China: The rural and poor still lack services

When China's political leaders talk about the financial crisis these days, they tend to address broader issues beyond the economy.

The country's Rmb4,000bn ($586m) stimulus package "should focus on shoring up the weak links in economic and social development ... while giving a strong push to domestic demand," said Wen Jiabao, premier, at the World Economic Forum conference in the northern Chinese city of Dalian in September.

One of the weakest such links is the country's health system.

Alongside stimulus measures aimed at boosting employment and consumption, the government announced this year it would spend Rmb850bn over three years to expand health insurance coverage to include every citizen, beef up medical infrastructure in rural and remote areas, and curb waste and distortions in prescriptions and treatment.

Every village will have a clinic by the end of 2011, and universal health insurance is to be achieved by 2020, says Chen Zhu, health minister.

These goals are not new - China has struggled for more than 20 years to build a social security network to replace the "iron rice bowl" of its former communist command economy. But in healthcare, the results remain patchy.

Until 1978, Chinese citizens had guaranteed free or cheap access to the most basic goods and services needed for survival. Health care was provided by employers, be it industrial enterprises or agrarian co-operatives.

A network of health workers with some basic medical training, the "barefoot doctors", helped enhance rural hygiene, improve water quality and establish a basic vaccination system, raising life expectancy from 35 to 68 years between 1952 and 1985.

But after Beijing started market reforms in 1978, all this started to crumble. Enterprises were relieved of social security functions. As a result, health insurance coverage dropped from more than 90 per cent of the population before the 1980s to around 20 per cent by the mid-1990s, according to Xu Hongwei of Brown University.

Following years of regional tests and pilot projects, the government set up a social insurance programme for urban workers in 1998.

Their health insurance is now provided under a scheme financed by employers and employees, through monthly contributions into individual accounts that are used to pay for outpatient treatments and a health fund for inpatient treatments.

But due to strict coverage caps, 52 per cent of the country's health expenditure in 2005 was still paid out of patients' pockets. Another 40 per cent was covered by public insurance schemes and the final 8 per cent by private ones.

The situation is more difficult in the countryside. Only in 2003 did the government start rebuilding rural health insurance, setting up a state-subsidised cooperative medical scheme.

Although the majority of rural residents are now insured again - on paper - protection is minimal. Treatment costs are capped at sums far below the average hospital bill, and patients must pay up front before they can claim back expenses. Many more remote areas still lack some basic medical infrastructure.

As a result, treating serious illnesses remains unaffordable for many of the country's poor. Of poor households, 30 per cent point to the cost of healthcare as the main cause of their poverty, according to the government's national health survey in 2003.

For low-income rural Chinese, one doctor's visit could cost them 83 per cent of their monthly income in 2003, according to William Hsiao, an expert on Chinese healthcare at Harvard.

Thus, the country has "gone from being an overachiever to being an underachiever" in improving healthcare, warned the World Bank in a report this year.

To change that, the government will devote part of the Rmb850bn to building village clinics and funding broader insurance coverage.

But it is also determined to bring about structural change.

"We have the wrong incentive structure" for hospitals and doctors, says Mr Chen. Chinese clinics get close to half of their revenues from drug sales, and doctors' incomes are also linked to such sales.

This has distorted treatment patterns and encouraged corruption and waste; pharmaceutical expenditure accounted for more than 40 per cent of total health expenditure in 2003, almost three times the OECD average.

"For many of our drugs, the final price the patient has to shoulder is far higher in China than even in developed countries," says a marketing executive of a European pharmaceutical company

Last month, the government took the first step to try to address this, publishing a list of essential drugs, which it said clinics would be required to stick to for treatments in order to qualify for health insurance reimbursement.

The health ministry said the more than 300 drugs on the list would be purchased by government-controlled institutions in price-competitive tenders - a clear indication that more expensive patented drugs will lose out to cheaper locally-made generics.

The list is only the first step. Analysts say while it may help limit escalating cost, it does not solve the problem of alternate revenue sources for clinics.

"In the long term, we should focus on how to raise the income of medical staff," says Liu Guo'en, a management professor at Peking University.

"This is a systemic problem, so we have to solve it step by step."

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