The Impact of Health Insurance in Low- And Middle-Income Countries

Chapter 8: The Impact of a Social Experiment--Rural Mutual Health Care--on Health Care Use, Financial Risk Protection, and Health Status in Rural China

137 Chapter 8 In 2002 the Chinese government announced a new national policy for rural health care—the New Cooperative Medical Scheme (NCMS). First rolled out in a small number of pilot counties in 2003 and targeted to cover the entire rural population by 2010, the goals are to improve access to health care and reduce inequality and medical impoverishment . The government has allocated new resources to the scheme, targeting the poor western and central regions. The national policy guidelines for the scheme have only two requirements: voluntary enrollment and priority to cover catastrophic health expenditures. Apart from this, local governments are free to design their own programs, turning China into a laboratory for experimentation. To assist China in developing a rural health care system tailored to conditions in poorer regions and designed to be sustainable in the long run, we conducted a social experiment of a community-based prepayment scheme—Rural Mutual Health Care (RMHC)—following the national guidelines but augmented with other interventions to improve quality and efficiency. The primary objective of this chapter is to empirically evaluate the RMHC’s impact on access to care, financial risk protection, and health status. Using a pre-post treatment-control study design and longitudinal household/individual surveys one year before the interventions and annually for three years after the interventions, we estimate the impact effects of the RMHC, combining difference-in-difference estimation The Impact of a Social Experiment—Rural Mutual Health Care—on Health Care Use, Financial Risk Protection, and Health Status in Rural China Winnie Yip and William Hsiao 138 Chapter 8 with propensity score matching to control for observable and unobservable timeinvariant differences between the treatment and control groups. Rural health care in China Key challenges confronting the rural health care system From the early 1950s to 1980 China’s strategy for rural health care emphasized prevention and basic health care. It developed a three-tiered organization for delivery of health care. In rural areas this consisted of village health posts, township health centers, and county hospitals, which together provided a structure for efficient patient referrals to treat health problems. The Cooperative Medical System provided nearly universal insurance coverage in rural areas. Financed primarily by the welfare fund of the communes (collective farms), the system organized health stations, paid village doctors to deliver primary care, and provided drugs. It also partially reimbursed patients for services received at township and county facilities . At its peak in 1978 it covered 90% of China’s rural population, making basic health care accessible and affordable and offering peasants financial protection against large medical expenses. When China reformed its rural economy in 1979 and introduced the Household Responsibility System, the communes disappeared, and without this funding base, the Cooperative Medical System collapsed, leaving 90% of all peasants uninsured. Village doctors became private practitioners with little government oversight, earning their income from patients on a fee-for-service basis. Further, like all transition economies, China experienced a drastic reduction in the government ’s capacity to fund health care as government revenue shrank. Government subsidies as a share of public health facilities’ total revenues fell to a mere 10% by the early 1990s. To keep health care affordable, the government maintained strict price controls by setting prices for basic health care below cost. At the same time, the government wanted facilities to survive financially, so it set prices for new and high-tech diagnostic services above cost and allowed a 15% profit margin on drugs. These policies created perverse incentives for providers who had to generate 90% of their budget from revenue-producing activities, turning hospitals, township health centers, and village doctors alike into profit-seeking entities. Providers overprescribe drugs and tests while hospitals race to introduce high-tech services and expensive imported drugs that give them higher profit margins (Liu and Mills 1999). To increase their profits village doctors often buy cheap counterfeit or expired drugs and sell them to patients at the higher official price (Blumenthal and Hsiao 2005). Referrals within the three-tiered delivery system also collapsed, Impact of Rural Mutual Health Care on Use, Financial Risk, and Health Status in Rural China139 as each level of provider competed with the other for patients, duplicating tests and services. Health care spending soared, growing 16% a year—7 percentage points faster than gross domestic product (GDP) growth—and patient out-of-pocket health spending also grew at an average...