A policy reform topic beyond rural China’s health system

In the 1970s, China was the first large nation in the world to develop a nationwide rural health insurance system. At that time, China emphasized prevention and public health for rural health care based on community financing schemes called the Rural Cooperative Medical System (RCMS), making essential drugs and basic health care widely available, and creating an organized three-tiered health care delivery system of village health posts, township health centers and county hospitals From that time, China’s rural health system is characterized by a 3-tier structure – county health facilities (Including county hospital, disease prevention station, maternal and child health center), township health centers, and village health posts. Under the RCMS, the financing of health care relied on a pre-payment plan. Most villages funded their RCMS from three sources:(1) premiums-depending on the plan’s benefit structure and the local community’s economic status, 0.5 to 2 percent of a peasant family’s annual income was paid to the Fund; (2) the collective welfare fund—each village contributed a certain portion of its income from collective agricultural production or rural enterprises into a welfare fund, according to State guidelines; (3) subsidies from higher-level government structures. In most cases, this subsidy was used to compensate health workers and purchase medical equipment. By the mid-1970s, about 90 percent of China’s rural villages, called “communes” at the time, were covered by RCMS schemes. This community financing and organization model of health care was believed by many to have contributed significantly to China’s success in accomplishing its first ‘health care revolution’

Since the 1980s, China has moved away from central planning towards a market economy, a trend that is also reflected in the health system. Along with growing commercialization within the economic sector, access to health care has been increasingly dictated by ability to pay. In rural areas, the transition from agricultural collectives to what is termed the household responsibility system weakened the financial base of the cooperative medical system. The RCMS schemes collapsed in the majority of rural communities. In 1993, insurance coverage for rural residents had fallen to 12.8%. By 1998, only 9.5% of the rural population was insured. This decrease in insurance cover for the rural population has taken place at a time when medical costs have escalated.
Internationally, as a country’s income increases, the share of that country’s total health expenditure accounted for by government also tends to increase. But in China, a country with very rapid income growth, while total health spending as a percentage of GDP increased from 3.2 percent in 1980 to 4.8 percent in 1998, the government share of that total decreased from 36.4 percent to 15.5 percent. Over the same period, the private spending share increased from 23.2% to 57.8%. Since the collapse of the once successful RCMS in the early 1980s, many rural residents, especially the poor, have faced severe problems. User charges and high direct costs now effectively block access for the many people who lack sufficient income to purchase basic healthcare when they need it. Moreover, medical expenses have also caused financial catastrophe for many rural families. According to the MOH’s national health services surveys, nearly 80% of the rural residents do not have any insurance coverage today, although overall insurance coverage improved somewhat (mainly due to an increasing percentage of people buying private insurance) over the 10-year period between 1993 and 2003.
Lack of insurance coverage coupled with escalating medical costs causes serious access and impoverishment problems for Chinese rural residents. According to the China 2003 National Health Services Survey, 30% of the rural patients who were recommended hospital admissions by the doctors refused to be hospitalized. The majority of those who had forgone hospitalization (70%) cited lack of financial means as the major reason for their decision. Even among those who were hospitalized, 43% discharged themselves against medical advice. When officially designated rural “poor households” were asked to identify the major reasons for their impoverishment, the most frequently cited reason was disease and injury.
Why has a rural health insurance system not emerged to meet the needs illustrated above? Prof. Liu (2004) analyzed some major factors affecting the development of rural health insurance system in China. These factors include lack of ability to pay by low-income families, adverse selection among those who are able to pay, and lack of the organizational capacities needed to run such schemes. But by far the most important issue is the little investment sponsored by central and local government and the weak role they played (see Table 3). This main problem will directly influence on both demand-side and supply-side of rural China’s health system.
Lack of the corresponding subsidy of government, insofar as a health insurance system is not compulsory, people’s ability to pay and willingness to participate/contribute is vital for sustaining the system. Therefore, it is not surprising that higher-income regions in China have higher insurance coverage than lower-income regions (Wang 2001). Aside from ability to pay, there are other factors affecting people’s willingness to participate in voluntary risk sharing schemes.
Supply-side issues: Financing takes the form of regular budget allocations from the county and township governments to cover some basic salaries of the staff and capital development and depreciation. The money from these government budgets, however, only accounts for less than 30% of the total income of the county and township health facilities. The rest of their income comes from services fees these facilities charge and from the proceeds of drug sales (the dominant source of revenue). Furthermore, since the majority of village health posts are private practitioners, they receive almost no budget allocations from the governments, and thus rely totally on revenues for their income.

According to World Health Organization annual report of 2005, a health system is a means to an end. It converts resources into outputs, which produce desirable outcomes. These outcomes (or goals of health systems) at least include: Health status; Financial risk protection, and Consumer satisfaction (both levels and fair distribution).
For the purpose of this analysis, a rural health system in China can be defined to include the people, organizations, and institutions that:
1.Deliver health care, including treatment, prevention, and promotion
2.Finance and pay for health care • produce or provide the specialized inputs to health care
3.Organize, control, and regulate those that do the above.
Therefore, a health system can be described by a web of inter-relationships among the five major stake-holders: consumers (patients as well as general public), resource producers (producing material as well as human resources such as pharmaceutical manufacturers and medical schools), service providers (e.g. hospitals for providing inpatient care and schools for providing health education), payers (e.g. government, employers, insurance companies, and of course households), organizers and regulators (e.g. government agencies and professional associations). Without efforts to all the goals above, reform is just required by circumstances.

Since the early 1980s, the rural health care system has undergone far-reaching marketization reforms in tandem with China’s overall economic system. The major motive for market-oriented reforms in the health care sector lies in the government’s attempt to use market function to deal with the problem of public health financing and control of health care costs. While pursuing financial decentralization, governments at a higher level have often delegated the responsibility of health care financing to the governments at a lower level, but the latter, however, are often in financial difficulties that result in the transfer of the responsibility further down to health care institutions. As a result of financial decentralization, the three-tier health service network in rural China has been challenged by the decline of public investment. The share of public health expenditure in the total financial expenditure declined from 2.49% in 1980 to 1.71% in 2000. The cooperative health care system virtually disappeared following the collapse of the People’s Commune System, and the overwhelming majority of village health clinics were privatized.
The New CMS differs from the old CMS in several important respects. Contributions from households—starting at 10 RMB per person, and to be paid on a voluntary basis—will be supplemented by a subsidy of 10 RMB or more from local government and a 10 RMB matching subsidy from central government in the case of households living in the poorer central and western provinces. The major difficulties may be encountered include financial strain on the local government budget, high administrative costs in collection, and lack of administrative capacity.
The New CMS differs from the old CMS in several important respects. Contributions from households—starting at 10 RMB per person, and to be paid on a voluntary basis—will be supplemented by a subsidy of 10 RMB or more from local government and a 10 RMB matching subsidy from central government in the case of households living in the poorer central and western provinces. The major difficulties may be encountered include financial strain on the local government budget, high administrative costs in collection, and lack of administrative capacity.

The strong recommendation that should be made from this policy comparison is that Chinese health reform should insist the “20 Yuan” path and begin to set up a more constructive rural health system. The Government subsidy for the New CMS is a significant step in the history of rural health development in China. It shows the commitment the Government has made to improving the health of its rural population and to reducing their financial health burden. It will also significantly influence the rural health care delivery system, patients' health treatment-seeking behavior and the rural-to-urban population transition.
But going down the path, the New CMS will face complex technical problems. First, a realistic benefits package must be formulated. If the services offered to farmers do not meet their needs, they will soon choose not to participate in the program. On the other side, while protecting farmers from poverty caused by catastrophic disease is an admirable goal, it is most likely counter-productive to set such an ideal as the predominant goal, invariably at the expense of other needs. Health care is a life-long process, and resources might be more wisely spent on more effective preventive efforts like insuring that New CMS subscribers receive immunizations and have access to early disease detection programs and regular checkups, or are convinced to stop smoking.
Another concern is that the New CMS will need a large but dynamic management to deliver fairly priced services to its subscribers. The bureaucracy must be large because of the sheer number of subscribers it needs to survive, and dynamic because it must respond to the demands of those subscribers or else they will decide not to participate. The Government must expand its provision of the important public good of management expertise and development if it hopes for a successful program. And the role of Government as supervisor, monitor and enforcer of standards is the only hope for quality healthcare. Without this Government regulatory and enforcement role, good management, improved funding and even the best efforts of local officials are not likely to suffice.