy is cut to cover only basic personnel wages and new capital investments, which is 14-30 per cent of total hospital expenditures[22,23]. As the state has cut off its role as ultimate underwriter of public health services, hospitals are encouraged to develop its own source of income to obtain the remaining revenues for operations, and user fees are one of the main sources. Because of insufficient financial subsidy, the state allows hospitals to enjoy a greater degree of autonomy in pricing and developing new health services even though it still retains its authority over staffing decisions. Moreover, since early 1980s, the hospital sector has introduced the “responsibility system” which gives bonus payments for health personnel as an incentive to encourage greater productivity and efficiency. Under this system, the amount of bonus health personnel or doctors receive depends on the revenue they generate for the hospital rather than on the amount of work they have done. Since their basic salary has been too low to recognize their training, status and contribution properly, doctors are tempted to make extra efforts to generate revenue for hospitals so as to increase the amount of bonuses they can get. As charges for out-patient services, surgery and other medical services are low and still under centralized control, the incentive structure has encouraged hospitals and health personnel to increase the quantity of other profitable services, notably high-tech equipment and expensive Western drugs. Hence, hospitals are provided a strong incentive to over-prescribe even for self-limiting illnesses. Some experts estimated that about 40 per cent of drugs prescribed are wasted or improperly used each year (22). The fact is that drug costs have accounted for about 60 per cent of total hospital expenditures and 60-70 per cent of hospital income[22,24]. Also, there is an incentive for hospitals to use hightech equipment frequently, like CT scans, MRI and ultrasound, since the regulated prices of high-tech services are higher than their costs. The Research Office of the State Council[25] states that: In recent years, many hospitals have introduced high-tech equipment or facilities from western countries. As far as Beijing is concerned, the number of CT scans and MRI totals 65 and 8 respectively; whereas in London which is of similar size, there are only five CT scans and 1 MRI. To increase the utilization rate of this high-tech equipment, lots of unnecessary diagnostic services are undertaken. According to available statistics, among those patients who received CT scanning, only 10 per cent of them were detected to have serious illness, which is far much lower than the same figure of 50 per cent in overseas countries. As a result, much economic resource is wasted in unnecessary diagnostic procedures.


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Financial autonomy with distorted incentives has led to the proliferation of expensive high-tech medical equipment and the overprescription of expensive imported drugs. All these expenditures may bear little relationship to effectiveness of medical care. However, in view of the lack of state subsidy, and in view of the necessity to make profits both for hospital developments and staff remuneration, the hospital administration is encouraged to increase revenuegenerating medical services. All this in turn adds to patients’ and insurers’ burden. To further expand the sources of income, hospitals are also encouraged to develop horizontal profit-making enterprises so as to support the financing of hospital operations[4]. These horizontal enterprises include primary, secondary and tertiary industries which may or may not be related to the hospital sector. For example, the hospital administration may deploy extra land resources to develop hostel services. These enterprises are mainly owned as well as directly managed by hospital administrators. However, their management ability may not be competent enough to manage hospitals and enterprises at the same time. Under such circumstances, the hospital administration may focus their attention more on profit-making enterprises than on strengthening the quality of medical care or meeting patients’ needs. In the hospital sector, private investment in new hospitals is promoted by the relaxing of rules: allowing them to charge higher fees or charges which are allowed for state-owned hospitals[23]. Although there are many different types of privately-owned hospitals, their ultimate purpose is the same: Make profits! Private hospitals, however, can only benefit the privileged (mainly the well-off and state officials) who can afford to consume private medicine. The consumption of private medicine by the privileged also accounts for the increasing pressure for public and collective medicine to reform. Between 1980 and 1990, the total expenditure of public medicine increased 6.7 times with an annual growth rate of 20.8 per cent; and that of collective medicine increased 4.5 times with an annual growth rate of 17 per cent. Within the period 1986 and 1990, the corresponding figures for public medicine were 2.3 times and 23.5 per cent, and those for collective medicine were 2.5 times and 28.5 per cent[25]. The alarming cost escalation of public and collective medicine has placed increasing financial pressure on the state and individual enterprises. To control the cost escalation of medical expenditure, China initiated a userfee policy which is more than nominal and symbolic. Generally, patients pay 10-30 per cent of the cost of out-patient services and 0-10 per cent of the cost of in-patient services[26]. However, Liu and Hsiao[8] argue that such a demandside strategy had very little effect in containing cost in China. They have found out that while the expenditure increase in public and collective medicine was largely caused by general inflation and ageing of the population, the Chinese hospital financing policy explained the annual increases in expenditures of 7.4 per cent between 1985 and 1989. Within the context of China, there is always a temptation for health-care providers to provide profit-making services and drugs, especially when the

patients are covered by medical insurance. As regards the average annual hospitalization rate, the figure for the beneficiaries of public and collective medicine was 6.2 per 100 “insured” persons, and that for the self-financing counterparts was 3.1 per 100 persons[25]. In 1989, the former patient group was hospitalized for an average of 19 days; while the latter patient group was hospitalized for an average of nine days only. In 1992, an insurance-covered (public or collective one) gastric cancer patient was hospitalized for 33.7 days, and the total hospitalization expenses were RMB3,182.3 (about US$370); while the corresponding figures for their self-financed counterparts were 22 days and RMB1,284.5 (about US$150)[27]. As hospitals are allowed to charge a higher price to the insured than the uninsured under the two-price system policy, it is not unreasonable to believe that the great differences concerning the number of hospitalization days and medical expenses between these two different groups of patients were largely explained by supplier-induced demand. The dilemma is that the decentralization of fiscal responsibility in the medical and health field has largely shouldered off the state’s responsibility for directly subsidizing the hospital sector on the one hand, but has significantly contributed to the increase of financial resources committed by the state and individual enterprises in providing public or collective medicine on the other. There are three major types of strategies which are currently used to contain the escalating cost of public and collective medicine. First, to encourage individual beneficiaries to “restrain” or self-manage their demand on subsidized medicine, a certain portion of medical funds is designated for pooled use and the remaining portion is divided and allocated for individuals. In case of underspending, individuals are allowed to transfer the unused portion of their yearly allocations to next year. While in the case of overspending, organizations or enterprises would reimburse patients according to a fixed formula. Such a design may be more beneficial for the young and healthy employees. However, for those employees who are older or unhealthy, they are more vulnerable to the financial pressure of hospitalization, particularly if the reimbursement rate is not generous enough. Moreover, this type of reform strategy has not tackled the problem of supplier-induced demand which is most often beyond the control of individual patients. Second, the organizations or enterprises allocate to each individual employee a given amount of money each year, and he/she is responsible for any extra medical expenses incurred by hospitalization or medical treatment. It is indeed an extreme example of self-management of medical care allocations. This seems to be a very attractive option to the organizations or enterprises because it can minimize the risk of committing too much financial resource in medical insurance. However, individual employees may not be able to create their own “medical fund” to protect against the incurred health-care expenses in cases of hospitalization or medical treatment. Of course, older, unhealthy or unfortunate employees would suffer most if this strategy is widely practised. Third, organizations or enterprises designate specific hospitals as healthcare providers for their employees under a contract system. The designated


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hospitals would then be held responsible for a part or all of any deficit that arises. In effect the hospitals become a Health Maintenance Organization similar to those in the USA[28]. This reforming strategy introduces financial incentives for hospitals to contain medical costs. However, there are two major problems with this strategy: (1) underspending on the part of hospitals to generate revenue would have the effect of reducing the quality of health-care services or reducing the length of hospitalization for what is medically required; (2) patients may be asked or “encouraged” to pay extra out-of-pocket fees to cover extra expenses. Undoubtedly, patients themselves would suffer most if these two possibilities become the general case. In addition, the distribution of adequate publicly-financed medical insurance has become an important issue to be dealt with. As the responsibility to finance public medicine was decentralized from the state to each province, the provincial government may have to squeeze its tight budget to cope with rising medical expenses, and this is particularly true in the poorer provinces. At issue is the equitable access by the beneficiaries of public medicine of the inland provinces to adequate medical insurance[29]. Unlike public medicine which is mostly financed and administered on provincial level, collective medicine is organized and financed by individual enterprises with no risk pooling between enterprises. Thus, collective medicine also confronts the same problem experienced by co-operative medicine with respect to the constraint of expanding the risk-sharing pool. As different enterprises have different ability to provide adequate medical insurance coverage, variations in the extent of coverage or protection against medical expenses have become a potential barrier to the use of health-care services. Usually, employees of state enterprises receive better health care benefits than those of non-state-run enterprises, like collective enterprises, joint ventures (enterprises jointly invested or organized by local and overseas capital) and private companies, which totally account for about 26 per cent of employment of urban workers in China[30]. Although employees in non-state-run enterprises usually earn higher wages than their counterparts in state-run enterprises, they may not be provided with any health-care insurance or benefits and may therefore find it difficult to cope with health-care expenses which are rising much faster than their personal wages[29,31]. Although rural residents are allowed to work in urban enterprises, they are not entitled to the state benefits that permanent urban residents enjoy. Also, there is no obligation on the part of collective or private enterprises to provide health-care benefits to them. The size of these uninsured employees is estimated to reach 70 million[32]. Confronting the trend of an increasing number of nonstate-run enterprises and uninsured rural migrants who would not be converted into the status of permanent urban residents, the strength of the safety net of collective medicine provided in urban areas is immediately thrown in doubt.

Overall, the policy of fiscal responsibility and financial autonomy in the hospital sector has provided distorted incentives to provide more high-tech and revenue-generating services and procedures. To contain costs, policy-makers particularly initiate different mechanisms and practices to work on the demand side. However, they tend to overlook supplier-induced demand which is reinforced by the distorted incentive structure. Moreover, there is now a wider discrepancy in the degree of protection between different public or collective medicine schemes. Without strategies to deal with the structural problem of under-subsidizing hospital care and the remuneration of hospital personnel, health-care reforms can do little in containing health-care cost and in promoting a more adequate health insurance coverage. The promotion of quasi-public health-care insurance To expand the pool for risk-sharing and to meet the health-care needs of various types of urban employees, different quasi-public health-care insurance schemes have begun to develop in the 1990s. In Shenzhen (which is one of the most prosperous coastal cities in China), a Medical Insurance Management Bureau was established in 1992 to promote quasi-public or private health care insurance schemes. Other coastal cities particularly in southern China, such as Zhuhai, Fushan, Dongguan, Shanghai, also followed suit in the promotion or experimentation of health insurance innovations[4,33]. Despite their different arrangements, these health insurance schemes share some common features. First, health insurance schemes are offered on a voluntary rather than a compulsory basis. Second, the targets of insurance include employees (both serving and retired) in state-run and non-state-run enterprises, employed rural migrants and the self-employed. Third, individual enterprises have to contribute a certain portion of total salaries for their employees to the medical insurance management bureau; and each individual employee in turn has to contribute a fixed portion from their monthly salaries to the bureau. Fourth, beneficiaries are entitled to discount medical care by paying a certain percentage for their out-patient and in-patient care, say 5-20 per cent. Fifth, to restrain unnecessary health-care demand, a “medi-saving” account is established on an individual basis. Any unused portion of annual premium will be accumulated within each individual “medi-saving” account. The promotion or experimentation of quasi-public health insurance involves relatively little state intervention but encourages the development of health insurance targeted to both traditional and new types of urban employees in the midst of economic reforms. However, there are many political and management constraints in trying out health insurance innovations. First, since these health insurance schemes are implemented on a voluntary basis, individual agencies/enterprises or self-employed persons may decide not to join or even withdraw from the scheme. For example, by the end of September 1993, about 14 per cent of urban employees in Shenzhen were covered by health insurance managed by the newly established Bureau[34]. However, the rate dropped to 10 per cent by mid-1994[35]. As a consequence, the


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effectiveness of using health insurance as a means to spread risks is greatly reduced. To minimize the contribution of insurance premium to health insurance bureau, enterprises may only extend health insurance to those employees with the status of urban residency but exclude employed rural migrants as a whole. Second, those enterprises with employees of younger age often prefer selfinsuring their health-care expenses than joining any quasi-public health insurance schemes. There are two reasons for this: on the one hand, a young workforce is most often regarded as a healthy workforce for the enterprises and self-insurance seems to be a cheaper option; on the other hand, state or collective enterprises with employees of older age and lots of retirees usually boost the rate of premium contribution following a higher medical care utilization rate of these beneficiaries. All this results in the selection of bad risks and exclusion of good risks, and thus finally reduces the attractiveness of quasipublic health insurance to the enterprises. Third, the promotion of quasi-public health insurance is not accompanied by the establishment of a mechanism to control supplier-induced abuses or problems. For example, some hospitals were found to discharge patients prematurely in order to minimize medical expenses. While others abuse the reimbursement system by requiring patients making multiple visits[28]. Thus, unless hospitals are adequately subsidized or reimbursed, a serious exercise of cost-control by the health insurers would only result in increasing patients’ diswelfare. Fourth, health insurance bureaux often face lots of management problems in collecting insurance premiums from joining agencies or enterprises. This has become one of the barriers to maximize the pool of available funds for keeping the health insurance system from running smoothly. Also, the shortage of funds or poor management may lead to postponing of reimbursement, which in turn adds increasing financial burden to patients themselves. This problem may also discourage health-care providers from providing adequate medical care to the insured[35]. Fifth, the establishment of individual “medi-saving” accounts may discourage some misuse of medical care on the demand side at best, but delay patients’ demand for necessary medical care until their illness is getting very serious at worst. On the supply side of the picture, as discussed before, such accounts are of little or even of no use to control health-care providers’ abuse of the system. Health-care reforms in China: some preliminary ideas for improving equity and cost-containment China has not established a national health insurance system to cover its total population. Before the start of economic reforms in the late 1970s, health insurance provided in urban China was largely employment-based. Civil servants usually enjoyed a better package of insurance benefits than workers or labour, and that the package was usually better for workers employed in state-

owned enterprises than in collectively-owned enterprises. While urban health insurance was either funded by the state or individual enterprise, rural health insurance or co-operative medicine was organized and funded on the local community level. Although the rural population (mostly peasants) did not enjoy as many health benefits as their urban counterparts, the establishment of a three-tier rural health network and co-operative medicine provided the majority of rural population access to essential health care. However, due to the collapse of co-operative medicine, the change of contractual relationships between the state and the health service providers and the accelerating economic reforms, the “traditional” health insurance system could neither serve as an effective mechanism to contain escalating health-care costs nor meet the health-care needs of the population, in particular the rural peasants. Moreover, the “traditional” system is also incapable of extending a medical safety-net to new types of employees, such as workers employed in rural industrial enterprises, privately-financed enterprises and joint ventures, and the self-employed persons as well. Hu[33, p. 112] estimates that the number of these new types of employees who are of the status of rural resident is about 200 million. Thus, the issue of inequity concerning the distribution and adequacy of health insurance in China is not only developed along the geographical line of “urban versus rural”, but also perpetuated along two other important lines: types of ownership of enterprises and citizens’ status. As it is not made compulsory to contribute premiums to designated health insurance bureaux, and as the state is still rigid with its policy to maintain the three “traditional” social status of Chinese population, new types of enterprises mostly with a relatively young and health workforce would prefer either selfinsurance or limiting the provision of health insurance to just a privileged few. There is no sign that the recent introduction of various types of quasi-public health insurance schemes in well-off coastal cities is effective in tackling the problem of inequitable distribution and coverage. In addition, although the state would like to see the growth of co-operative medicine in rural China, its present pace of redevelopment is still far less than satisfactory. Therefore, one of the major challenges lying ahead of the reforms of health care in China is to extend a basic medical safety net to the whole population in spite of where one lives, where one works, and what one’s status is. If not, the size of underprivileged population who are provided with no health insurance at all or with just a few health benefits will continue to grow along the three major lines. This in turn will weaken or even undermine the infrastructure for further development, economically and socially. The state can play two important roles to improve the equity in health care. First, instead of allowing the well-off cities and rural areas to experiment health insurance innovations continually which are characterized by the variation of the extent of coverage and scope and different financing, management and reimbursement mechanisms, the state should seriously consider the option of providing basic legislation infrastructure in setting up health insurance on a country-wide basis. The target groups should include not only civil servants,


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workers and self-employed persons, but also their dependants. It does not immediately imply that everything will be centralized and no more variations will exist between different regions and enterprises. The point is that citizens’ access to basic health care should be recognized as a right. In addition to the improvement of equity, a common legislation and administration framework for the whole country, which allows some variations going beyond the national “basic” level on a geographical or employment base, would have at least four other advantages: (1) expanding the base for pooling risks; (2) enabling reasonable labour mobility across different types of enterprises’ ownership in parallel with the abortion of rural labour force by new types of enterprises; (3) lowering administrative costs; and (4) strengthening the power and ability of the insurers in containing health care cost. Currently, different health insurance schemes are administered under different departments or bureaux. Therefore, an extension of basic health insurance to the whole population has to go along with a restructuring and simplifying of administrative mechanism in running health insurance schemes. Second, poor or deprived people and poor or remote areas, particularly rural China, usually find themselves unable to afford even a modest health insurance package. There is an urgent need to redefine the role of the state in rural health care within the context of a market economy. In view of this, different levels of government, both central, provincial and local, have the responsibility to redistribute financial resources from well-off areas to poorer areas and to enable the latter to establish a health insurance scheme. The government should also play a role to subsidize fully those who are either under or just some way above the poverty-line and partially subsidize those who are in special contingency. An input of state subsidy can serve to boost the redevelopment of co-operative medicine in rural China on the one hand, and consolidate the three-tier rural health-care network on the other. As regards cost containment in China, the above discussion has shown that patients’ co-payment had little effect to contain escalating health-care cost. To confront the issue well, the state cannot overlook three important areas: the application of an effective supply-side strategy; the promotion of Chinese medicine; and finally the promotion of primary and preventive health care. First, there is a need for the state to recognize the limitations of the health-care market, and to appreciate the importance of applying a supply-side strategy to contain cost escalation. In addition to strengthening health insurers’ power in monitoring providers’ behaviour, the phenomenon of under-remuneration within the health-care workforce and that of under-subsidization of hospitals have to be well addressed. If health-care providers continue to be underpaid or under-subsidized, there will still be a strong incentive for them to increase

revenue by providing unnecessary profit-making services and drugs, which is an important factor contributory to the rapid adoption of high-tech medicine and equipment and abusive usage of imported and more expensive drugs. Second, since China is a vast country and has a very large population, it is important that it should make the most of scarce health-care resources available. Traditional Chinese medicine should be further promoted since herbal or other medicinal substances are mostly cheaply available in rural villages, and in the case of acupuncture, the use of just a few needles is not an expensive medical procedure or treatment. Moreover, an emphasis should continue to be placed on training and upgrading rural doctors who are an important asset to rural health care, particularly on the village and township levels. A shortage of rural doctors is not only detrimental to enhancing peasants’ access to consulting a health personnel in case of medical need, but also undesirable to reducing pressure and demand imposed on health-care facilities at county level. Third, the change in the contractual relationship between the state and health-care providers and the introduction of flexibility and incentives in payment policy have perpetuated the bias towards expensive curative and hospital medicine. The state should place greater emphasis on preventive and promotive actions or activities not only for the sake of cost containment, but also for the sake of promoting health and strengthening the lowest tier of both urban and rural three-tier health care network. To achieve these dual purposes, a change in practice behaviour by restructuring the financial incentives and the sources of payment has to be effected[10]. The provision of financial incentives to health-care providers to carry out preventive and promotive health care is particularly important in rural China. The fact is that in 1993 more than 8 per cent (8.39 per cent) of rural hospital patients were hospitalized because of infectious and parasitic diseases which still ranked as the No. 9 killer in rural China[1]. Conclusion With the ongoing economic reforms taking place in China since the late 1970s, the three-tier health-care network established in urban and rural China and the three-level health-care protection system provided in the forms of public, collective and co-operative medicine have been under severe pressure. The most evident case was the collapse of the co-operative medicine in the 1980s, following the decollectivization of rural agriculture production system. The health-care infrastructure and protection system established before the late 1970s were not free of problems; for example, health benefits were provided on the basis of citizens’ status according to the traditional hierarchy of civil servants, workers and peasants. As in the case of promoting quasi-public health insurance, it seems that health-care reforms in China are still based on the traditional division of social status, which are found to be incapable of meeting health care needs of a growing population of new types of enterprises and workers. What seems to be apparent is that the reforms have further


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perpetuated inequity in the distribution and scope of coverage in health benefits among different sectors of the Chinese population divided along three major lines of: (1) traditional citizens’ status; (2) geographical base: urban versus rural; and (3) types of ownership of enterprises respectively. Moreover, the adoption of the policy of fiscal responsibility in health care has played an important role in accelerating the inflation of medical cost. Because of the de-linkage of state finance bureau and health service providers and because of the introduction of financial incentives in providing curative medicine, hospitals and health personnel are both “pushed and pulled” to provide unnecessary, and in some cases even harmful, high-tech medicine and expensive drugs. As a consequence of the shifting focus towards curative and hospital care, less emphasis has been placed on developing promotive and preventive health care, which is deemed to be undesirable for the strengthening of the primary health-care system, particularly in rural areas. If the equity and cost-containment aspects of health care have to be improved, a new balance of responsibility in health care has to be developed between the state, enterprises and health-care users in China, and that a basic health insurance should be extended to the whole population irrespective of where they live, where they work and what their status is. The provision of a common legislative and administrative framework for extending basic health insurance benefits to the whole population, and yet allowing variations and differences along geographical and employment lines is a major challenge for health-care reforms even right beyond the next century. Certainly, it is difficult to draw a line to determine what is “basic” and what is not. However, it is worth further political debates and academic research. What is most important is that new struggles and conflicting interests have been created in the field of health care since the start of economic and health-care reforms. It requires the continuous efforts, imagination and courage of health policy makers in socialist China to overcome all this. References 1. Ministry of Public Health, Chinese Yearbook of Health, People’s Health Press, Beijing, 1994. 2. World Health Organization, Evaluation of the Strategy for Health for All by the Year 2000 (Seventh Report on the World Health Situation), 7 Vols, WHO, Geneva, 1987. 3. Roemer, M.I., National Health Systems of the World, 2 Vols, Oxford University Press, New York, NY, 1991. 4. Chiu, S.W.S. and Wong, V.C.W., “Medical and health care reforms in China: a critical appraisal”, in Li, S.M., Shiu, Y.M. and Mok, T.K. (Eds), Social Development in China: An Analysis by Hong Kong’s Academics, Hong Kong Educational Publishing Co., Hong Kong, 1995. 5. Chen, H. and Zhu, C., Chinese Health Care: A Comprehensive Review of the Health Services of the People’s Republic of China, MTP Press, London, 1984.

6. Chin, S.C., The Development and Policy of Health Care in China, China Medical and Pharmaceutical Technology Publications, Beijing, 1992. 7. Feng, X-S., Tang, S.L., Bloom, G., Segall, M. and Gu, X.Y., “Cooperative medical schemes in contemporary rural China”, Social Science and Medicine, Vol. 41 No. 8, 1995, pp. 1111-18. 8. Liu, X.Z. and Hsiao, W.C.L., “The cost escalation of social health insurance plans in China: its implications for public policy”, Social Science and Medicine, Vol. 41 No. 8, 1995, pp. 1095-01. 9. Ministry of Public Health, Yearbook of Chinese Health Statistics, People’s Health Press, Beijing, 1987. 10. De Geyndt, W., Hsaio, W.C.L., Li, Q., Liu, X.Z. and Ren, M.H., From Barefoot Doctor to Village Doctor in Rural China, The World Bank, Washington, DC, 1992. 11. Li, X., “Cooperative medical system is a good form of health care financing in poor areas”, Chinese Rural Health Service Administration, No. 12, 1988. 12. Chen, K.W., “An exploration of the problems of medical and health policy in the midst of economic reforms in China”, in Wu, K.K. (Ed.), State, Market and Society: Research on China’s Reforms since 1993, Oxford University Press, Hong Kong, 1994. 13. Wang, Z.Q. and Yang, S.M., “Initiatives and development of cooperative medical care in township/town enterprises in Taicang County”, Chinese Rural Health Service Administration, No. 12, 1991. 14. Lu, Y.F.A., “A simple introduction to well-operating cooperative medical care of township/town enterprises”, Chinese Rural Health Services Administration, No. 7, 1991. 15. Jiang, W.Z. and Chen, J.Y., “An initial report of an innovative cooperative health care scheme in Jintan County”, Chinese Rural Health Services Administration, No. 9, 1992. 16. Zhao, F.X., “A rapidly expanding rural cooperative health care scheme in Changzhi City”, Chinese Rural Health Services Administration, No. 9, 1992. 17. Guangzhou Public Health Bureau, “Present situation of and suggestions for the development of Guangzhou’s rural medical security system”, paper presented at the International Conference on the Establishment and Improvement of Guangzhou Social Security System, Guangzhou, China, 4-6 July 1994. 18. Chen, X.M., Hu, T.W. and Lin, Z.H., “The rise and decline of the cooperative medical system in rural China”, International Journal of Health Services, Vol. 23 No. 4, 1993, pp. 731-42. 19. Yang, X.M., “Approaches to fund collection of cooperative medical care in poor areas”, Chinese Primary Health Care, No. 8, 1992. 20. Liu, Y.L., Zhao, X.Y. and Liu, S.L., “Transformation of China’s rural health care financing”, Social Science and Medicine, Vol. 41 No. 8, 1995, pp. 1085-93. 21. Li, M.O., “The commitment and use of state resources to rural health services”, Chinese Health Economics, No. 10, 1993. 22. Hong, M., “Three decades of free medical care about to end”, Window, 10 September 1993, pp. 16-19. 23. Hsiao, W.C.L., “The Chinese health care system: lessons for other nations”, Social Science and Medicine, Vol. 41 No. 8, 1995, pp. 1047-55. 24. Zhou, B., “The utilisation differences of hospital services between the population covered by social health insurance and the uncovered”, Chinese Health Economics, No. 6, 1989. 25. Research Office of the State Council, “China’s labour medical and health scheme: suggestions on reform options”, Beijing Economic Journal, Vol. 5 No. 9, 1994, pp. 9-16. 26. Zhang, F.M., “The approaches of the management of government health insurance”, Chinese Health Economics, No. 5, 1991. 27. Ministry of Public Health, Chinese Yearbook of Health, People’s Health Press, Beijing, 1993.


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