Elsevier

Social Science & Medicine

Volume 68, Issue 2, January 2009, Pages 201-209
Social Science & Medicine

Non-evidence-based policy: How effective is China's new cooperative medical scheme in reducing medical impoverishment?

https://doi.org/10.1016/j.socscimed.2008.09.066Get rights and content

Abstract

In recent years, many lower to middle income countries have looked to insurance as a means to protect their populations from medical impoverishment. In 2003, the Chinese government initiated the New Cooperative Medical System (NCMS), a government-run voluntary insurance program for its rural population. The prevailing model of NCMS combines medical savings accounts with high-deductible catastrophic hospital insurance (MSA/Catastrophic). To assess the effectiveness of this approach in reducing medical impoverishment, we used household survey data from 2006 linked to claims records of health expenditures to simulate the effect of MSA/Catastrophic on reducing the share of individuals falling below the poverty line (headcount), and the amount by which household resources fall short of the poverty line (poverty gap) due to medical expenses. We compared the effects of MSA/Catastrophic to Rural Mutual Health Care (RMHC), an experimental model that provides first dollar coverage for primary care, hospital services and drugs with a similar premium but a lower ceiling. Our results show that RMHC is more effective at reducing medical impoverishment than NCMS. Under the internationally accepted poverty line of US$1.08 per person per day, the MSA/Catastrophic models would reduce the poverty headcount by 3.5–3.9% and the average poverty gap by 11.8–16.4%, compared with reductions of 6.1–6.8% and 15–18.5% under the RMHC model. The primary reason for this is that NCMS does not address a major cause of medical impoverishment: expensive outpatient services for chronic conditions. As such, health policymakers need first to examine the disease profile and health expenditure pattern of a population before they can direct resources to where they will be most effective. As chronic diseases impose a growing share of the burden on the population in developing countries, it is not necessarily true that insurance coverage focusing on expensive hospital care alone is the most effective at providing financial risk protection.

Introduction

Protecting their populations from impoverishment associated with medical expenses is a goal shared by many nations (World Health Organization, 2000). In recent years, many lower to middle income countries, including Kenya, Ghana, Colombia, Mexico, Thailand, Vietnam, various former Soviet Union countries, India (Ministry of Health and Family Welfare, 2005) and China (Yip & Hsiao, 2008), have looked to insurance and other forms of risk pooling as means to achieve this goal. Given limited funding and the goal of protecting households from medical impoverishment, the conventional wisdom has been to provide insurance against “catastrophic” inpatient expenses, under the rationale that most households can typically afford the expenses incurred by minor illnesses (Gertler and Gruber, 2002, Gertler and Solon, 1999, Morduch, 2003). However, whether this is the most effective approach depends on the distribution of health risks within the population. Indeed, there is increasing empirical evidence that household spending on ambulatory services and drugs, rather than hospitalization, is the primary contributor to medical impoverishment (van Doorslaer et al., 2005, Knaul et al., 2005, Wagstaff and van Doorslaer, 2003). Using China as an example, this paper empirically examines the consequences of designing an insurance benefit package without first examining the disease profile and health expenditure pattern of its population.

In 2003, the Chinese government initiated the New Cooperative Medical System (NCMS), a government-run voluntary insurance program, with government subsidies targeting the poorer Western and Central regions (Central Committee of CPC, 2002). One of the primary goals of NCMS is to prevent its rural residents from being impoverished by medical expenses. China has left the details of the program to local governments, who have to decide which services NCMS should cover to meet the goal of reduced medical impoverishment. This paper provides an evidence-based examination of two distinct models. We conducted a static simulation exercise to assess the effectiveness of the predominant model of NCMS—a medical savings account (MSA) coupled with high-deductible hospital insurance—in reducing medical impoverishment, and compared this model to an alternative model, Rural Mutual Health Care (RMHC), which covered ambulatory care, drugs and hospital services with no deductible (first dollar coverage) but a lower ceiling. Through this analysis, we also demonstrate that when policies are not based on evidence, their effectiveness will be limited. Our analysis focuses on the Western and Central regions, where approximately 500 million rural Chinese live and where impoverishment due to medical spending is most acute.

In the next section, we provide a brief overview of China's rural health care system and the latest policy developments. We then describe the design of the most common model of NCMS in the Western and Central regions and contrast it with RMHC. Next, we discuss the data and method of analysis, followed by the results and discussion.

Section snippets

China's rural health care and policy developments

When China reformed its rural economy in 1979, the communes—around which rural medical insurance had been organized—disappeared. Without its financial and organizational backbone, the rural health system collapsed as well, leaving over 90% of the rural population uninsured. Village doctors became private practitioners with little government oversight, earning their income from patients on a fee-for-service basis. Furthermore, like all transitional economies, China experienced a drastic

Benefit designs of NCMS and a social experiment—Rural Mutual Health Care

With a total contribution of 30 RMB, what services should NCMS cover if the policy objective is reducing medical impoverishment? This is a challenge given that health expenditure per person in the Western and Central regions of China averages about 150–180 RMB. We here describe both the most commonly found model of NCMS in the Western and Central regions of China, and an alternative model which the authors designed and implemented.

Analysis and data

In this section, we describe the method and data for assessing the relative impact of the various MSA/Catastrophic and RMHC benefit packages, as laid out in Table 2, on reducing medical impoverishment.

Results

Table 3 shows the effects of medical spending on impoverishment. Under the poverty line of US$1.08 per person per day, 7.31% of individuals were impoverished due to medical expenses, increasing the poverty rate from 29.61% to 36.92%. Medical expenses increase the average poverty gap from 6.61% to 14.06% and the positive poverty gap from 22.3% to 38.09%. In other words, the incomes of those below the poverty line are 22% below the poverty line before payment for medical expenses. After payment,

Discussion

Using China as an example, this paper demonstrates that an insurance scheme that ignores the disease profile and health expenditure pattern of the population can have only limited effectiveness in protecting the population from medical impoverishment. Our analysis shows that with almost the same premium as the MSA/Catastrophic, the RMHC model, which covers ambulatory services, drugs and inpatient services without a deductible (but with higher coinsurance rates and lower maximum caps), is more

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    We thank Andrew Fraker and Bradley Chen for their excellent and able research assistance.

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