UHC Forward: Towards Universal Health Coverage

Since the Chinese government announced the National Reform Plan in 2009, the country has made remarkable progress towards achieving nearly universal health coverage (UHC). China’s Reform Plan is a massive undertaking. Now in the first phase of a decade-long plan, it is currently finalizing a three-year, $125-billion initiative that has provided health coverage to more than 90% of the nation's residents, and requires coordination across China’s 15 (!) national ministries that interact - in one way or another - with the health sector, and five government-sponsored insurance schemes.

China’s move towards UHC was accelerated by macroeconomic changes in the 1970’s that resulted in rapid economic growth and a societal shift away from collective agriculture towards urbanization. This trend resulted in a more Western lifestyle, and shifted the disease burden from communicable diseases towards a greater prevalence of chronic diseases.

The shift from the agricultural collective was matched by a rapid decentralization of the health sector (as well as other parts of the economy). This weakened tax collection mechanisms and lowered revenue streams for local governments, resulting in a collapse of the community-based collective medical schemes, and overall reduced financial protection.

The government’s increasing focus on markets spilled into health and the public sector health providers evolved into quasi-private enterprises, with the government funding about 15% of its revenue base, but encouraging facilities to make up the shortfall by charging patients for the residual.

In addition to these factors, there was one more important macroeconomic and health sector link: poor financial protection led to Chinese households having one of the highest savings rates in the world, which in turn created a drag on consumer spending.

As China’s leaders moved their macroeconomic focus from production and investment to a more balanced economy – which relied on greater consumption – government spending for health care, particularly new coverage of benefits, was matched by a reduction in household savings rates. This meant increasing health coverage of the population effectively leveraged more household spending on consumer goods, sparking continued economic growth.

After the turn of the new century, macroeconomic growth, coupled with the changing disease profile and growing demands of the citizenry for improved financial protection led to a growing call for health reform.

Today, China covers over 90% of its rural population and over 70% of the urban population through five main insurance schemes, which include the Basic Medical Insurance (UEBM) scheme, the Urban Residence Basic Medical Insurance (URBNM), and the New Cooperative Medical Scheme (NCMS). The scale up has been particularly remarkable in the rural areas which have scaled up to over 800 million people in less than a decade. This was done with a combination of economic incentives and administrative force. On the economics side, the great majority of funds for coverage have flowed from the central and provincial government to the local counties and municipalities with a per capita allocation based on each newly enrolled beneficiary. Funds have been pooled at the local level. This flow of funds to the local level has spurred local leaders to sign up individuals and families. From the administrative side, Communist Party leaders in each county are now accountable for enrollee targets year-on-year, and OOP premiums for peasant farmers are nominal and even waived for the poorest of the poor so that targets are met.

So far, this has been a happy story of remarkable – perhaps unprecedented – enrollment, scale-up, coverage, and reforms that have been nicely linked to macroeconomic re-balancing. But there is still a “long march” which remains before China achieves UHC, and achievement of real financial protection, and access to health care for its citizens.

Costs have exploded under its fee-for-service system, and while hospital admissions have increased, suggesting improved access, up to 50% may be amenable to more cost-effective outpatient care. Long queues remain at high level hospitals and financial protection for households is not improving as fast as leaders would have expected given a shallow benefits package with a simple cap on expenditures. Indeed, there are many lessons that have been learned from China’s health financing reforms. Some of the key next steps needed for China to achieve UHC include:

• Changing the benefits package. In order to reduce the high proportion of out-of-pocket (OOP) expenditures, China set a goal to reduce OOP spending from 50% to 30% in the sector overall. Slight improvements in financial protection have been observed for households in rural areas, but overall occurrence of catastrophic spending has increased nationwide due to the shallow benefits packages of China’s main schemes. To reduce OOP, leadership will need to address the depth of coverage, cap OOP spending, and restructure the package to address the new disease profile of non-communicable diseases through more outpatient care coverage.

• Strengthen quality and primary care. Since 2009, there has been a remarkable increase in the utilization of health services, but there is lack of allocative efficiency. The majority of heath care seekers utilize tertiary facilities in urban areas, and there is little use of primary care and outpatient services. In order to address current utilization patterns, it is necessary to strengthen the quality of care – particularly at the primary care level – and better integrate service delivery between facilities of lower and higher service levels.

• Improve pooling of funds with funds pooled at the local county and municipal levels. With insurance funds pooled at local municipalities and rural counties, China is estimated to have more than 3,600 separate risk pools for its health financing schemes - more than any other country, and a remarkably high number even for a country of more than 1 billion people. The pooling structure is currently inequitable as there is greater expenditure per capita in urban areas on a scale of roughly 10:1 – and significant variation within and across provinces. In order to reduce fragmentation of risk pools and address the inequities in the current financing structure, pooling may be needed at higher levels such as the provincial level, and medium-term, an intergovernmental fiscal transfer system across provinces.

• New provider payment incentives. China will need to move away from fee-for-service to better contain costs and improve efficiency. The scale of the Chinese system is daunting with 20,000 hospitals and many more outpatient centers with huge discrepancies in practice style and cost structure within and across provinces. New provider payment systems have started with pilots, but will require more standardized information systems and a careful phase-in, as well as monitoring during implementation to make adjustments, is critical. New payment mechanisms being piloted are primary care capitation, DRGs, and hospital global budgets.

Despite its remarkable progress in expanding health coverage, there remains a long road ahead for China to achieve UHC in a way that improves financial protection, equity and system performance. China will need to maintain its political will and continue to implement reforms that address deficiencies in their primary care system, benefits packages, risk pooling, and provider payment incentives.