Urban health care reform initiative in China: findings from its pilot experiment in Zhengjiang City (1).

• Author: Liu, Gordon G.

Abstract

This research presents a preliminary assessment of China's urban health care reform experiment. In reforming its existing urban health care programs, the Chinese government initiated a new community-based insurance plan, which was implemented in a pilot experiment in 1994. Data for this study was derived from the first post-experiment survey, which was conducted in Zhengjiang city in 1995.

The survey contains a total of 14,745 individuals, a 3.2% stratified random sample of the total enrollees in Zhengjiang city. A two-part econometric model was employed as the study's analytical framework.

Major findings show significant changes in health care cost and utilization patterns in response to the experimental health insurance plan instituted in Zhengjiang city. First, the incidence of using any health care services increased by 12% among the general population. Second, when looking into changes in the composition of difference services, there was a shift from the likelihood of using inpatient care to outpatient care. Third, total health care expenditures decreased by 8% among the general population and 18% among users. And fourth, among respective service-specific users, the utilization rates consistently decreased by 14% for outpatient visits, 11% for inpatient admissions, and 17% for length of stay (LOS) per admission. Based on these findings, the experimental plan appears to be more cost effective than the previous health care programs.

Introduction

Over the last two decades, China's health care system has undergone numerous changes (Hsiao, 1984; Hu, 1984; 1988; Cretin et al., 1990; World Bank, 1993; Henderson et al., 1994; Liu et al., 1994; Liu and Hsiao, 1995). Like many other countries, runaway health care costs and limited insurance coverage have been serious problems that stimulated the Chinese government to reform its existing publicly financed health insurance programs. In December 1994, the Chinese central government initiated a new medical insurance plan for pilot experiments in two medium-sized cities: Zhengjiang and Jiujiang (Cai, 1995; Yuen, 1996). The experimental plan was intended to provide citywide insurance coverage for the urban working population, while capping overall health care spending. The government hoped to eventually reform its existing urban health insurance programs, following the design/testing of the experimental plan. Given that nearly 360 million people live in urban areas, the urban health insurance experiment will undoubtedly have profound and significant impacts on China's health care policy and transitions in health care markets.

To date, only a few studies have been conducted to describe the pilot experiment (Cai, 1995; Xiang and Hillier, 1995; World Bank, 1996; Yuen, 1996; Jiangsu Province Bureau of Health, 1996; Song, 1997; Yip and Hsiao, 1997; Liu et al., 1998). A major observation from most of the previous studies suggested that the new insurance plan was effective in containing total health care expenditures (Jiangsu Province Bureau of Health, 1996; Yip and Hsiao, 1997). What remains inconclusive thus far is how the cost savings were derived from this new plan. In particular, some questions were raised as to whether and to what extent the identified cost savings were attributable to reductions in utilization rates of various services or to the reduction in the use of expensive diagnostic services and prescriptions.

Moreover, previous studies were descriptive in nature. Because of data limitations, none of the existing studies was conducted in the context of an explanatory framework that controls for the confounding factors while assessing the dynamic changes in health care costs and outcomes resulting from the pilot reform experiment.

Using data from the first survey conducted in 1995 by the Jiangsu Province Department of Health, this study conducted a preliminary economic assessment of the experimental program in Zhengjiang. Although the analysis is based only on data for the baseline and one post-reform year, (3) it is the first evaluative study on the Chinese urban health care reform experiment using an econometric modeling design. This study addresses three major issues concerning the health reform experiment: (1) whether the cost-containment instruments (e.g., prospective budgeting, Medical Savings Accounts, fee schedules, prescription guidelines, and consumer co-payments) designed for the experimental plan were effective in containing total health care expenditures; (2) what utilization patterns (e.g., inpatient care vs. outpatient care, hospital length of stay and the use of expensive diagnosis and treatment services) were resultant from the pilot experiment; and (3) to what extent the experiment may have led to changes in other health outcomes such as equity and access to care (Cai, 1995; Yuen, 1996).

The next section gives a description of the current urban health care systems and the experimental plan. Section III outlines our analytical framework and data description. Section IV presents major results from this analysis. Section V discusses the policy implications of the results. The last section summarizes the study with our concluding remarks.

The Urban Health Care Systems in China

In the urban areas of China, the health care market is hierarchically structured into three tiers: (1) street health clinics and workplace clinics providing preventive and primary care; (2) district and enterprise hospitals and specialist clinics providing secondary care; and (3) provincial and municipal general hospitals and teaching hospitals providing tertiary inpatient care. These health care institutions are managed by a wide range of public organizations such as the central and provincial governments, state enterprises, and universities. Since these institutions are not accountable to any single body, their financial and quality performance are poorly monitored and evaluated, resulting in over-billing, over-prescribing, and over-utilization of health services.

The urban health care institutions fall into two major employer based systems: Labor Insurance Program (LIP) and Government Insurance Program (GIP). Since 1951, employees and retirees in state-owned enterprises are covered by LIP. Medical expenses are reimbursed from the employer's pre-tax income. This caused serious problems for the state enterprises that have a large number or percentage of older workers or retirees, who are more likely to utilize more medical care. Firms with poor financial performance are also being challenged. Currently, LIP covers about 156 million people, which is 43% of the total urban population. All employees in government sectors have been covered through GIP and managed by the Ministry of Finance since 1952. GIP also covers university students and retired officials, which represent approximately 24 million beneficiaries, or 7% of the total urban population (Yuen, 1996).

Individuals who are not insured by GIP or LIP must pay out of pocket for their health care. In the past, however, the government subsidized all health care substantially by regulating charges that were far less than the true costs of care. For example, as government employees, physicians' labor costs were not factored into the usual health care cost accounting equations. Thus, basic health care was quite affordable for most of the uninsured population. With the introduction of market-oriented reforms since the 1980's, service providers have been allowed to raise their fees and charges. As a result, accessibility to health care has become a serious problem for the uninsured.

Moreover, the overall health care cost has been escalating at an annual rate of 20% in recent years (Yuen, 1996). Such runaway health care costs, coupled with the low coverage and poor risk-pooling capacity under GIP and LIP, have created health care crisis for Chinese governments and state enterprises (Liu and Hsiao, 1995). In an attempt to reform the existing health care system, the Chinese central government, in December, 1994, launched a pilot experiment of a new citywide insurance plan in the cities of Zhengjiang and Jiujiang.

This experimental plan provides mandatory medical insurance coverage for all employees through employment under a single, citywide insurance plan. It also covers retirees, disabled veterans, and university students. It contains two key components: (1) an individual Medical Savings Account (MSA) for each subscriber, and (2) a citywide Social Insurance Account with pooled insurance funds across all subscribers (Jiangsu Province Bureau of Health, 1996). To participate in the experimental plan, providers of health care are evaluated and selected by the City Social Security Bureau. All participating providers must comply with an agreed fee schedule and financing arrangements, and are also subject to audits from the Bureau. The Employees Medical Insurance Management Committee governs the insurance plan. It is established within the City Social...