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China's new health deal?

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In Brief

The recently concluded Third Plenary outlined what Willy Lam is calling a 'New Deal with Chinese characteristics'. With significant growth in tax revenue from what has been a booming economy, China plans to inject an additional US $38 billion of government funding - the equivalent of 1.5% of GDP - into health.

The goal of this ambitious 'Chinese New Deal' will be the provision of free or nearly free universal basic health care.

The health policy released recently said that this would be achieved by increases in primary and secondary prevention, primary care in outpatient clinics, maternal and child health care, home health services for the disabled and elderly, emergency hospital services, and essential drugs.

This, of course, is quite the laundry list. Yet, in spite of the big talk, the fundamental problems of Chinese health care appear to have not been addressed at all.


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The new health care policy, aside from being vague and difficult to comprehend (in both English and Chinese), fails to address the very simple question of exactly what kind of health-care system China has or wants.

The current system is, largely, the traditional model, where the central government (usually through the Ministry of Health, although sometimes using other departments) directs mandates and allocates funds to the provinces, who then filter the money, and the mandates, downwards.

The MOH also, theoretically, manages and regulates public facilities, through which much of China’s health care treatments are provided. However, in reality, the burden for this is also mainly passed down to the lower levels of government.

The MOH favours this approach because the extra funds coming into the system will vastly increase its fiscal power, personnel slots, and appointment power.

Yet there is still no solution to any of the structural problems. Firstly, there is no resolution of the problem of unfunded mandates. The centre possesses most of the revenue. The lower levels do most of the spending. The numbers, generally, don’t add up- particularly in poorer provinces.

A funding shortage means that providers almost always have to charge for services. Yet, providers do not have to compete for patients and therefore have little incentive to pay attention, or respond, to patients’ preferences, needs, and satisfaction. The government is also a pretty poor purchaser. It has no ability to contract with providers on metrics of service quality, nor price. Neither is it able to control price inflation.

To get around this, the government instituted an insurance fund, on the basis that universal health insurance would allow individuals to choose their provider and then be reimbursed by the state. Yet the governments running the fund’s primary concern has been to ensure that the insurance fund does not run a deficit. Thus, to avoid financial risks. they instituted highly conservative spending plans, and no money goes through the system.

Even worse, the insurance scheme is designed to be fee-for-service, with the government reimbursing patients some of their up-front costs. So people who are too poor to pay upfront in the first place remain… too poor to pay. And people who can afford it are given 10% back, thus providing providers with further incentives to raise their fees, which then makes health care even more difficult to access.

Prevention, primary health care and the provision of drugs are all wonderful services which have great societal benefit. But the real problems seem simple: there is no real competition, there is no real concept of how the system will work on a macro level, and the most promising program (health insurance) has an ideological predisposition towards upfront payment that renders it ineffective.

The next time a health care plan comes out, a few well-chosen sentences on the structural macro-issues of China’s health care policy are likely be more effective than a few hundred extra pages on the institution of new programs.

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