Health care reform has become a global topic due to 2 major factors.

• Health care costs are escalating in most countries, applying increased pressure on the sustainability of health care systems and on the affordability of health care.
• Ongoing debate about the way to implement the best model for funding and delivering health care. This debate has been intensifying even as governments around the world attempt to stimulate their economies and rescue large private firms.

The recently announced health care reform in China has been planned for several years, and its launch in early April reflected both global trends in health care and the current economic environment. In fact, the injection of RMB 850 billion (US$124 billion) into the system over the next three years was structured as a significant component of the aggregate RMB 4 trillion economic stimulus package announced earlier this year.

Health care in China

Health care spending in Asia has a long way to go before it catches up with spending in the developed world. In recent years, China has been consistently spending less than 6 percent of GDP on health care, with less than half of that funded by the government. Total health care spend was US$161 billion in 2007 (the most recent year for which official data is available), and per capita spending that year was around US$122. This number compares to over $6,000 per capita in the US, about $3,000 in the UK and Canada and approximately $2,500 in Japan¹. Government direct funding of total health care was about 20%, and approximately 35 % is assumed by social plans with contributions from both employers and employees (or residents with subsidies from the government). Individual out-of-pocket cost (household cash) continues to represent about 45% of the aggregate cost, which is an issue even for those with social and supplemental coverage, as both are subject to limitations on coverage and services. Compounding, or perhaps due to, this problem is the fact that only slightly more than half of those with a health issue actually seek professional care, preferring to ignore or self-treat the symptoms. Medical facilities are improving in tier-one cities like Beijing, Shanghai, Guangzhou and Shenzhen, but rural hospitals and outlying areas continue to lack basic services.

Challenges

Health care challenges that exist in China can be divided into 3 distinct categories: access, quality and cost.

Access: Large and comprehensive hospitals and clinics are typically located in metropolitan areas, forcing rural residents to travel long distances for substandard care or to wait in long lines at a few key facilities. Moreover, when those residents move to cities, unless they are officially registered, they are not eligible for social benefits and thus are excluded from the urban coverage schemes. Because of these factors and the fact that rural schemes are currently voluntary, more than 200 million individuals are without any type of coverage. Benefits and coverage levels also vary by city, leading to additional confusion, especially as the workforce becomes more mobile.

Quality: Medical resources are concentrated in large urban hospitals, but even at those facilities the quality of care can be compromised by long lines that create a poor environment and lead to insufficient doctor-patient consultation time. Outside of major hospitals, the quality of medical staff and equipment varies greatly. Community hospitals and rural clinics are not trusted. Even at key facilities, overprescription of drugs and tests is common, as hospitals rely on drug markups and service fees to make ends meet, since government funding is minimal. There is no network of primary care physicians – all care takes place at the hospital, which means that preventive care is not common either.

Cost: In recent years, government funding for hospitals has stayed flat at around 10 percent of total operating budget. Major sources of additional revenue include tests and prescription drugs outside of the social medical scope. In urban schemes, the contributions for social insurance can be high – around 10 percent of capped salaries (usually three times the average city salary), with the employer contributing more than the employee.  However, the coverage is still low, with an annual deductible equal to 10 percent of the annual average city salary, an annual maximum that is a multiple of the average city salary and coinsurance between the deductible and the maximum. Government investment in rural areas is even lower, and rural residents currently only have access to partial catastrophic coverage through rural social medical schemes.

Evolution of social medical benefits

China maintained a government-mandated and assisted health care system that was enterprise-based until the 1980s, when the government started the transformation process toward societal market reforms. After successful pilot programs in the mid-1990s, the government introduced urban employment-based compulsory schemes in 1998 and voluntary rural schemes in 2003. Urban resident schemes also have emerged recently in large cities, and the government officially announced phased expansion of urban schemes across China starting in 2007. However, rural schemes continue to offer only catastrophic coverage with increasing but still very limited funding, including both an individual contribution and a multilevel government subsidy.

Health care reform – the details

Growing public criticism of soaring medical fees, lack of access to affordable medical services, poor doctor-patient relationships and low medical insurance coverage compelled China to launch a new round of reforms. After more than two years of internal discussions and external consultation, China’s State Council issued on September 10, 2008, amended draft guidelines of medical and health care system reform to solicit public opinion. The question and answer period closed on November 14, 2008.

On April 6, 2009, the State Council unveiled a comprehensive set of health care reform guidelines and established a 3-year goal of covering 90% of the Chinese population by 2011 and achieving universal health care by 2020. The reform plan clarifies the government’s responsibility in saying that government plays the dominant role in providing public health and basic medical services. It aims to return to nonprofit national health care, an idea that was largely abandoned in the 1980s. Through the reform, the country hopes to be able to provide basic health care services covering both rural and urban residents.

The reform consists of 4 key pillars:

• Public health service
• Medical treatment
• Medical insurance
• Medicine supply

The 3-year plan comprises an investment of RMB 850 billion (approximately US$124 billion) into the health care system, with 5 major priorities:

• Improve basic medical insurance
• Establish a basic prescription drug system
• Expand the network of local-level hospitals and clinics
• Improve the access to and equality of public health services
• Initiate pilot programs to reform select public hospitals

More detailed plans addressing various aspects of the reform agenda will be released later this year.

Mercer’s point of view

Future outlook

The planned health care reform has ambitious goals for the next 10 years. Whether this round of reform will succeed depends on how the current challenges of access, quality and cost are tackled. Substantial progress is crucial in the five prioritized areas over the next three years, while new funding is distributed into the system and further non financial measures are implemented. Uncertainty still remains as to how much additional government funding will be allocated beyond 2011 to continue the reform, so as much as possible must be done now.

Reasonable expectations indicate that the reform will lead to improved coverage and services for both urban and rural areas in the short term. Medium-term success will be built on the short-term actions, requiring additional funding and resources to significantly close the gaps in access, quality and cost of health care. Achieving the goal of meaningful universal health care by 2020 would then be possible, but only if it is built on the success of short- and medium-term actions.

Three future state scenarios

Source:

1. OECD