Guest post by Dale Tussing: Chinese Health Care - Its Rise and Fall and Current Struggles

With healthcare one of the items on the General Election agenda, Professor Dale Tussing takes a look at the Chinese experience.
It is quite a jump, from the health care system of the Republic of Ireland, population just over 4 million, to the health care system of the People’s Republic of China, where just under 4 million people call themselves doctor! With a colleague, I have been investigating the Chinese system lately and have hopes of publishing our research findings someday soon. I will share with readers here some of what I have learned.

Recently an on-line journal called FP: Foreign Policy (Foreignpolicy.com) included China (together with Russia, the USA, and Turkmenistan) as having achieved one of the four worst health care reforms in the world. A system which was once globally admired is now despised. As China’s productivity soared, something bad happened to health care. What happened? I want to answer that question and assess current Chinese efforts to rebuild their health care system.

The Communist Party of China (CPC) came to power through revolution in 1949. They began to build healthcare institutions, often in areas that had never been served by doctors, hospitals, or clinics. That was especially true in rural areas, which held the vast bulk of Chinese population, and which still today accounts for a large majority. In 1958, the commune system established collectivized agriculture, and shortly thereafter China built a system of Cooperative Medical Care (CMC), based in communes. Care was inexpensive, partly because it was rudimentary.

Primary care was provided by paramedics with limited education and training, who became known as the “barefoot doctors”. Care was predominantly traditional Chinese medicine, or TCM, relying on herbal medicine, much of it grown by the barefoot doctors in their own gardens. Participation was universal and compulsory. Under this regime, life expectancy almost doubled (from 35 years to 68) between 1952 and 1982, and infant mortality fell from 200 to 34 per 1000 births.

The World Health Organization, meeting at Alma-Ata in 1978, was inspired by the Chinese rural CMC system to issue a declaration about the possibilities for health care in third-world countries. Ironically, it was in the same year of 1978 that the Chinese leaders began the process of abandoning the system. The “household responsibility system” and markets replaced the communes. The CMC system was ditched. It had been based on the communes, and without major changes would be inconsistent with the new rural economy. Moreover, the CMCs had enemies in the Chinese leadership.

There must have been something special about the year 1978. The radical Chinese shift to privatize their economy occurred in the same year that privatisation began in earnest in Western Europe, Great Britain, and the United States. In the USA, President Jimmy Carter brought in Professor Alfred Kahn, the Cornell economist who introduced privatization in many areas, beginning with deregulation of commercial air service. Professor Kahn died in January of this year. Just two years later, Ronald Reagan, who was to accelerate the process, was elected president. In Britain, Margaret Thatcher became Prime Minister in 1978, and began her campaign to undo nationalization by privatizing large parts of the British economy. In Western Europe, privatization began in several countries in 1978.

In China, the result of privatisation was that the majority of the population lost their health insurance, and almost all medical care began to be sold on an out-of-pocket basis (the process of marketizing medical care was a process that took a long time, not overnight after 1978. Even till this day, many government employees continue to enjoy “free” healthcare). Many people with serious illnesses could not get care, and they became disabled or died. Most barefoot doctors returned to farming, and those who continued as paramedics began to charge fees. China’s primary care system virtually disappeared and has never really been replaced. Most Chinese people seek care from hospital-based specialists.

Is the China of today a socialist state? The central government and the CPC still have much control, and public ownership of enterprises is still widespread. But the example of health care shows how misleading appearances can be. Almost all Chinese hospitals are government-owned. But government subsidies were drastically reduced, and by the 1980s had fallen to 5% to 10% of hospital expenses. Hospitals had to rely primarily on their own revenues, and doctors relied on hospitals for their incomes. Doctors began to prescribe drugs, often medically inappropriate ones, in enormous quantities, and hospitals, rather than drug stores, sold them. Half to 60 percent of Chinese medical expenditures became allocated to drugs, as compared with about 10 percent in the USA and about 15 percent globally. Hospitals remained nominally public, but they had become effectively private – with decisions made by administrators and doctors in their own interests. And care became grotesquely distorted.

The fraction of Chinese health expenditures paid out-of-pocket by families is a telling statistic which graphically shows the astonishing twists and turns of Chinese health care in the last generation. That share was a laudable 20% in 1979, but it rose steeply to 32% in just four years, a change of a magnitude few countries have experienced, absent major war. But that was just prologue. Ten years later, in 1993, the proportion stood at 42%. The peak occurred in 2001 with 60 % of health care expenditures coming from individuals. The figure today stands at close to 40 percent. This figure can be misleading. Many Chinese families cannot afford to pay for treatment of major illnesses and injuries. The out-of-pocket share is depressed whenever care is not covered by any third party but patients and their families cannot afford the out-of-pocket payment.

Cutbacks in health care spending were part of general cutbacks in social welfare spending, and indeed in government spending in general, both absolutely and in relation to GDP.

China has attempted to navigate a middle course in recent years, pursuing a health insurance strategy. Leaders created the New Cooperative Medical Care (NCMC) system in 2003. The name harks back to the successful and popular CMC system of the Mao era, but the NCMC is an insurance system, not a health care delivery system. The ambitious new system had a number of flaws, chief of which was perhaps the fact that not enough money had been allocated. That is a problem which persists today, despite significant increases in government subsidies to insurance.

In 2009, Chinese leaders released a massive document, “Opinions of the CPC Central Committee and the State Council on Deepening the Health Care System Reform,” setting out plans for the future development of the health services. It is long and rambling, and hard to summarize, but some points may be noted:

• Health insurance was to be universal by 2010.
• Hospitals could reduce their dependence on drug sales only gradually.
• The government assured that everyone would have access to at least “basic” medical care.

What is basic care? That appears to be an important question, though the expression remains undefined. The document promises not only basic care, but also basic medical security or insurance, covering basic care to treat basic conditions, using “essential” medicines, all of which is backed up with basic public health. Whatever may be the exact meaning, the purpose and effect of assuring basic care is to limit public outlays on health care. And the government does not undertake to pay for even basic care.

The health insurance system is decentralized, with provinces establishing programme details. Thus it’s impossible to say whether the goal of universal coverage was achieved by the end of 2010. But because of inadequate funding, the drive for universal coverage comes at a very high price. Most provinces cover little or no outpatient care. High deductibles must be met annually before coverage kicks in. There are very high co-pays, with patients often paying half of the after-deductible bill. And perhaps worst of all, there are annual per-patient limits on insurance coverage. The result is that, while there very well may be universal coverage, it remains true that tens or hundreds of millions of Chinese would not be able to afford medical care if they became seriously ill or badly injured.

Chinese leaders seem sincere in their desires to ameliorate the terrible consequences of destroying the health security system, and much of the delivery system, in the late 1970s and throughout the 1980s. They are trying to build an insurance-based system consistent with the state capitalist system they have constructed. But the system they have developed is thus far still a mess. There are many economic incentives which will have perverse consequences. For example, insurance coverage of in-patient but not out-patient care will encourage doctors to hospitalize patients unnecessarily, when out-patient care would suffice, in order to make treatment eligible for insurance reimbursement.

The most serious problem, however, the one which is the source of most of the other problems, is under-funding. Chinese medical care expenditures hover around 5% of GDP (about half of European proportions). Until Chinese leaders are ready to increase significantly government funding for medical care, it will be difficult if not impossible to create a medical care system which is adequate, efficient, and fair.
Dale Tussing is Emeritus Professor of Economics at Syracuse University, in Syracuse, New York. His publications on the Irish health care system date back to the early 1980s. Together with Maev-Ann Wren, he was commissioned by the Irish Congress of Trade Unions in 2005 to conduct a broad study of Irish health care policy, to inform Congress's positions on health care. A version of the report was published in 2006 by New Island Press as How Ireland Cares