Since 1949, China’s healthcare reform history has seen an improvement in quantity and quality with some important milestones, namely the establishment of the Public Health System (建立公费医疗制度与其改革) in 1949 and its reform in 1984, the Labor Medical System (建立劳保医疗制度与其改革) in 1953 and its reform in 1990, and the Cooperative Medical System (建立农村合作医疗制度) in 1960. After the successful experiment of the “Two River” Pilot Program of the Urban Employee Basic Medical Insurance (建立与扩大“两江”试点城镇职工医保) in 1994, China expanded the program to 56 more cities in 1996, followed by the Urban Resident Basic Medical Insurance (建立城镇职工医保) in 1998, the New Rural Cooperative Medical System (建立新农合) in 2003, the Urban Resident Basic Medical Insurance (建立城镇居民医保) in 2007, and the initiative of Big Illness Medical Insurance (大病医保) in 2012.[1] At first glance, it seems that the Chinese public health system is gradually proceeding in its breadth and depth. However, such gradualism has marginalized the poor and failed to contribute to the ideal of “Shared Prosperity” (共同富裕). This article analyzes the historical trends of healthcare schemes and evaluates its outcomes in the perspective of poverty alleviation for the underprivileged rural and urban population.

Historical Review of Healthcare Schemes

The Maoist Era: 1949-1978
From 1949 to 1978, following the model of the Soviet Union, the central government started a two-dimensional healthcare system: the Commune-based Cooperative Medical Scheme (CMS) in the rural area and the Labor Insurance Scheme (LIS) and the Government Insurance Scheme (GIS) in the urban area. There’s a “salient divide” between rural and urban public insurance provision, but healthcare services were provided mainly by public insurance.[2] All these public health schemes, GIS, LIS, and CMS, improved the overall health of the Chinese population. As shown in Table 1, the infant mortality rate was 146 per thousand for males and 130 for females in 1950, which declined to 36 and 45 respectively in 1982. Also, life expectancy rose dramatically during this period from roughly 44 in 1950 to approximately 67 in 1982. Compared to other countries along the Pacific Rim as shown in Table 2, China made great progress in health indicators from a global context during this period. Looking into the demographics shown in Table 1, China was predominantly a rural nation in 1950, with only 11% urban population. However, most of the resources were still concentrated in urban areas. A unique element of this period, barefoot doctors (赤脚医生) who gained basic training from urban physicians, played a significant role in controlling infectious diseases and expanding primary care for rural China.[3]

The Commune-based Cooperative Medical Scheme (CMS) played a major role in providing basic care in the rural area. Such basic care relied heavily on traditional Chinese medicines and medical care supplied by barefoot doctors who lacked professional training with minimum supervision from townships. The goal of the communal system was mainly to serve the five-year plan in industrialization and agricultural development, namely the Great Leap Forward. The communes controlled all ownership and provided school, nurseries, entertainment, and health care, which “seemed logical on a socialist planned economy”.[4] The funding of the CMS comes from the commune income and partly from individual farmers, who were required to pay a small registration fee to receive services. The penetration power of the communal system ensured a broad and cheap coverage. It estimated that “by the 1970s, 90% of the rural population was covered by a CMS.”[5] The scheme became an internationally recognized innovation for tackling the healthcare needs of the rural population. However, the abolition of the commune system not only led to difficulties in financing rural collective healthcare, but also removed its organizational basis.[6]

China’s urban health insurance system mainly consisted of the Labor Insurance Scheme (LIS) and the Government Insurance Scheme (GIS). LIS was “a work unit-based self-insurance system that covers medical treatment, medicine and hospitalization.”[7] GIS was “the public medical system for employees of the Government and State institutions, under which medical costs were covered by government budgetary allocation.”[8] The State-Owned Enterprises (SOEs) piggybacked much of the urban labor force to their respective work unites (单位), which would be increasingly perceived as a major barrier in the restructuring of the SOEs during the economic transition. Workers who did not work for the government or SOEs (meaning workers at privately owned firms) were left out of any public health scheme both in rural and especially urban areas. Furthermore, urban schemes did not cover dependents.[9] GIS and LIS used public funds to provide comprehensive benefits for certain elite groups with minimal cost sharing with beneficiaries, which resulted in a moral hazard effect that significantly increased healthcare costs.[10]

The Reform Era: 1978-2002
After the initiation of Deng’s pro-market approach in 1978, de-collectivization of agriculture achieved “unprecedented success in lifting average incomes and bringing millions out of poverty.”[11] The dual-track reforms, defined as using dual market- and plan- tracks to create “reform without losers,” worked well for industrialization in creating “planned suppliers” and “rational users,” but created problems for healthcare.[12] Instead of getting more and better healthcare coverage, the Chinese people experienced a decline in effective health insurance coverage with agricultural de-collectivization for rural peasants and the collapse of the “iron rice bowl (铁饭碗)” policy for urban employees.[13] As shown in Table 1, the infant mortality rate only decreased by less than 5 per thousand from 1982 to 1990, and about 18 per thousand from 1990 to 2000. Also, life expectancy barely rose during this period, from roughly 67 in 1982 to approximately 72 in 2000. Compared to other countries along the Pacific Rim as shown in Table 2, China’s increase in life expectancy was the least, 4.77% from 1980 to 2003 (23.53% from 1960 to 1980). Such a decline in health development was highly correlated with the drop in government health expenditures as shown in Table 3. From 1980 to 2000, out-of-pocket spending by individuals increased from 21% to 60% of all health expenditures. In contrast, the government expenditure shrank from over 36% to 14%. Nevertheless, “hospitals remained dominated by state ownership and government control; few private clinics were opened”.[14]

By 1979, an estimated 25-30% of the population was not directly covered by the CMS, GIS, or LIS and had to pay for healthcare out of pocket.[15] In 1985, the Ministry of Health phased out support for barefoot doctors.[16] Those who were able to pass the exams were now called “rural doctors (乡村医生)”, while others were re-categorized as “health workers (卫生员)”. From Figure 1, we can see that the number of rural doctors and health workers decreased significantly during this period compared to before. With policymakers focused on economic development and managing the introduction of market capitalism, healthcare was largely ignored. By 1986, only 5.4% of the villages had CMS scheme, 9.4% of the rural population was covered by the CMS, and 90% of the farmers were paying fees for treatment. [17] By 1993, less than 10% of the rural population was covered by CMS, GIS, or LIS.[18] In Figure 2, we see that private health companies still lacked coverage despite increased shares. By 2003, “80% of China’s rural population, around 640 million people, had no access to health insurance.”[19]

Looking into the demographics shown in Table 1, China’s urban population almost doubled from 1982 to 2000. However, during the transition from a command economy to a market economy, many SOEs with little competitive advantages had to close down and were forced to default on their social obligations to pay the workers’ medical bills. As a result, the urban workers “no longer perceive employment in SOEs as a secure guarantee of income for life complimented with generous benefits in kind.”[20] Likewise, the Chinese government “progressively pulled out from its role as payer of last resort, increasingly financial pressure on the delivery of public health schemes.”[21] In 1998, “nearly 50% of the urban population lacked coverage.”[22]

Rebuilding China’s healthcare system: 2002-Present
The Center for Health Statistics and Information revealed that by 2002, “45% of urban residents and 79% of the rural population had no health insurance whatsoever.”[23] Recognizing the increasing demand for healthcare and flaws of existing healthcare system, the central government launched a set of programs to curve the lack of access to healthcare, namely the Medical Financial Assistance (MFA) in 2002, the New Rural Cooperative Medical Scheme (NCMS) in 2003, and the Urban Resident Basic Medical Insurance (URBMI) in 2007. Some past reforms such as Public Health Service Administration Act in 1988, and the Urban Employee Basic Medical Insurance (UEBMI) in 1998, as well as the latest Decision on Comprehensive Reform in 2013 all contributed in forming the current healthcare system.

Hougaard et al summarized the current healthcare structure into two main groups: urban residents (U group), corresponding to 45.7% of the total population, and rural residents (R group), corresponding to 54.3% of the total population.[24] The categorization is closely related to the Hukou (户口) system, a population-registration system in which people are classified according to their geographical location.[25] The U group is covered by the UEBMI and the URBMI, while the R group is covered by the NCMS.

R Group and NCMS

The NCMS, compared to the CMS, operates at the county level instead of a commune level. Therefore, NCMS have access to “a larger and probably more diversified risk pool” than what CMS had.[26] On the other hand, NCMS focuses on the costs of inpatient care as opposed to CMS focus on basic services, including personal and communal preventive interventions. Though enrollment is voluntary, NCMS has expanded rapidly from 333 participating counties in 2003 to 2176 counties by 2009 (as shown in Table 4); insurance coverage among rural residents increased more than seven-fold from 13% to 92% between 2003 and 2008; by 2009, 94% of rural residents had insurance coverage: 90% from the NCMS and 4% from other social health insurance programs.[27] The annual premium was 30 RMB per person (10 RMB each from central and local governments, and 10 RMB from individual residents) in 2003. By 2010, the annual premium increased to 120 RMB per year (50 RMB each from central and local governments, and 20 RMB from individuals for poor regions). In the wealthier regions, the local government is responsible for financing a larger part of the government share. In addition, poor households are eligible for support from the MFA program, which covers the individual share of the NCMS contribution.

At first glance, the NCMS looks just like a modern substitute of CMS. In reality, however, most rural population cannot afford the down payment for major illnesses and lack the literacy to understand the reimbursement process. Also, deficiency in professional medical workers persists despite some improvements as shown in Figure 1. The lack of access to qualified drugs and medical equipment makes it even harder for the poor to get efficient treatments, which can vary more across different regions (i.e. rural area of Shanghai could be dramatically different from rural area of Jilin). Though the Hukou system seems to make it easier for the NCMS to target the poor, it excludes certain special groups such as the Chinese rural workers (农民工). According to the National Bureau of Statistics, rural worker population reached 225.42 million in 2008.[28] Some of these workers in China have already enrolled in the government healthcare insurance program. Approximately 46.41 million are enrolled in the urban workers’ insurance program (医保自由2012); however, it does not allow rural workers to receive reimbursements when outside the city of their employment.[29] Realizing not being able to take advantage of the NCMS, a lot of rural workers try not to pay their dues for healthcare and just not go to the hospital when getting sick, according to a doctor the author interviewed in Jilin.

U Group, URBMI, and UEBMI

Hougaard et al. further categorized the U Group in to three subgroups according to job functions: Group A (5% of the total population) consisting of staff in all levels of government covered by the Public Health Service Administration Act, Group B (13%) consisting of staff in all kinds of enterprises in urban areas covered by the UEBMI, and Group C (32%) consisting of urban residents without formal employment covered by the URBMI.[30] For Group U-A, all healthcare expenses are basically fully covered. Even though the central government announced that there will be “a gradual change of conditions for Group A towards a system more like that of Group B,” it will be hard to remove the full coverage once it is applied for a while (since 1988).[31] For Group B, the UEBMI is mandatory. The scheme works like an employer-based insurance scheme consisting of both an individual account and social pooling with the fixed rates set by the central government. Employers pay a 6% payroll tax, and employees pay an additional 2% as shown in Table 4. The employee share (2%) plus 30% of the employer share make up the medical savings account, and the remaining 70% from employers are paid into a pooled account. For Group C, participation is voluntary. The central government provides annual subsidies to local governments which independently develop and implement URBMI according to their needs, as well as determine financing requirements. The goal of URBMI is to enroll all cities in the insurance scheme by 2010. “As the programme is not yet fully implemented, experience is relatively limited.”[32] According to a survey, in 2007, an estimated 36% of the costs were covered by central and local governments, leaving the rest to be paid as a premium.[33] It shows that even though there have been efforts from the central government to fill the gap for the urban underprivileged population, the system is not well-designed enough to really benefit the urban poor.

Conclusion
The overall goal of the central government healthcare reforms is to establish a universal basic healthcare system in providing secure, efficient, and affordable healthcare service by 2020, which was further stressed on the Decision on Comprehensive reforms.[34] However, the historical evidence of the healthcare system has exposed the predatory nature of the Chinese regime and the inability for the system to adapt to efficient changes. In other words, the urban population with wealth and power has always been receiving the best coverage possible ever since the Mao era. Facing the economic transition, the underprivileged urban residents and the rural peasants were forced to the bear the most severe burden of disease. Even after reforms aimed at combating inequality in the health system, the most underprivileged population in urban and rural areas still had to bare substantial costs out of their own pocket. If the Chinese policymakers have an agenda to provide universal healthcare, this fundamental problem of disparity must be addressed.

Xinzhu Li