Mission impossible?

China’s government is spending more on healthcare

Mission impossible?

Nursing a grievance

Fixing healthcare is a complicated challenge. Witness the rancour over ‘ObamaCare’ in the US; or the endless attempts to reform the National Health Service in the UK.

The Chinese government at least has an advantage that it can decide on a plan and execute it, without the distractions of the democratic process.

Back in 2009, Beijing did just that, announcing ambitious reforms with the goal of creating an effective and affordable medical system by 2020. Planners allocated Rmb850 billion ($133 billion) of funds to be spent during a three-year initial phase of the plan.

With this first stage almost complete, how has it fared?

In terms of numbers, the reforms do appear to be making a difference. For a start, the government overshot its original budget, by investing Rmb1.13 trillion in the healthcare system. Medical care, as a proportion of fiscal expenditure, will be 5.35% in 2011, compared to 4.57% in 2008. The money is being spent primarily to expand the reach of the healthcare system, especially in rural areas that have typically lacked decent medical facilities (see the later article; Health farms).

There has also been a big expansion in health insurance coverage – 94% of the Chinese population is now covered by some form of state insurance, three times the number in 2005.

The purpose of the reforms was not to make healthcare free, but affordable. After 30 years of hard-nosed market reform, China’s economy has grown rapidly. But the pre-existing public health system – such as it existed ­– has failed to grow with it. Funding was curtailed, and facilities were allowed to fall into disrepair and even disuse.

“Underinvestment in the hospitals by the government meant that the hospitals had to earn their keep themselves,” Rebecca Lipson, CEO of private healthcare provide Chindex International, told US broadcaster PBS. “So, though they were called public facilities, the hospitals needed to find a way to pay their doctors.”

That meant a medical system which – intent on maximising fees from patients – became increasingly unaffordable to large sections of the population. To put this into perspective, China’s disposable income is something like 20 times greater than it was two decades ago. But average medical costs have become 130 times more expensive over the same period, reports the People’s Daily.

As a result, a serious illness can bring financial hardship on a family.

The purpose of the reforms were not just humanitarian, they were also economic. Government policymakers knew that any rebalancing of the economy – away from dependence on investment and exports towards a greater role for domestic consumption – required the average Chinese to buy more and save less.

But costly hospital bills – and their potential to crop up at unforeseen moments – are one of the main drivers of China’s high savings rate, according to a survey by the People’s Bank of China (see WiC36).

It follows that unless you can persuade more of the population that healthcare is not going to bankrupt them, they won’t be spending more on the latest TCL flatscreen TV or Geely car.

Viewed in this light, healthcare reforms have an added dimension: they must succeed if China is going to continue to change its economic model. Although you might not get especially excited about doctor-to-patient ratios in Chengdu, it is a subject that demands attention – as a key factor in how the world’s second biggest economy evolves in coming years. The question of whether the reforms are working is critical.

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