Health insurance still lets down the rural poor

January 6, 2014 by Wei Yang

In October 2013, Zheng Yanliang, a 47-year-old Chinese farmer, sawed off his right leg because he couldn’t pay a doctor to perform the operation in hospital. Zheng was later sent to a hospital to be treated free of charge, but this did not stem the torrent of public outrage over the tragedy. Posts on social media were immediate and critical: how could such a tragedy even happen when the government claims that China has achieved universal health care in rural areas?

Most Chinese government officials today are more than willing to talk about the success of the rural health care reform, especially the New Cooperative Medical Insurance Scheme (NCMS), which was launched a decade ago. According to China’s top health authority, approximately 99% of rural Chinese, or 800m individuals, are now covered by the NCMS, making it the largest health insurance programme in the world.

While the government has continued to proclaim the success of the NCMS, public dissatisfaction has grown as health care costs have continued to rise sharply and quality service has become increasingly unaffordable in rural China. Zheng Yanliang, the Chinese farmer suffering from blood clot complications, reportedly decided to sever his right leg because he had no money to pay for a doctor to perform the amputation.

Nor was Zheng’s story the first incident of this sort to occur in rural China. In early December, in a rural village in Hunan Province, a number of old people committed mass suicide because they could not pay for their health care, and they did not want to become burdens for their children.

How can these tragedies happen when almost all rural Chinese are covered by the NCMS? To answer this question, we need to look at the overall design of the scheme, as well as the structural problems embedded in China’s health care system. One major concern is that the NCMS only offers a limited benefit package for its rural participants. When the NCMS was first initiated in 2003, a large proportion of primary interventions involving outpatient care was excluded from the benefits package. Outpatient care, however, is not cheap for rural farmers.

Lack of coverage for outpatient care in many cases can lead to patients becoming seriously ill because they cannot afford primary or preventive care that might address their health problems early on. Although the NCMS extended its coverage to outpatient care in 2007, the benefit package mainly concentrates on catastrophic outpatient care, most of which is associated with the treatment of post-surgical conditions or severe diseases, such as chemotherapy and dialysis. Similarly, for inpatient care, only a limited number of diseases are eligible for full reimbursement. Many common life-threatening diseases, such as lung cancer, are not included in the eligible list, and health costs for inpatient care of these diseases remain high even after insurance payments.

The reimbursement rates for the NCMS are much lower compared with the Urban Employee Insurance (UEI), which is targeted at urban residents. The average officially claimed reimbursement rate for inpatient care for NCMS is only 55%, whereas the rate for UEI is between 70-80%. This means that rural farmers would still need to pay approximately half of their medical costs out of pocket even if they are covered by the NCMS. Many Chinese farmers, such as Zheng, are left with a choice between forgoing care they needed or treatment that could push them into poverty.

What makes the situation even worse is the complicated reimbursement procedure. The NCMS patients have to pay the costs of care upfront and then wait for reimbursement, while the net co-payment is usually based on complex formulas for deductibles, ceiling and different reimbursement rates, and these issues are often even more confusing for outpatient services. Farmers feel perplexed about how much they should pay for the care they receive.

Problems arising from NCMS’s inadequate benefit package and the complex reimbursement process have been further exacerbated by the fee-for-service (FFS) health care system, which allows health care providers to make a profit on services rendered and on prescription drug sales. Because most health facilities in China rely heavily on directly provided health services and prescription drug revenues to survive, doctors in these health facilities are likely to charge more from those who are entitled to insurance benefits. In this context the availability of insurance payments such as the NCMS reimbursements can create incentives for overprescribing of medicines and the overuse of health services, which insured patients (and the uninsured as well) are helpless to combat. Scholars have argued that the NCMS has had limited impact in reducing out-of-pocket payment for health care; in some cases, the NCMS may in fact stimulate unnecessary care.

There is also an equity issue in terms of how the scheme is financed. The biggest beneficiaries of the scheme are always the richest farmers. The NCMS households pay the same contribution irrespective of their income. The scheme does not subsidise the poor, even though they often have high health needs, and demand for them is usually price sensitive. The poor are just as likely to choose to forgo care rather than risk deeper impoverishment of their families by venturing into hospital.

The scheme also does next to nothing for a huge section of rural migrant workers that have moved to work in urban areas in recent years. As these workers are usually breadwinners, their health status directly affects the income and living standards of their respective households. Yet according to the Ministry of Human Resources and Social Security, only about 20% of migrant workers have health insurance. These migrant workers cannot formally register in urban areas because of their household registration status (hukou). Neither are they eligible for enrolling in any urban social health insurance scheme or employee-based insurance. As a result, these migrant workers, on whose labour China’s economic boom depends, are forced into unlicensed and unregulated black clinics if they fall ill.

In summary, the Chinese government needs to take urgent action to improve the rural health care system, in particular, the NCMS. Obviously, this is not an easy task to get right. As pointed out by Professor Li Ling, an expert in health economics from Peking University, whether China’s health system is able to meet the people’s health needs will largely depend on the government’s inventiveness and willingness to implement new initiatives to change the fundamental problems in its health care system.

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