Privatization and Its Discontents – The Evolving Chinese Health Care System
By David Blumenthal, M.D., M.P.P., and William Hsiao, Ph.D.
The New England Journal of Medicine
September 15, 2005
…the means of China’s ascendancy probably would have infuriated Mao.
Instead of adopting a socialist and collectivist strategy that relies on central governmental control and emphasizes social equality, the Chinese have privatized their economy and decentralized much governmental control to provincial and local authorities. And instead of putting the interests of China’s rural peasants first, as Mao advocated (his was a peasant revolution, starting in China’s vast countryside), China’s current leaders have poured money into its cities and let rural areas languish. The results have been huge and growing disparities in the well-being of populations in urban and rural areas and increasing social strife.
China faces huge health care problems that make those of the United States seem almost trivial by comparison and that constitute a major potential threat to China’s domestic tranquility. At the same time, with governmental coffers swollen by tax revenues from its booming economy, the Chinese have opportunities for health care improvement that Western policymakers can only envy. This combination of massive challenges and huge opportunities makes the Chinese health care system a unique laboratory that Western health care planners cannot afford to ignore.
From 1952 to 1982, the Chinese health care system achieved enormous
improvements in health and health care. Then, in the early 1980s, China virtually dismantled its apparently successful health care and public health system overnight, putting nothing in its place. In retrospect, this startling and almost inexplicable event seems to have been collateral damage from a much more carefully planned and successful policy strike: the privatization of China’s economy and a general effort to reduce the role of Beijing’s central government in China’s regional and local affairs. Only recently have Chinese authorities recognized the pain and the massive disruption in health care that they have caused.
Reduction in governmental support for the health care system had the effect of largely privatizing most Chinese health care facilities, forcing them to rely more on the sale of services in private markets to cover their expenses after allocations from public sources declined. Public hospitals came to function much like for-profit entities, focusing heavily on the bottom line. The Chinese government informally sanctioned this privatization of hospitals and clinics by ignoring it.
…the efficiency of the Chinese health care system has declined precipitously. With the growth of the private health care sector, the number of Chinese health care facilities and personnel have increased dramatically since 1980, but because of barriers to access, the use and thus productivity of the health care sector have declined. To many in the United States, this portrait of pockets of medical affluence in the midst of declining financial access and exploding costs and inefficiency will sound depressingly familiar.
Health expenses are a leading cause of poverty in rural areas and a major reason that peasants migrate to cities seeking proximity to better health care facilities and higher wages to pay for care.
The Government Responds
To its credit, the Chinese government has recognized and begun to address the huge health care problems that it created. It has done so with remarkable pragmatism, uninhibited by ideology and often importing (after careful examination) solutions pioneered in other countries. China also benefits at this time from a rare financial opportunity. Because of the rapid growth in its economy, national and local governments have sufficient tax revenues to make substantial health care investments without reducing spending for competing social services, such as housing and education, or for defense, which is now a priority for Chinese leaders.
Since China now seems to consist of two societies, urban and rural, the government has launched different strategies for ameliorating problems in these two locales. It has tried to recreate an urban health care safety net through a system that knits together a variety of devices that will be familiar to U.S. health care policymakers. The first is mandated employer insurance. In 1998, the central government required all private and state-owned enterprises to offer their workers medical savings accounts combined with catastrophic insurance. Imported from Singapore, the medical savings accounts require people to save their own money to pay for a portion of their personal medical expenses. The hope is that because medical savings accounts contain the patients’ own money, patients will be sensitive to the costs of care but will still have protection against those expenses.
The system is far from perfect. Some employers have refused to comply with state mandates, claiming they cannot afford the contributions. Many urban dwellers do not work for organized employers. Companies form and disband rapidly to avoid paying benefits to workers. Dependents of workers may not be covered. An indigenous Chinese private health insurance industry has arisen to sell health insurance to a wealthy minority that can afford it, and China is considering permitting foreign insurance companies to sell health care coverage as well. Whether the Chinese government will be able to cover the 51 percent of urban residents who still lack protection against the cost of illness, and how it would do so, is far from clear at this point.
The central government was slower and more reluctant to address health care problems in rural areas, but it was forced to act because of evidence that health care expenses were undermining other government efforts to alleviate poverty among the peasantry. In 2002, officials launched experiments to create a very rudimentary financial safety net for health care. Under these schemes, the government provides the equivalent of $2.50 a year to help cover a basic insurance plan for peasants, who must match this with an annual $1.25 of their own. Because of their modest funding, these plans cover only inpatient care (with a very high deductible) and leave peasants without adequate primary care services and drugs.
Looking Back and Looking Forward
The recent history of the Chinese health care system offers a number of lessons for observers in the United States and elsewhere. It seems clear that the radical privatization of health care systems carries enormous risks for the health of citizens and for the stability of governments. The Chinese example further reveals that government involvement may be essential to ensure an effective health care safety net and that, regardless of their language, history, or culture, providers will confer the services they are rewarded for offering. When Chinese doctors and hospitals were rewarded for providing high-tech services, they did exactly what U.S. doctors and hospitals have been doing for decades, with the same effects on use and costs. In fact, an overriding lesson of the Chinese experience is a warning to the rest of the world: if leaders anywhere care to, they can mimic and even exceed the inequities and inefficiencies that the U.S. health care system has exemplified for so long.
At the same time, optimists can find reason for hope as China struggles with its self-inflicted health care wounds. China’s leaders have begun purposefully and soberly to tackle the enormous social engineering challenge of repairing past damage and shaping a new health care system that fits their unique social system and culture. It is hard to say precisely what that system will look like, but it will undoubtedly combine private and public provision of both insurance and services, and it will look very different in rural and urban areas. A major unaddressed challenge for China (and for the United States) is how to reform an inefficient, poorly organized health care delivery system that is bloated in urban areas and threadbare in rural sectors. A further challenge facing China will be instilling in health care professionals, and especially physicians, an ethic of professionalism that is essential to ensure that private health care systems protect the interests of patients and provide care of reasonable quality.
Comment: China’s experience demonstrates once again the truism that private health care systems follow the money. We’ll never get it right until we agree that private health care systems need public stewards to ensure that the money trail leads to quality care for all.