الإنفاق العام ودور الحكومة في القطاع الصحي في الصين,Gasto público y el papel del gobierno en el sector sanitario chino,Public expenditure and the role of government in the Chinese health sector (Dépenses publiques et rôle du gouvernement dans le secteur de la santé en Chine)

33234 Rural Health in China: Briefing Notes Series Public Expenditure and the Role of Government in the Chinese Health Sector Backdrop to the review implications) and the benefits (how well the policy ameliorates the market failure in question). The merits of tackling market failures How much should China's government spend in different ways are discussed more fully in on health? And what should its role be in the other Briefing Notes in this series, which also health sector? This Briefing Note argues that set out China's current approaches to the these two questions--both the subject of much problem. This Note pulls these ideas together in debate in China today--are inextricably linked.* a coherent whole, and considers the government spending implications of alternative policy Governments intervene in the health sector to options. It begins, however, with a brief promote equity and to address so-called market overview of government health spending trends failures--instances where a free market would and patterns in China. produce socially inefficient outcomes. Relevant market failures in the health sector include: externalities and public goods, which together How much does China's government provide the economic rationale for public health spend on health? And on what? programs; information asymmetries between patients and providers (patients know less about Government health spending in China (see Box medicine than their doctor); and information 1) has risen in real terms during the last two asymmetries in the health insurance market decades. However, at 14.9% p.a. its rise has (some people are more likely to fall sick than somewhat less spectacular than the rise in GDP others, and people can conceal how `risky' they (15.3% p.a.), and considerably less spectacular are from the insurer). than the dramatic rise in real private health spending. Between 1978 and 2003, the latter For each type of market failure, the government increased at 27.0% p.a., and increased as a share can choose between several instruments. In of total health spending from around 20% to doing so, it needs to balance the costs involved nearly 60% (Figure 1). (including the government spending Figure 1: Government expenditures have * This briefing note was prepared as part of the World grown, but private expenditures have grown Bank's (WB) ongoing study on China's rural health sector. faster The study--referred to as the China Rural Health AAA (Analytical and Advisory Activities)--is being undertaken 5,000 6.0% Total health expenditure (THE) in collaboration with the Ministry of Health (MOH) and 4,500 Government health expenditure other government agencies, as well as with selected 4,000 Private health expenditure 5.0% international partners. The note is based in part on a review 0) 3,500 GDP of China's government health expenditures prepared by a 10=8 THE as % GDP 3,000 team that consisted of Professors Peter Smith of University GDPfo 97 2,500 4.0% % of York (UK), Christine Wong of University of (1 xednI2,000 as Washington (USA), and Zhao Yuxin of China National E Health Economics Institute. The team benefited from the 1,500 3.0% TH comments of Ms. Sun Zhijun, Deputy Director General, 1,000 Department of Social Protection, Ministry of Finance 500 (MOF), who was the discussant for this critical review at 0 2.0% the AAA workshop in July 2004. The briefing note was 8 0 2 4 6 8 0 2 4 6 8 0 2 prepared by the World Bank AAA team and draws on 197 198 198 198 198 198 199 199 199 199 199 200 200 other material in addition to the government expenditure review. The findings, interpretations, and conclusions Source: China National Health Accounts1; all data in real terms, expressed herein are those of the authors, and do not normalized to 100 in 1978. necessarily reflect the views of the World Bank or those of its Executive Directors or the governments they represent, China's private share is considerably higher or the Government of China. For further information on the China Rural Health AAA and related activities, contact L. than in many other countries with similar levels Richard Meyers (lmeyers@worldbank.org). of total health spending, and is higher than the Briefing Note No.5 1 May 2005  worldwide average of 43%.2 By contrast, fairly consistent treatment across countries of China's government health spending (expressed different types of health spending, including as a share of GDP) is somewhat less than one government spending. General government might expect. A cross-country regression of expenditure on health includes (a) health government health expenditure as a share of expenditures (from all levels of government) and (b) GDP on per capita income predicts that in a social health insurance expenditures. country with China's per capita income, Like other NHAs, China's NHA4 includes spending government health expenditure would absorb by all relevant ministries, not just the Ministry of about 2.4% of GDP. In the event, in China it Health. It conforms broadly to the OECD and WHO takes up just 1.9% (cf. Figure 2). NHA conventions, although its `social health expenditure' category does not exactly correspond Figure 2: China's government spends with the OECD definition of social health insurance relatively little on health care by expenditures. The latter definition excludes international standards occupational health insurance schemes for government employees, such as China's Government 9% Insurance Scheme. In practice in China's NHA, as in 8% those of most other countries, these are treated as GDPfo 7% part of government spending. China's NHA also %sa 6% includes private health insurance premiums, health 5% payments from the rural collective economy, and p.xe 4% extra-budgetary capital investment and of private thlhc practitioners as `social health expenditure'--items 3% that are considered private spending according to bliuP2% China the OECD classification. Fortunately, these items 1% are relatively small in China, so the misclassification 0% is of little practical consequence. 0 5 10 15 20 25 30 35 40 GDP per capita ('000$ PPP) Source: World Development Indicators (2004); public health expenditure includes social insurance; China marked in red. Figure 3: Fiscally challenged China The low and falling share of GDP devoted to 35% 3.0% P GD government health spending could be because of 30% 2.5% of a low and falling share of total government 25% e 2.0% spending spent on health, or a low and falling 20% arhs 1.5% as share of GDP devoted to overall government 15% 1.0% op. spending (equal to the tax share of GDP if the 10% prpa government is using taxes to finance its 5% 0.5% spending). The second of these--the tax share 0% 0.0% Hlth of GDP--declined steadily during the 1980s 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 and early 1990s due to shifts in the tax base Government revenue as share of GDP Government health appropr. as share of total govt. exp. during the economic transition, and weak tax Social health exp. as share of total govt. exp. Government health exp. as share of GDP (RHS) collection incentives for local government (Figure 3). The government, as a result, was left Source: China National Health Accounts1; data on government with fewer and fewer revenues to finance health revenue and expenditure from China Data Online (and other) activities. The first ratio--the share (141.211.136.211/eng/default.asp). of the government budget devoted to health-- has varied over time. As revenues declined, the The bulk of China's government health share of health in overall government spending spending goes on social health insurance (Figure increased, reaching a peak of 6.1% in 1992. But 4). General government recurrent expenditures since then, as government revenues have picked have consistently absorbed around 20% of total up, the share has fallen, and is now back to its government health spending. 1980 level of around 4%. Box 1: Government health spending--conventions and data sources Pioneering efforts by the OECD3 and others on National Health Accounts (NHAs) have resulted in a Briefing Note No.5 2 May 2005  Figure 4: The changing composition of nonetheless raise the question of whether certain China's government health spending key public health activities are being under- 3,000 provided in China. Other Investment es 2,500 General recurrent Health admin. Figure 5: Public health facilities account for a pric Oth. social exp. 2,000 Rural CMS small share of total health spending in China 0022 LIS BMI Other, 5.9% BMR 1,500 GIS Pub. health fac., 6.3% ill. 1,000 m THC, 7.3% 100 500 Med. goods retailers, City hosp., 0 7.9% 50.5% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Source: China National Health Accounts1;all data in real terms, County 2002 prices. hosp., 8.7% Ambulatory care fac., Addressing externalities and providing 13.4% public goods Source: China National Health Accounts1; "Other" includes health administration, nursing care facilities, city community health centers, other hospitals, and other. While most health services benefit only the individual who receives the care, there are some Figure 6: Public health institutions have seen that have broader benefits--so-called `public real increases in government subsidies but goods' and `externalities'. Immunizing a child have increasingly relied on private revenues protects not only the child, but also others in her sn 550 Budget appropriation 70% Business income vicinity. Measures to prevent and control the atiotS 500 Tot govt. hlth approp. 60% Share of budget financing (%) spread of communicable diseases-- 450 50% environmental health programs, disease ontineve 400 00) surveillance, etc.--generate benefits to the Pr 350 40% 0=1 whole community. Because it is difficult to dna 300 30% ic 199( exclude individuals from enjoying these benefits, m 250 20% these programs and services tend to be under- dex 200 Epide In provided by the market. tos 150 10% idie 100 0% What should a government do to address health- 90 91 92 93 94 95 96 97 98 99 00 01 sector externalities and public goods? * At a bsuS 19 19 19 19 19 19 19 19 19 19 20 20 Source: China National Health Accounts1; first three series in real minimum, it should finance relevant cost- terms, normalized to 100 in 1978. effective activities. It is debatable whether China is doing enough in this regard. The answer to this question seems to be Yes. The activities generating private revenues for Public health institutions (PHIs) in China PHIs in China are largely public health activities. account for 6.3% of the country's total health China--unlike almost all other countries-- expenditure (Figure 5). An ever smaller share of charges for childhood immunization, as well as their incomes is being financed by government, for interventions against other communicable and an ever larger share is being financed from diseases, including leprosy and TB. private sources including out-of-pocket Unsurprisingly there have been negative effects payments by households (Figure 6). It is true on coverage.6 The government may have that subsidies to PHIs have increased in real succeeded in containing its expenditure on terms, and that it is the subsidy share of PHI public health activities and in getting PHIs to business income that has fallen. But the data generate additional revenues. However, this success seems to have come at a price, in terms * We ignore in this Note the control of activities or of worse public health indicators. The behaviors such as smoking, which generate negative government's approach has given PHIs an externalities and where people, due to lack of information or other reasons, may not make the `right' decision.5 A incentive to under-deliver, to skimp on quality, forthcoming Briefing Note on Public Health will address to take the subsidy but not deliver the activities these issues in more detail. the subsidy was intended to finance, and to Briefing Note No.5 3 May 2005 005  focus instead on activities that generate additional profits at the margin. Dealing with information asymmetries in the health care market What might the government do instead? At the end of the day, the only economically logical Information asymmetry between the patient and option for any government is to fully finance provider is another argument for government priority public health activities. In China's case intervention in the health sector. The this will necessarily mean some increase in informational advantage the provider has over government expenditure. The government will the patient creates scope for him to abuse his presumably want to achieve the right level of position by administering or prescribing public health activities at the right quality and at unnecessary or inappropriate--but profitable-- the lowest cost to the taxpayer. care, or by skimping on quality. What sort of payment mechanism would The least interventionist solution to this problem encourage this? And which providers should be is to regulate private providers: licensing eligible to deliver public health interventions? physicians, setting up a quality assurance Should it be just dedicated PHIs? Or should process, providing a mechanism by which public health activities also (or instead) be patients can seek redress if they receive poor delivered by other providers, such as village quality or inappropriate care, and so on. This doctors, as at present, and township health minimalist approach can, however, be both centers? Should there be some rationalization in difficult and costly. Some countries therefore the delivery of public health interventions? have chosen to `soften' the profit incentives of Should providers delivering public health providers--either by creating conditions for the interventions be allowed to generate and retain establishment of non-profit providers or through additional income on top of subsidies from the public ownership. This softening of incentives government? may come at a price, however, as providers may be less cost-conscious. The answer to these questions probably varies depending on the type of public health services. The Chinese health system was long For `personal' public health services, such as characterized by collective or government immunizations and other interventions delivered ownership, with providers `fully' financed by to specific individuals, the government will the collective or government. The shift since probably want to reimburse providers for 1980 towards private practice at the village and services delivered, at a pre-negotiated but township levels, and the `hardening' of financial realistic price, and with a service verification incentives in government-owned facilities (by and quality control mechanism built in. In terms allowing them to retain additional revenues on of service delivery arrangements, international top of government subsidies), raises the experience suggests that one does not need to question of whether the government has in place look to dedicated public health institutions. mechanisms that can limit the extent to which Primary care facilities and hospitals can deliver providers exploit their informational advantage such interventions, provided the public health over patients. The answer to this question seems activity payment mechanism generates the right to be No. incentives. The provision of unnecessary care and Where population-based public health services medicines is now a widespread phenomenon in are involved, as in surveillance and monitoring China, and is contributing to the rapid escalation programs which are not delivered to specific of health care costs. In fact, the government individuals, the government could establish itself is paying a price for not having in place contracts with providers or agencies, where the mechanisms to limit physicians abusing their disbursement of subsidies (set at realistic levels) informational advantage over patients--costs is linked to the achievement of targets on have escalated dramatically in its own social various performance indicators. These providers insurance programs (GIS and LIS), despite or agencies should probably be dedicated PHIs, declining coverage (Figure 7). and should not be allowed to generate additional revenues on top of government subsidies. Briefing Note No.5 4 May 2005005  Figure 7: Growing government health moving away from fee-for-service towards insurance commitments some form of prospective payment, and 2,500 80% awarding contracts to providers based on competitive bids detailing price, quality and 0) 2,000 70% other key attributes of service delivery.* It could 8=10 1,500 also develop purchasing in its public health 197( 60% programs, where informational asymmetries x 1,000 de 50% also arise. For example, there is evidence that In 500 PHIs have overprovided hygiene inspections in 0 40% order to generate revenues for themselves.6 9781 9801 9821 9841 9861 9881 9901 9921 9941 9961 9981 0002 0022 Social health expenditure Govt. health insurance expenditure Making health insurance work Other govt. expenditure Soc. & govt. ins. exp. (% of tot. govt hlth exp) (RHS) Source: China National Health Accounts1; first three series in real Illness and injury are unpredictable, and can terms, normalized to 100 in 1978. result in potentially large costs of care. This There are several ways the government might makes health insurance highly desirable. reduce the negative consequences of the provider-patient information asymmetry more On the face of it, governments could leave effectively. In so doing, there is a good chance it health insurance to the market: if households are could also reduce the pressure on its health prepared to pay to reduce the risk associated budget--both by controlling cost escalation with ill health and injury, insurers ought to be over time, and by making health expenditure willing to cater to this market demand. In more efficient. practice, of course, they do. However, the combination of heterogeneity in health risks and Insofar as the government continues to be a asymmetric information makes unregulated provider of care (itself an issue for debate), it voluntary health insurance highly problematic.7 could take measures to better align the financial incentives of government-owned providers with Risk heterogeneity points towards the social objectives. This could be achieved by segmentation of risk pools, with high risks (the limiting the ability of providers to generate elderly and frail, for example) paying more than and/or retain revenues, and by ensuring that the low risks. However, this is likely to offend compensation of providers is closely aligned common notions of fairness. To get round this, with costs. the government might require that all individuals be charged the same premium In its capacity as regulator of the health system, (known as community rating) and keep the government could seek to make participation voluntary. But this is likely to lead improvements in a number of areas, including to low-risk individuals opting out of the scheme, certification and licensing, professional forcing premiums upwards as the pool of standards, helping promote self-regulation by remaining participants become more risky, provider organizations, and the monitoring and prompting a further exodus of low risks, until in control of prescribing and dispensing of the end, the scheme may unravel altogether--a pharmaceuticals. Price-setting is another area process known as adverse selection. where the government could make improvements that would reduce the incentives A more common approach to addressing health for providers to exploit their informational insurance market failures is for the government advantage over patients, since the current to provide universal insurance, either explicitly system gives providers a strong incentive to through a social insurance program, or focus on high-tech care at the expense of more implicitly through free or subsidized (tax- basic but less profitable care. financed) care at public facilities.8 These schemes typically seek not only to promote Finally, the government could further develop access to care, but also to make financial active purchasing, initially within its own social contributions related to ability to pay. insurance programs (the new Basic Medical Insurance scheme or BMI, and the new *For details, see Briefing Note 6: Rural Health Insurance: Cooperative Medical Scheme or NCMS), Rising to the Challenge. Briefing Note No.5 5 May 2005 005  Demand-side subsidies have a long history in This was the route taken by China in the past, China. However, they have not been directed at when (near) universal coverage was based on promoting equity, and benefit the better off either commune affiliation in rural areas (the disproportionately. Over half of government Cooperative Medical Scheme (CMS) or health spending goes towards supporting urban employment status in urban areas (the health insurance schemes, the members of Government Insurance Scheme, or GIS, and the which are disproportionately from the higher Labor Insurance Scheme, or LIS)). Since de- income groups, even within urban areas. collectivization of agriculture and market liberalization, the coverage of these schemes has Supply-side subsidies also have a long history in declined dramatically.* China, and have been paid in part to providers to enable them to cover the costs of treating the The government is trying to restore coverage, in poor. But in practice, this is not done very rural areas through its NCMS, and in urban systematically, and it is unclear how many poor areas through the development and expansion of people actually benefit from free or subsidized the new BMI scheme. As the government care through this mechanism. What is clear is proceeds, difficult choices will have to be made, that a large share of supply-side subsidies are with implications for government spending. directed at urban hospitals, and hence What level of benefits is affordable? How and disproportionately benefits the better off. when can coverage be expanded? How can demand-side and supply-side cost sharing be Inequities in public expenditure outcomes are in better used to ensure moral hazard and costs are part related to the design of supply- and contained? And so on. demand-side programs. However, geographical disparities in spending are also important. Local Given the novelty of the NCMS and BMI governments in China have unusually large schemes, no detailed data are available on expenditure and financing responsibilities in the current and projected levels of government area of health. As a result, the capacity of local spending. What is clear, though, is that both will governments to finance health expenditures--in have important overall expenditure implications the form of provider subsidies or support to the for both central and local government. BMI and new demand side schemes--varies directly with GIS already absorb a large share of overall their per capita income. And in contrast to many government spending. As BMI coverage other countries, there are very limited health- expands, in particular to marginal segments of specific fiscal transfers in China. In fact, the the population with lesser ability to contribute, more substantial fiscal transfers from central to the resulting expenditure commitments will province level--rebates for VAT and excise comprise a considerable challenge. Similarly, taxes, support for pensions and unemployment although the government subsidies to the benefits, and compensation for rising civil NCMS are relatively modest, they may service pay--actually benefit the richer comprise a substantial burden for some local provinces disproportionately (Figure 8). And governments. And the sheer scale of the scheme these disparities are widening, not narrowing.9,10 also adds a sizeable commitment to central government. Equity and the poor Most governments--China's included--attach at least some importance to the idea that access to health care and financial contributions ought to be equitable, and that the poor and vulnerable should be protected against unmanageably high health care expenses. *For details, see Briefing Note 6: Rural Health Insurance: Rising to the Challenge. Briefing Note No.5 6 May 2005  Figure 8: The richer you are, the more etc.--but in most contexts, this level of sophistication money you get is infeasible. 1600 Although risk-adjusted capitation formulas tend to be )nauy( 1400 based on individual level data, such data are 1200 sometimes combined with data on socio-economic ati 1000 conditions for regions or other geographical units. capr 800 This is the case, for example, in resource allocation peresf formula used in England since 1976, which currently 600 uses information such as mortality rates, disability 400 anrT rates, older people living alone, children living in 200 single parent households, unemployment rate, to 0 adjust transfers to local health authorities. The 0 5000 10000 15000 20000 25000 30000 35000 redistributive effect of the formula is significant, with GDP per capita (yuan) the most disadvantaged health authority getting 40% Source: MOF, Treasury and Budget Departments, Difang more per capita than the average, and the most caizheng tongji ziliao (local financial statistics compendium), advantaged health authority getting 20% less per Beijing, Chinese Fiscal Economics Press. capita.11 Recently, the government has taken steps to do The development and implementation of risk- more to promote equity in the health sector. A adjusted capitation schemes take time. For example, RMB 10 subsidy is to be paid by central it took 15 years to phase in the English system, and government to each NCMS member living in since then it has been adjusted several times to the central and western provinces. The Ministry address shortcomings. of Civil Affairs (MOCA) is setting up a Medical Assistance (MA) scheme, which will provide In China's case, one obstacle is that financial assistance with medical expenses to comparatively little of China's government the poorest 5-10% of people in each of China's health spending is financed centrally. This provinces. Both are likely to entail increases in substantially limits its potential to equalize government spending, but in both cases, the resources across local governments. But over extra spending will disproportionately benefit time--with the continued growth of central China's poor. government tax revenues, the renewed commitment on the part of central government The government could, if it chose to, do still to the health sector, and the removal of local more to promote equity in the health sector. It agricultural taxes and the consequent likely could start reforming the fiscal system to reduce small shift of financing responsibilities away the inequalities in the resources that local from local governments--it seems likely that governments have available for their health there will be increased scope for China's central spending. In most countries, central government to exert a greater equalizing effect government expenditure plays an important role on geographic variations in government health in supplementing local tax resources, and in spending. compensating local governments for variation in both local tax base and health needs. The There is something else the Chinese government intention is to enable each local government to could do to promote equity in health, namely offer some standard package of health care for gradually target its support of health insurance some standard local tax rate. To achieve this, programs on the poor. Instead of using tax many countries use transfers that reflect revenues to finance insurance for the better off, differences not only in revenue base but also as was the case under the old GIS, the health needs (see Box 2). government could use them to subsidize the BMI contributions of the urban poor and Box 2: Risk-adjustment schemes to promote unemployed. MOCA's MA scheme would be geographic equity in government health spending one vehicle through which this could happen. The level of sophistication of geographic risk- The government could also do more to promote adjustment schemes varies considerably. At a equity within and between health insurance minimum, most try to use data on age and sex. Some schemes. BMI contributions tend to be a fixed use significantly more detailed information--e.g. on percentage of income. Not surprisingly, there employment status, sector of employment, housing, are considerable differences across cities and Briefing Note No.5 7 May 2005  counties in the financing base. As a result, the announced. The important thing is that extra same contribution rates are associated with spending be coupled with policy reforms that different benefits packages across localities. will improve efficiency and equity in the sector. These disparities across cities and counties are likely to grow as coverage continues to be References expanded beyond the public sector. To counter this, the government could establish--and 1. Ministry of Health. Research Report on China National perhaps contribute to--a BMI solidarity fund, Health Accounts, 2004, the aim of which would be to reduce and ultimately eliminate the inequalities between 2. World Health Organization. World Health Report 2002: rich and poor cities in BMI revenues per reducing risk, promoting healthy life. Geneva: member. This approach is commonplace in World Health Organization, 2002, other countries. For example, Slovakia has moved to a model of several health insurance 3. OECD. A System of Health Accounts. Paris: OECD, funds with mandatory redistribution of 95% of 2000. revenues based on an agreed formula. Estonia 4. Ministry of Health. China National Health Accounts introduced a centralized health insurance fund, report. Beijing: MOH, 2003. with per capita allocations to regional branches that act as purchasers for their members. 5. Cutler DM. Health Care and the Public Sector. In: Auerbach AJ, Feldstein Me, eds. Handbook of This would narrow inequalities within the BMI public economics. Volume 4, 2002. scheme, but would do nothing to reduce the much larger inequality between the BMI scheme 6. Liu X, Mills A. Financing reforms of public health and the NCMS scheme. Reducing this gap need services in China: lessons for other nations. not necessarily involve a merger of the two Social Science & Medicine 2002;54(11):1691- schemes, but could happen through a gradual 1698. process of moving towards a more equal sharing of health risks and resources. An inter-scheme 7. Cutler D, Zeckhauser R. The Anatomy of Health solidarity fund could be set up where Insurance. In: A J Culyer, Newhouse JP, eds. contributions from the membership of the two Handbook of Health Economics. Amsterdam: schemes are based on their income, and North Holland, 2000: 563-643. payments from the fund to the schemes are linked to the risk borne by the scheme. 8. Normand C, Busse R. Social health insurance financing. In: E. Mossialos AD, J. Figueras and J. Kutzin, ed. Funding health care: options for Europe. Looking ahead Buckingham: Open University Press, 2002. 9. The World Bank. China: National development and This Briefing Note and others that it draws on sub-national finance: A review of provincial suggests directions for reform in a number of expenditures. Washington, DC, 2002, 22951- areas, including the finance and delivery of CHA. public health activities, developing policies to reduce the degree to which providers exploit 10. Wong C. Can the 'Retreat from Inequality' be Reversed? their informational advantage over patients, Assessing China's Fiscal Policies Toward expanding health insurance but with an eye to Redistribution from Deng Xiaoping to Wen the problems of adverse selection and moral Jiabao. Paper prepared for the Conference, hazard, and developing yet more programs and "Paying for Progress: Public Finance, Human initiatives to improve equity in the sector. Welfarem and Inequality in China, " Oxford University, 2004, In many cases, these reforms will require extra government spending. However, as argued 11. Smith P, Rice N, Carr-Hill R. Capitation funding in the above, China's government spending on health public sector. Journal of Royal Statistical Society, is low by international standards. Furthermore, Series A 2001;164(2):217-257. tax revenues have been increasing recently, and the government has already accepted the need for an increase in government spending. Indeed, increases in spending have already been Briefing Note No.5 8 May 2005005