China’s Health Insurance Reform And Disparities In Healthcare Utilizatio And Costs A Long Gitudinal Analysis

China’s Health Insurance Reform and Disparities in Healthcare Utilization and Costs A Longitudinal Analysis Henu Zhao... 67 Table 5.9 Test Results of Disparities for Inpatient Care Ut

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This product is part of the Pardee RAND Graduate School (PRGS) dissertation series PRGS dissertations are produced by graduate fellows of the Pardee RAND Graduate School, the world’s leading producer of Ph.D.’s in policy analysis The dissertation has been supervised, reviewed, and approved by the graduate fellow’s faculty committee.

China’s Health Insurance

Reform and Disparities

in Healthcare Utilization

and Costs

A Longitudinal Analysis

Henu Zhao

China’s Health Insurance

Reform and Disparities

in Healthcare Utilization

and Costs

A Longitudinal Analysis

Henu Zhao

This document was submitted as a dissertation in October 2014 in

partial fulfillment of the requirements of the doctoral degree in public

policy analysis at the Pardee RAND Graduate School The faculty

committee that supervised and approved the dissertation consisted

of Hao Yu (Chair), Emmett Keeler, and Gema Zamarro.

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Tables v

Figures ix

Abstract xi

Acknowledgements xiii

Chapter 1 Introduction 1

Chapter 2 Background 3

2.1 Health insurance reform in China 3

2.1.1 Collapse of health insurance schemes in the 1970s and 1980s 4

2.1.2 Early efforts in the 1980s and early 1990s 5

2.1.3 Health insurance reform since the late 1990s 6

2.1.4 Healthcare reform after 2009 9

2.2 Three Major Health Insurance Schemes 10

2.2.1 The Basic Medical Insurance for Urban Employees 10

2.2.2 The Basic Medical Insurance for Urban Residents 11

2.2.3 The New Rural Cooperative Medical Insurance 13

2.3 Trends and Current Status of Healthcare Disparities 13

Chapter 3 Literature Review and Study Objectives 19

3.1 Existing Research 19

3.1.1 Literature on Rural–Urban Disparities in Healthcare Utilization 19

3.1.2 Literature on Disparities in Out‐of‐Pocket Expenditure and Healthcare Costs 21

3.1.3 Literature on Disparities in Health Insurance Coverage 22

3.1.4 Methodological Issues 22

3.2 Gap in the Existing Literature 26

3.3 Objectives and Research Questions 27

Chapter 4 Study Design 28

4.1 Data 28

4.2 Study Periods 30

4.3 Conceptual Model and Variable Selection 30

4.3.1 Dependent Variables 31

4.3.2 Independent Variables 33

4.4 Analytic Approach 38

4.4.1 Difference‐in‐Differences Analysis with Multiple Groups and Multiple Time Periods 38

4.5.4 DID Analysis Results for Variables in Which Parallel Trends did not Hold 47

Chapter 5 Results: Disparities in Healthcare Utilization 48

5.1 Descriptive Analysis 48

5.2 DID Analysis for Formal Care Utilization and Outpatient Utilization 51

5.3 Multivariate Analysis Controlling for Existing Trends for Inpatient Utilization 57

5.4 Sensitivity Analysis 64

5.4.1 Controlling for Insurance Status 64

5.4.2 Dropping the Richest Province or the Poorest Province 71

5.4.3 Including Interaction Terms with Household Income 80

5.4.4 DID Analysis for Inpatient Care 84

5.5 Summary of Findings 85

Chapter 6 Results: Disparities in healthcare costs 88

6.1 Descriptive Analysis 88

6.2 Multivariate Analysis Controlling for Existing Trends 91

6.3 Sensitivity Analysis 103

6.3.1 controlling for health insurance status 103

6.3.2 dropping the richest province or the poorest province 107

6.3.3 Including interaction terms with household income 116

6.3.4 DID analysis results for cost variables 131

6.4 Summary of Findings 133

Chapter 7 Conclusion, Discussion, and Policy Implications 135

7.1 Conclusion 135

7.2 Discussion 137

7.2.1 Comparing With the Published Research 137

7.2.2 Strengths 138

7.2.3 Limitations 139

7.2.4 Future Directions 140

7.3 Policy Implications 140

Appendix 143

Reference 145

Table 4.1 Sample Size by Rural and Urban Residences and Registrations 29

Table 4.2 Descriptive Statistics of Independent Variables by Rural and Urban Residences and Registrations 37

Table 4.3 Results of DID Analysis Using 1993 and 1997 Waves for Healthcare Utilization 42

Table 4.4 Results of DID Analysis Using 1993 and 1997 Waves for Healthcare Costs 44

Table 5.1 DID Analysis Results for Formal Care Utilization and Outpatient Utilization 54

Table 5.2 Test Results for DID Analysis of Formal Care Utilization and Outpatient Utilization 55

Table 5.3 Multivariate Analysis Results for Inpatient Care Utilization 59

Table 5.4 Test Results of Disparities for Inpatient Care Utilization 60

Table 5.5 Test Results of Change in Disparities for Inpatient Care Utilization 62

Table 5.6 DID Analysis Results of Formal Care and Outpatient Utilization (Controlling for Insurance Status) 65

Table 5.7 Test Results for DID Analysis of Healthcare Utilization (Controlling for Insurance Status) 66

Table 5.8 Multivariate Analysis Results for Inpatient Care Utilization (Controlling for Insurance Status) 67

Table 5.9 Test Results of Disparities for Inpatient Care Utilization (Controlling for Insurance Status) 69

Table 5.10 Test Results of Change in Disparities for Inpatient Care Utilization (Controlling for Insurance Status) 70

Table 5.11 DID Analysis Results for Formal Care and Outpatient Utilization (Dropping the Richest Province) 73

Table 5.12 Test Results for Formal Care and Outpatient Utilization (Dropping the Richest Province) 74

Table 5.15 Multivariate Analysis Results for Inpatient Utilization (Dropping the Richest/Poorest Province) 77

Table 5.19 Test Results for Formal Care and Outpatient Utilizations (Including Interaction Term with Household Income) 83

Table 5.20 DID Analysis Results for Inpatient Care Utilization 84

Table 5.21 Test Results for Inpatient Care Utilization (DID Analysis) 85

Table 6.1 Multivariate Analysis Results for OOP Exceeding Certain Percentage of Household Income 93

Table 6.2 Multivariate Analysis Results for Total Healthcare Costs 95

Table 6.3 Test Results of Disparities for OOP Exceeding Certain Percentage of Household Income 100

Table 6.4 Test Results of Changes in Disparities for OOP Exceeding Certain Percentage of Household Income 101

Table 6.5 Bootstrap Results for Disparities in Total Health Costs 103

Table 6.6 Multi‐variate Analysis Results for OOP Exceeding Certain Percentage of Household

Income (Controlling for Insurance) 104

Table 6.7 Test Results of Disparities for OOP Exceeding Certain Percentage of Household Income (Controlling for Insurance) 105

Table 6.8 Test Results of Changes in Disparities for OOP Exceeding Certain Percentage of Household Income (Controlling for Insurance) 106

Table 6.9 Bootstrap Results for Disparities in Total Health Cost (Controlling for Insurance) 107

Table 6.10 Multi‐variate Analysis Results for OOP Exceeding Certain Percentage of Household Income (Dropping the Richest Province) 109

Table 6.11 Test Results of Disparities for OOP Exceeding Certain Percentage of Household Income (Dropping the Richest Province) 110

Household Income (Dropping the Richest Province) 111

Table 6.13 Multi‐variate Analysis Results for OOP Exceeding Certain Percentage of Household Income (Dropping the Poorest Province) 112

Table 6.14 Test Results of Disparities for OOP Exceeding Certain Percentage of Household Income (Dropping the Poorest Province) 113

Table 6.15 Test Results of Changes in Disparities for OOP Exceeding Certain Percentage of

Household Income (Dropping the Poorest Province) 114

Table 6.16 Bootstrap Results for Disparities in Total Health Costs (Dropping the Richest Province) 115

Table 6.17 Bootstrap Results for Disparities in Total Health Cost (Dropping the Poorest Province) 116

Table 6.18 Multi‐variate Analysis Results for OOP Exceeding Certain Percentage of Household Income (Low‐income Families) 118

Table 6.19 Test Results of Disparities for OOP Exceeding Certain Percentage of Household Income (Low‐income Families) 119

Table 6.20 Test Results of Changes in Disparities for OOP Exceeding Certain Percentage of

Household Income (Low‐income Families) 120

Table 6.21 Multi‐variate Analysis Results for OOP Exceeding Certain Percentage of Household Income (Medium‐income Families) 122

Table 6.22 Test Results of Disparities for OOP Exceeding Certain Percentage of Household Income (Medium‐income Families) 123

Table 6.23 Test Results of Changes in Disparities for OOP Exceeding Certain Percentage of

Household Income (Medium‐income Families) 124

Table 6.24 Multi‐variate Analysis Results for OOP Exceeding Certain Percentage of Household Income (High‐income Families) 126

Table 6.25 Test Results of Disparities for OOP Exceeding Certain Percentage of Household Income (High‐income Families) 127

Table 6.26 Test Results of Changes in Disparities for OOP Exceeding Certain Percentage of

Table 6.30 DID Analysis Results for OOP Exceeding Certain Percentage of Household Income 132

Table 6.31 Test Results for OOP Exceeding Certain Percentage of Household Income (DID Analysis) 132

Table 6.32 Bootstrap Results for Disparities in Total Health Costs (DID Analysis) 133

Figure 2.1 Health Insurance Coverage in Urban and Rural Areas in China, Selected Years 1993‐2008

15

Figure 2.2 Health Service Utilization in Urban and Rural Areas in China (2003) 16

Figure 2.3 Healthcare Spending in China, by Source and Year 17

Figure 2.4 Per Capita Out‐of‐Pocket Health Expenses as a Percentage of Income 18

Figure 4.1 Updated Structure of Anderson Model 31

Figure 5.1 Probability of Formal Care Utilization in 4 Weeks by Rural and Urban Residences and Registrations 48

Figure 5.2 Probability of Outpatient Care Utilization in 4 Weeks by Rural and Urban Residences and Registrations 49

Figure 5.3 Probability of Inpatient Care Utilization in 4 Weeks by Rural and Urban Residences and Registrations 50

Figure 5.4 Predicted Probability of Formal Care Utilization in 4 Weeks by Rural and Urban Residences and Registrations 56

Figure 5.5 Predicted Probability of Outpatient Care Utilization in 4 Weeks by Rural and Urban Residences and Registrations 57

Figure 5.6 Predicted Probability of Inpatient Care Utilization in 4 Weeks by Rural and Urban Residences and Registrations 63

Figure 6.1 Probability of Having Out‐of‐pocket Medical Expense Exceeding 20% of Household Income by Rural and Urban Residences and Registrations 89

Figure 6.2 Probability of Having Out‐of‐pocket Medical Expense Exceeding 40% Household Income by Rural or Urban Residences and Registrations 90

Figure 6.3 Total Healthcare Costs by Rural and Urban Residences and Registrations 91

Figure 6.4 Predicted Probability of Having OOP Exceeding 20% of Household Income by Rural and Urban Residences and Registrations 97

Figure 6.5 Predicted Probability of Having OOP Exceeding 40% of Household Income by Rural and Urban Residences and Registrations 98

China’s economic success during the past 30 years was not mirrored in its health care system As a result, the rural‐urban disparities in health insurance coverage and the related health care areas became prominent Since the late 1990s, China has been

expanding insurance coverage, in order to provide accessible and affordable health care to all residents My study analyzes whether the insurance expansion reduces rural‐urban disparities in terms of health care utilization and financial protection To my knowledge, this is the first study to address the disparity issue by examining China’s health care reform policies over an extended 18‐year period (1993‐2011) It is also the first study to address the dynamic phenomenon of rural‐urban migration during the study period by separating the study group into 4 subgroups in terms of respondents in residential areas versus

household registration type

Drawing on seven waves of data from the China Health and Nutrition Survey and applying multivariate analysis techniques, such as difference‐in‐difference analysis and generalized linear model, I find that rural‐urban disparities in formal care and outpatient utilization were significantly reduced by the expanded health insurance coverage in rural area in 2003 The rural‐urban disparity in total health costs is also significantly reduced However, no evidence shows that the policy changes in health insurance coverage had impact on disparities in inpatient utilization or having high out‐of‐pocket payments By conducting several sets of sensitivity analyses, my study also finds that the expanded

The study findings have important policy implications for China’s ongoing health care reform First, China’s policy makers should provide better health care coverage and more health care resources to rural areas to further reduce the rural‐urban disparity Second, since prior policy changes affected rich province more than poor province, new policy should target specifically poor provinces Third, given the finding that the positive impact on health care utilization of policy change in 2003 happening mainly in high‐income groups, new policy change should focus more on medium‐ and low‐income group

I am grateful for the support provided by my wonderful dissertation committee: Dr Hao Yu, Dr Gema Zamarro, and Dr Emmett Keeler The successful completion of this

dissertation was a consequence of their excellent guidance I am especially thankful for mentorship of my Committee Chair, Hao His timely feedbacks on our weekly meetings were crucial to keep me on the right track I would also like to thank Gema and Emmett for their insightful and constructive advices on the policy context and methodological issues I also want to thank my outside reader Teh‐wei Hu, Professor Emeritus of Health Economics, University of California, Berkeley, for his helpful and responsive comments on my

dissertation

I would also like to thank my research mentor Nelson Lim He taught me how to do research and how to write, and provided me with advices and encouragement during my dissertation work I would also like to thank the PRGS faculty, staff and students for their help during my dissertation writing

The dissertation would not have been possible without the generous financial

support provided by the Rosenfeld Dissertation Award

Lastly, I would like to extend special thanks to my parents for their trust and

encouragement, and to my husband, Yong Fu, for his love and support

Chapter 1 Introduction 

China experienced rapid economic growth in the past two decades, benefiting many sectors of the economy However, the economic success was not mirrored in the healthcare system Instead, the transition from a centrally planned economy to a market‐oriented economy has caused problems in the public health arena For example, after the economic reforms started in 1978, the existing health insurance providers faced increased

operational challenges, and as a result, many residents lacked any form of health insurance The condition was especially troublesome in rural areas, revealing sharp rural‐urban disparities in health insurance coverage and related healthcare services and costs Since the late 1990s, there have been attempts to expand public health insurance coverage to both rural and urban residents in order to provide accessible and affordable healthcare to all residents Another goal of the healthcare reforms was to provide healthcare to the poor and disadvantaged populations As of the end of 2011, three health insurance programs, called schemes, were established, covering most of the rural and urban residents with some form of health insurance However, the performance of the current health insurance schemes has not been well examined Mixed findings have been presented regarding this issue My dissertation focuses on the role of health insurance in reducing the rural‐urban disparities in terms of healthcare utilization and financial protection, in the context of the current health insurance schemes

summarizes the research questions Chapter 4 presents the study design, including data used, conceptual framework, and analytical approach Chapters 5 and 6 present the results

of the study In Chapter 7, I conclude the study and present policy implications

Chapter 2 Background  

The great economic reform in China brought changes to all areas of the economy, including the healthcare system Unfortunately, as a result, many residents lost health

insurance coverage The existing health insurance schemes experienced difficulties in

providing sufficient healthcare to insured residents The cooperative medical scheme (CMS) providing rural health insurance experienced the greatest damage In response to the

emerging problems in its healthcare system, China has made numerous attempts to rebuild universal coverage system since the late 1990s Through decades of effort, the Chinese government has developed three systems, in both urban and rural areas, which provide coverage for more than 90% of the population During the launch of each new health

insurance scheme, the government also proposed other measures to provide more

healthcare resources to the targeted population These measures work together with the health insurance systems to provide sufficient and affordable healthcare to all residents Although there has been great progress, the health insurance system is far from perfect The health insurance reform is still underway, and the effect of the expanded insurance coverage in China is still under debate

2.1 Health insurance reform in China 

In this section, I review the history of health insurance reform in China The health insurance system collapsed in the late 1970s, and a great number of residents left

uninsured Starting from the late 1990s, the government established three new health

agricultural workers The economic reforms brought changes to the healthcare sector,

weakening all three forms of insurance to some extent First, the government‐run hospitals under the GIS experienced financial difficulties and thus were hard pressed to provide

sufficient healthcare service to those insured under GIS One reason for the financial crisis was that the economic reforms led to relaxation of price controls, and as a result, the costs incurred by the government‐run hospitals increased Another reason is that the

government contributed less to public hospitals: Government contributions shrank from 50%

in the 1980s to less than 10% in 2000 (Wang 2004) Second, during the reform, financial autonomy was granted to the SOEs As a result, a large number of SOEs closed, and many employees lost their jobs Thus, the number of those insured by the LIS was reduced Even those who kept their jobs found that their SOE employers faced difficulties in financing

health insurance for workers (Li 2008) Finally, in the rural areas, the basic production unit

health insurance coverage (Hsiao 1984; Liu 2004)

As mentioned, all three major health insurance systems experienced damages as a result of the changes brought by the economic reforms, and among them, the rural health insurance scheme CMS faced the biggest challenge By 1998, the percentage of rural

residents with any form of health insurance coverage had dropped to 13%, compared to 56% for residents covered in urban areas (China Ministry of Health, 2004) As the urban‐rural gap widened, the urban‐rural disparity in health insurance started to draw more attention

2.1.2 Early efforts in the 1980s and early 1990s

Before the major health reforms began in the late 1990s, there had been attempts to improve the existing health insurance systems Even since the 1980s, actions had been

taken in urban areas to relieve the financial burden on the health insurance systems By introducing demand‐ and supply‐side cost sharing, the attempts in the 1980s focused on reducing costs These actions curbed the rapid healthcare cost growth, but they were not able to solve the fundamental financial problems (Liu 2002) Beginning in the early 1990s, the government introduced more actions to increase the level of risk pooling In 1995, the government introduced a new model combining individual responsibility and social

protection with city‐wide risk pooling However, pilot programs of the new system were launched in only two cities and were not spread nationwide until the late 1990s

complete the current CMS systems based on local economic conditions However, the local actions only slightly increased the health insurance coverage in rural areas Most of the coverage concentrated only on developed provinces and cities, such as Shanghai, Jiangsu, Guangdong, and Shandong By the end of 1990s, most of the rural residents were left

uninsured

2.1.3 Health insurance reform since the late 1990s

In response to the emerging problems in its healthcare system, China has made numerous attempts to rebuild universal coverage since the late 1990s The goal of

universal coverage is to provide safe, effective, convenient, and affordable basic medical services to all urban and rural residents (State Council, 2009) One of the most important components of universal coverage is health insurance Before this goal of universal

coverage was officially introduced in 2009 with the Chinese government’s announcement

of the blueprint for health system reform, health insurance reforms in both urban and rural areas had resulted in greater health insurance coverage Three major health insurance schemes were established The Urban Employees Basic Medical Insurance was launched in urban areas in 1998, and the Urban Residents Basic Medical Insurance was launched in

2007 In rural areas, the New Rural Cooperative Medical Insurance (NRCM) was

established in 2003 In 2008, the two urban health insurance schemes covered about 65%

of urban residents, and the rural scheme covered about 90% of rural residents (National Health Services Survey, 2008) The three major health insurance schemes are discussed in detail in the next section

utilization of healthcare was also subjected to medical resources available Instead of only providing health insurance coverage to residents, the healthcare reform was a

of the medical system Local governments at the county level were responsible for the operational cost of the local medical facilities The central government and local

governments at the province level provided undeveloped areas with subsidies for

infrastructure construction

Second, a medical assistance program was established in both rural and urban areas

In rural areas, the program was launched in 2003 The program was to provide financial assistance to low‐income households The assistance could either be used to treat

Third, training of medical professionals was enhanced in rural areas In its 2002 document No 13, the State Council announced measures to improve the quality of medical professionals in rural areas In post‐secondary medical schools, the Council introduced a 5‐year program after middle school and a 3‐year program after high school, in an effort to produce more medical professionals, especially for rural areas Medical graduates and retired medical professionals from urban areas were encouraged to go back to work in rural areas (State Council, 2002) As a reflection of ongoing progress, measures to improve education and training of medical professional were introduced again in a new round of health reform (State Council, 2009) Healthcare workers were encouraged to attend formal education programs and obtain official licenses The training of general practitioners for rural areas was included in the Ministry of Education 2010 work plan The government provided the training costs (Meng and Tang 2010)

Finally, the government undertook other actions to refine the whole medical system, such as regulation of drug policy, allocation of medical funding, and strengthening of

administration and supervision system All the measures worked as a whole to improve the medical service for both rural and urban areas

As mentioned in the previous section, the goal of universal coverage was brought up

by the State Council in 2009 The goal was published in the Opinions on Deepening the Reform of the Healthcare System (State Council, 2009), which marked a new era of health care reform in China In this round of healthcare reform, the State Council set up the goal of the universal coverage for the first time It was also the first time for the Chinese

governments to break the urban‐rural dichotomy and to provide equivalent public

healthcare service to both urban and rural residents

In order to achieve the goal of universal coverage, all three existing health insurance programs were to be improved In addition to extending insurance coverage to the

uninsured population, the benefit coverage of the insured was to be increased and

expanded to cover catastrophic illnesses and outpatient visits Another goal of the new round of health insurance reform was to provide better healthcare coverage to vulnerable population, such as rural residents, low‐income families, unemployed former SOE

employees, senior population, the retired, the disabled and children The rural‐urban gap of benefit coverage was expected to be closed, and the medical assistant programs were going

to be strengthened

In addition to improving the health insurance system, the State Council also

launched other initiatives to change the health care system (State Council, 2009) The first was to provide equivalent public healthcare service to both rural and urban residents The

coverage for these basic drugs The third was to strengthen the grass root level medical service system In rural areas, a comprehensive medical system, including medical facilities

in county, town and village levels, was to be established, in order to provide medical

service at each local level In urban areas, community medical facilities were to be

strengthened Training for medical professionals were also improved at local levels Finally, pilot programs for public hospital reform were started by the central government after

2009

2.2 Three Major Health Insurance Schemes 

As discussed in the last section, China is now implementing ambitious reforms of the health insurance system, and three types of health insurance schemes have been launched These three schemes were launched in different years targeting different population

groups Two insurance schemes cover the urban residents, and the third one covers the rural residents

2.2.1 The Basic Medical Insurance for Urban Employees

In 1998, the Chinese State Council issued the Decision of the State Council on

Establishing the Urban Employees’ Basic Medical Insurance System This was the first step

in re‐establishing the health insurance system in urban areas The Urban Employees Basic Medical Insurance (UEBMI) is compulsory based on employment It provides basic medical insurance coverage for urban employees in both the public and private sectors (State Council, 1998) Local governments, mainly at the municipal level, set the level of

deductibles, copayments, and reimbursement caps according to local economic levels

nationwide By the end of 2002, about 94 million people participated in the UEBMI In order to further expand the coverage, the Ministry of Human Resources and Social Security issued Notification of Further Expanding the Coverage of the Urban Employees Basic

Insurance Coverage in 2003 By the end of 2008, the number of insured totaled 200 million

The UEBMI is financed by premiums from both employers and employees In their decision, the State Council suggested that the employers’ contribution be 6% of the

employee’s salary and the employees’ percentage be 2% The revenue collected from

premiums is distributed evenly into two independent accounts: the Medical Savings

Account (MSA) and the Social Pooling Account (SPA) All employees’ contributions and about 30% of employers’ contributions go into the MSA, and the remainder of the

employers’ contributions goes to SPA The two accounts are managed separately and pay for different services: the MSA covers outpatient and emergency services and drug

expenses, and the SPA covers inpatient services

2.2.2 The Basic Medical Insurance for Urban Residents

In 2007, the State Council issued guidelines to launch the Urban Residents Basic Medical Insurance (URBMI) According to the guidelines, the URBMI covers primary and secondary school students who are not covered by the UEBMI (including students in

professional senior high schools, vocational middle schools, and technical schools), young children, and other unemployed urban residents on a voluntary basis (State Council, 2007)

The URBMI was piloted in 79 cities, including two to three cities in each of the provinces that were able to participate, and expanded to more cities in 2008 and 2009, with the objective of covering 80% of all cities in the participating provinces In 2010, this insurance scheme was expanded nationwide and gradually extended to all unemployed urban residents The number of insured was about 43 million by the end of 2007 and increased to 118 million by late 2008 (China Ministry of Health, 2010)

The financing of this insurance program mainly comes from participants’ premiums The government also provides a smaller amount of subsidies, compared to the premium contributions The premium of the policy is determined by the local government, according

to the local economic level, the medical care expense level, and the participants’ household income level When the policy was launched, the government contribution was at least 40 Yuan per participant From this amount, the central government transfers 20 Yuan to central and western areas residents There are extra government subsidies for low‐income families, disabled students, and young children (State Council, 2007) The URMBI mainly targets people with chronic and fatal diseases; therefore, it covers more expenses for inpatient services In 2008, the URMBI covered 45% of expenses from inpatient service related to chronic and fatal diseases, which equaled 1436 Yuan per inpatient stay (State Council Evaluation Group for the URBMI Pilot Program, 2008)

In 2003, the State Council issued the Decision to Further Enhance the Rural Health Care System, aimed at re‐establishing the Rural Cooperative Medical Insurance (NRCM) The NRCM scheme covered the rural residents on a voluntary basis in order to avoid

impoverishment caused by catastrophic expenses from infectious and endemic diseases The NRCM was piloted in 2003 in selected counties In 2006, coverage increased to 40% of all counties, and about 60% in 2007 In 2010, the NRCM covered more than 90% of all rural residents

The NRCM was funded by premiums from both the insured and by subsidies from the local and central governments In 2003, the central government provided a subsidy of

10 Yuan for each insured resident The Council’s 2003 decision also required local

governments to provide no less than 10 Yuan In 2011, the subsidized amount was raised

to a total of 200 Yuan The NRCM provides partial coverage for all kinds of medical

expenses, excluding some outpatient expenses and drug expenses The reimbursement caps vary by local economic development levels

2.3 Trends and Current Status of Healthcare Disparities 

China is a vast country with uneven economic development Rural and urban

residents are categorized separately according to the household registration system The government financing systems for rural and urban sectors are also separate Most of the government revenue comes from the urban economy, and most is spent on urban economy

coverage had become prominent The coverage gap persisted in subsequent years For example, in 2003, the urban health insurance coverage rate was still more than 50%, while only about 20% of the rural residents were covered by some form of health insurance coverage, and about half of the 20% was covered by pure commercial health insurance This is shown in Figure 2.1, which presents the percentage of residents covered by health insurance in both urban and rural areas over time During the selected period, public health insurance coverage was reduced year by year in both rural and urban areas until 2003 However, the percentage of coverage had always been much lower in rural areas than in urban areas

Then, in 2008, there was a large increase in insurance coverage, especially for rural areas Coverage increased to more than 90%, and a larger portion of rural residents was covered by health insurance at this time, compared to the portion of urban residents We can also observe the shift in the urban‐rural ratio (the green line) Before 2003, the urban‐rural ratio of health insurance coverage was extremely high; however, in 2008, the ratio decreased to less than 1, indicating more coverage in rural areas Between the two time points, there were several policy changes that affected health insurance coverage In the urban areas, the basic medical insurance for urban employees was launched in 1998, and in

2007, the basic medical insurance for urban residents was established In the rural areas, in

2003, the government started to rebuild the cooperative health insurance system (NRCM), which influenced a very large population Most of the rural coverage in 2008 was from NRCM Therefore, I believe the initiation and expansion of the NRCM diminished the

disparities in health insurance coverage; however, it is still unknown whether the

1993 to 2003 For example, in 1993, the percentages of hospital outpatient service use in the two weeks prior to the survey for urban and rural residents were 19.9% and 16.0%, respectively; in 2003, the percentages became 11.8% and 13.9%, respectively (China

healthcare institutions in urban areas (China Ministry of Health, 2004) Moreover, the percentage of unmet needs was highest among the low‐income population in rural areas (China Ministry of Health, 2004)

The healthcare utilization disparity was most prominent in the health service area Figure 2.2 shows the percentage of pregnancy healthcare utilization and the percentage of women who gave birth in hospital in 2003 We can see that rural women used less of these services, especially low‐income women By 2008, the disparity in health service utilization had been relieved but still existed The percentage of pregnancy healthcare utilization had risen to 93.7% for rural women Compared to the 97.6% ratio for urban women, the rate of healthcare utilization was still lower but the gap between urban and rural had become narrower

highest percentile

lowest percentile

highest percentile

Health Service Utilization in Urban and Rural Areas in 

China, by Income (2003)

pregnancy health care give birth in hospital

Source: China Ministry of Health,  The Third National Health Services Survey Report (in Chinese), 2004, 

http://www.moh.gov.cn/publicfiles///business/cmsresources/mohwsbwstjxxzx/cmsrsdocument/doc9908.pdf (accessed  Aug. 28, 2012)

Driven by limited health insurance coverage and rapidly growing healthcare costs, high out‐of‐pocket expenses comprised a major challenge for those seeking healthcare

China became one of the Asian countries with the highest ratio of out‐of‐pocket cost to total healthcare costs in 2002 (Yip and Hsiao 2008) At that time, the out‐of‐pocket ratio was 60% (Hu, Tang et al 2008), and rural residents bore an even higher ratio The trend of health spending is shown in Figure 2.3 The percentage of out‐of‐pocket payments by individual patient rose steadily from 1980 to 2001 This trend indicates that the financial burden of healthcare shifted more and more to the individual patients during that period However, after 2001, the government and social programs started to take on more of the cost, and this resulted in a downward influence on individual out‐of‐pocket payments

Government, 27.2

Social Programs,  34.6

Individual Patient,  38.2

Figure 2.4 Per Capita Out-of-Pocket Health Expenses as a Percentage of Income

Figure 2.4 shows the per capita out‐of‐pocket health expenditure as a percentage of income by urban and rural areas Rural residents paid for medical service with a larger portion of their incomes than did urban residents Among the poorer rural residents, out‐of‐pocket payments for healthcare services constituted 26.7% of their total income in 2003,

percentile

lowest percentile

Source: China Ministry of Health,  The Third National Health Services Survey Report (in Chinese), 2004, 

http://www.moh.gov.cn/publicfiles///business/cmsresources/mohwsbwstjxxzx/cmsrsdocument/doc9908.pdf (accessed 

Aug. 28, 2012)

Chapter 3 Literature Review and Study Objectives 

3.1 Existing Research  

Two research areas inform my study The first area comprises research on

healthcare disparities As discussed, urban–rural disparities in health and healthcare have drawn attention in China in recent years Many studies have provided empirical evidence

on the conditions, trends, and associated factors of such disparities in health status,

healthcare utilization, healthcare costs, and related issues such as health insurance

coverage Other research in this area has focused on examining the determinants of the disparities The second area of research includes assessments of the insurance schemes in China in terms of impact on healthcare utilization, out‐of‐pocket cost, and health outcomes Although these studies are usually not focused on healthcare disparities, I viewed them as a good foundation for my research I also found these studies helpful in terms of data and methodology In the next section, I review some of the key research

3.1.1 Literature on Rural–Urban Disparities in Healthcare Utilization

Recent studies have provided empirical evidence on the conditions and trends of rural–urban healthcare disparities (Liu, Hsiao et al 1999; Zhao 2006; Tang, Meng et al 2008; Meng, Zhang et al 2012) Liu, Hsiao, and Eggleston (1999) examined the changes in disparity in health status and healthcare utilization in China from 1985 to 1993 and found that the gap in health status and healthcare utilization between urban and rural residents widened during the transitional period when the Chinese economy was shifting from a

Several researchers specifically examined disparities in healthcare access and

utilization to identify the determinants of healthcare utilization (Gao, Tang et al 2001; Wang, Yip et al 2005; Gao, Raven et al 2007; Liu, Zhang et al 2007; Fang, Chen et al 2009; Jian, Chan et al 2010; Long, Zhang et al 2010; Feng, Guo et al 2011; Xu and Short 2011; Liu, Tang et al 2012; Meng, Zhang et al 2012) Among these studies, researchers presented mixed findings Generally, the authors agreed that most healthcare resources were being allocated to urban areas and that urban residents use more formal healthcare than do rural residents However, Fang, Chen et al (2009) examined the evolution of rural–urban

disparities in healthcare utilization from 1997 to 2006 and concluded that rural residents actually visit physicians more often than do urban residents when they are ill Some of the researchers pointed out that better insurance coverage was associated with increased healthcare utilization Liu, Zhang et al (2007) noted that hospital utilization was lower among the uninsured

Some of the studies focused on certain subpopulations and reached similar

conclusions Gao, Raven et al (2007) examined the trend of inpatient utilization among the elderly in urban China, and they found that within this subpopulation, the insured were

2008 They concluded that the gap between urban and rural residents was narrowed in terms of hospital admission rates; however, there was no change in terms of early self‐discharge from hospital Liu, Tang et al (2012) analyzed the impact of health insurance on utilization of outpatient and inpatient services They concluded that having health

insurance coverage had no significant impact on outpatient service utilization; however, inpatient service utilization increased

Some of the researchers found that changes in disparities and the impacts of health insurance coverage were different among different income groups Gao, Tang et al (2001) concluded that from 1993 to 1998, healthcare access for low‐income groups shrank more than did healthcare access for high‐income group Liu, Tang et al (2012) pointed out that the effect of insurance coverage on inpatient service utilization was greatest for high‐income groups, while low‐income group enjoyed fewer benefits

3.1.2 Literature on Disparities in Out‐of‐Pocket Expenditure and Healthcare Costs

Several studies focused on the disparities and determinants of out‐of‐pocket

expenditures and healthcare cost (Pan, Dib et al 2009; Sun, Jackson et al 2009; Long, Zhang et al 2010) The researchers generally agreed that rural residents tended to be at increased risk for high and catastrophic medical payments; the current insurance schemes

3.1.3 Literature on Disparities in Health Insurance Coverage

Research has focused on the trends of disparities in health insurance coverage (Akin, Dow et al 2004; Xu, Wang et al 2007; Xu and Short 2011) Akin, Dow & Lance (2004)

examined changes in health insurance coverage from 1989 to 1997 and concluded that the overall coverage decreased slightly, from 26% in 1989 to 23% in 1997 They further

pointed out that urban areas (cities and towns) experienced reductions in health insurance coverage, while rural area coverage increased However, the changes were very small, and the rural–urban disparity in health insurance coverage persists Xu, Wang et al (2007) used data from the National Health Services Surveys of 1998 and 2003 to examine the impact of the reform on population coverage, and they concluded that the overall health insurance coverage stayed almost the same among urban residents Xu and Short (2011) examined the trends of health insurance coverage from 1997 to 2006 They pointed out a sharp increase of coverage in 2006 in rural residents, which resulted in a smaller gap in health insurance coverage between rural and urban residents

3.1.4 Methodological Issues

3.1.4.1 Definition of Rural and Urban 

Two definitions are used to determine rural and urban status in China The first definition classifies residents by geographical residential areas, which are officially divided into urban and rural areas by the National Bureau of Statistics of China, according to

Different definitions of rural areas can lead to different results when studying health policy, because the definition of rural areas affects the resources to which people have access (Hart, Larson et al 2005) However, few existing studies address the definition

specifically For most of the studies, I identified the authors’ definitions of rural/urban areas only by the terminology used For example, if the authors used terms such as

residents, areas, or geographic regions, I viewed these terms as being consistent with the first definition If the authors mentioned household registration or used the term population,

I viewed these terms as consistent with the second definition In all of the cited papers, the researchers adopted the first definition except for one study assessing NRCM Lei & Lin (2009) adopted both the first and second definitions when they evaluated NRCM However, they restricted their sample by only including people who lived in rural areas and were with rural household registration

3.1.4.2 Modelling  

In terms of methodology, most of the studies mentioned were descriptive, and some

of the papers used cross‐sectional data to fit logit/probit models The researchers

emphasized the problem of urban–rural disparities in healthcare in China and clarified the