Monday, 7 February 2011

Guest post by Dale Tussing: Chinese Health Care - Its Rise and Fall and Current Struggles

With healthcare one of the items on the General Election agenda, Professor Dale Tussing takes a look at the Chinese experience.
It is quite a jump, from the health care system of the Republic of Ireland, population just over 4 million, to the health care system of the People’s Republic of China, where just under 4 million people call themselves doctor! With a colleague, I have been investigating the Chinese system lately and have hopes of publishing our research findings someday soon. I will share with readers here some of what I have learned.

Recently an on-line journal called FP: Foreign Policy ( included China (together with Russia, the USA, and Turkmenistan) as having achieved one of the four worst health care reforms in the world. A system which was once globally admired is now despised. As China’s productivity soared, something bad happened to health care. What happened? I want to answer that question and assess current Chinese efforts to rebuild their health care system.

The Communist Party of China (CPC) came to power through revolution in 1949. They began to build healthcare institutions, often in areas that had never been served by doctors, hospitals, or clinics. That was especially true in rural areas, which held the vast bulk of Chinese population, and which still today accounts for a large majority. In 1958, the commune system established collectivized agriculture, and shortly thereafter China built a system of Cooperative Medical Care (CMC), based in communes. Care was inexpensive, partly because it was rudimentary.

Primary care was provided by paramedics with limited education and training, who became known as the “barefoot doctors”. Care was predominantly traditional Chinese medicine, or TCM, relying on herbal medicine, much of it grown by the barefoot doctors in their own gardens. Participation was universal and compulsory. Under this regime, life expectancy almost doubled (from 35 years to 68) between 1952 and 1982, and infant mortality fell from 200 to 34 per 1000 births.

The World Health Organization, meeting at Alma-Ata in 1978, was inspired by the Chinese rural CMC system to issue a declaration about the possibilities for health care in third-world countries. Ironically, it was in the same year of 1978 that the Chinese leaders began the process of abandoning the system. The “household responsibility system” and markets replaced the communes. The CMC system was ditched. It had been based on the communes, and without major changes would be inconsistent with the new rural economy. Moreover, the CMCs had enemies in the Chinese leadership.

There must have been something special about the year 1978. The radical Chinese shift to privatize their economy occurred in the same year that privatisation began in earnest in Western Europe, Great Britain, and the United States. In the USA, President Jimmy Carter brought in Professor Alfred Kahn, the Cornell economist who introduced privatization in many areas, beginning with deregulation of commercial air service. Professor Kahn died in January of this year. Just two years later, Ronald Reagan, who was to accelerate the process, was elected president. In Britain, Margaret Thatcher became Prime Minister in 1978, and began her campaign to undo nationalization by privatizing large parts of the British economy. In Western Europe, privatization began in several countries in 1978.

In China, the result of privatisation was that the majority of the population lost their health insurance, and almost all medical care began to be sold on an out-of-pocket basis (the process of marketizing medical care was a process that took a long time, not overnight after 1978. Even till this day, many government employees continue to enjoy “free” healthcare). Many people with serious illnesses could not get care, and they became disabled or died. Most barefoot doctors returned to farming, and those who continued as paramedics began to charge fees. China’s primary care system virtually disappeared and has never really been replaced. Most Chinese people seek care from hospital-based specialists.

Is the China of today a socialist state? The central government and the CPC still have much control, and public ownership of enterprises is still widespread. But the example of health care shows how misleading appearances can be. Almost all Chinese hospitals are government-owned. But government subsidies were drastically reduced, and by the 1980s had fallen to 5% to 10% of hospital expenses. Hospitals had to rely primarily on their own revenues, and doctors relied on hospitals for their incomes. Doctors began to prescribe drugs, often medically inappropriate ones, in enormous quantities, and hospitals, rather than drug stores, sold them. Half to 60 percent of Chinese medical expenditures became allocated to drugs, as compared with about 10 percent in the USA and about 15 percent globally. Hospitals remained nominally public, but they had become effectively private – with decisions made by administrators and doctors in their own interests. And care became grotesquely distorted.

The fraction of Chinese health expenditures paid out-of-pocket by families is a telling statistic which graphically shows the astonishing twists and turns of Chinese health care in the last generation. That share was a laudable 20% in 1979, but it rose steeply to 32% in just four years, a change of a magnitude few countries have experienced, absent major war. But that was just prologue. Ten years later, in 1993, the proportion stood at 42%. The peak occurred in 2001 with 60 % of health care expenditures coming from individuals. The figure today stands at close to 40 percent. This figure can be misleading. Many Chinese families cannot afford to pay for treatment of major illnesses and injuries. The out-of-pocket share is depressed whenever care is not covered by any third party but patients and their families cannot afford the out-of-pocket payment.

Cutbacks in health care spending were part of general cutbacks in social welfare spending, and indeed in government spending in general, both absolutely and in relation to GDP.

China has attempted to navigate a middle course in recent years, pursuing a health insurance strategy. Leaders created the New Cooperative Medical Care (NCMC) system in 2003. The name harks back to the successful and popular CMC system of the Mao era, but the NCMC is an insurance system, not a health care delivery system. The ambitious new system had a number of flaws, chief of which was perhaps the fact that not enough money had been allocated. That is a problem which persists today, despite significant increases in government subsidies to insurance.

In 2009, Chinese leaders released a massive document, “Opinions of the CPC Central Committee and the State Council on Deepening the Health Care System Reform,” setting out plans for the future development of the health services. It is long and rambling, and hard to summarize, but some points may be noted:

• Health insurance was to be universal by 2010.
• Hospitals could reduce their dependence on drug sales only gradually.
• The government assured that everyone would have access to at least “basic” medical care.

What is basic care? That appears to be an important question, though the expression remains undefined. The document promises not only basic care, but also basic medical security or insurance, covering basic care to treat basic conditions, using “essential” medicines, all of which is backed up with basic public health. Whatever may be the exact meaning, the purpose and effect of assuring basic care is to limit public outlays on health care. And the government does not undertake to pay for even basic care.

The health insurance system is decentralized, with provinces establishing programme details. Thus it’s impossible to say whether the goal of universal coverage was achieved by the end of 2010. But because of inadequate funding, the drive for universal coverage comes at a very high price. Most provinces cover little or no outpatient care. High deductibles must be met annually before coverage kicks in. There are very high co-pays, with patients often paying half of the after-deductible bill. And perhaps worst of all, there are annual per-patient limits on insurance coverage. The result is that, while there very well may be universal coverage, it remains true that tens or hundreds of millions of Chinese would not be able to afford medical care if they became seriously ill or badly injured.

Chinese leaders seem sincere in their desires to ameliorate the terrible consequences of destroying the health security system, and much of the delivery system, in the late 1970s and throughout the 1980s. They are trying to build an insurance-based system consistent with the state capitalist system they have constructed. But the system they have developed is thus far still a mess. There are many economic incentives which will have perverse consequences. For example, insurance coverage of in-patient but not out-patient care will encourage doctors to hospitalize patients unnecessarily, when out-patient care would suffice, in order to make treatment eligible for insurance reimbursement.

The most serious problem, however, the one which is the source of most of the other problems, is under-funding. Chinese medical care expenditures hover around 5% of GDP (about half of European proportions). Until Chinese leaders are ready to increase significantly government funding for medical care, it will be difficult if not impossible to create a medical care system which is adequate, efficient, and fair.
Dale Tussing is Emeritus Professor of Economics at Syracuse University, in Syracuse, New York. His publications on the Irish health care system date back to the early 1980s. Together with Maev-Ann Wren, he was commissioned by the Irish Congress of Trade Unions in 2005 to conduct a broad study of Irish health care policy, to inform Congress's positions on health care. A version of the report was published in 2006 by New Island Press as How Ireland Cares


Paul Hunt said...

What, perhaps, is striking is the speed at, and the extent to which, China has become a capitalist society - but without the necessary legal framework or the state direction of the provision of universal services common in developed, mixed EU economies. It supports the contention of Daniel Bell, who died last month, that capitalism might co-exist just as happily with Chinese authoritarianism as with American (or European) democracy.

It also highlights the need for governments everywhere to build a fund for every citizen, based on actuarial estimates and financed by general taxation, to provide universal services to sustain health, education and well-being - rather than the current Ponzi, pay as you go schemes.

And there seems to be a bit of poetic licence employed in the focus on 1978. Fred Kahn died on 23 Dec 2010. Almost all airlines were in private ownership. He was a life-long Democrat who was focused on the benefits of markets in the pursuit of economic efficiency. (His disdain for subsequent Republican administrations is well documented). But, being locked in the neo-classical canon, he failed to understand the nature of capitalism - and was both surprised and shocked by how his reforms played out (even though he was pleased at how air travellers benfitted). Mrs. Thatcher was elected in May 1979 and the first privatisation did not occur until her second term - it wasn't even in the Tories' election manifesto in 1979. And I think privatisation in Europe followed a little later.

But the general point is valid. Capitalism exploited the valid, but narrow, insights about the efficiency and effectiveness of markets advanced by 'useful idiot' academics to exercise economic and political power and to reduce progressively the share of labour in total income.

Damian Tobin said...

Very interesting post - but I wonder what lessons Ireland can draw from this - save that in terms of providing universal health care, we do not have the same excuses!

Since 1978 China has undergone a progressive privatisation and monetisation of the social-welfare functions of state-enterprises and collectives. This was based on the assumption that wages would rise to compensated for the loss of welfare benefits - but as the recent worker protests and labour shortages illustrated - wages have not kept pace with these costs - as a result (and as you point out) many families simply cannot afford access to basic services.

The point on insurance is also interesting. The 2005 census indicated that some 58% of workers generally were not covered by medical insurance - but only 20% of state enterprise workers were not covered - compared to almost 75% of self-employed individuals and 64% of those working in private enterprises. I think the challenge of extending universal insurance to these workers is enormous.

The real unknown is the 225 million or so migrant workers who because they reside outside their registered home areas, are denied access to even the most basic social, education and health services. The wages of these workers are so low, that any effort to impose welfare or health insurance costs would simply represent a wage cut.

But Ireland does not have any of these excuses – it cannot claim that it has a huge floating migrant population, or the same scale of poverty alleviation challenges or that it lacks the medical staff or technology – it cannot even claim that it does not have other successful models of universal healthcare provision to draw upon – yet for the last two decades it seems that successive Irish governments have been only too happy to run down health investment on the assumption that the private sector would provide and that the costs of this toxic experiment would be monetised on service users. Perhaps the lesson for both countries is that only the state has the capacity to consistently guarantee the provision of universal health care.

paul sweeney said...

Most interesting and again indicates that China is a unique country which is developing unique systems in many areas and quite rapidly too. I guess it is not a socialist country but an authoritarian one with an orignial socialist history which was turned upside down with the Cultural Revolution. Proving once again that too much power currupts.

The leaders seem to be trying to do progressive things, but it is a top-down system. The rampant free market within a tightly controlled state, with the PLA dominating much of the economy, like a Mafia, makes reforms difficult.

Paul Hunt said...

@Paul Sweeney,

I'm not sure whether the tradition of Confucianism might be described as an 'original socialist history', but authoritarian communism formally existed from Oct. 1949 to Nov. 1978 when Deng Xiaopeng grasped the levers of power and gave official blessing to Town and Village Enterprises (TVEs). This set China on a rapid path to becoming an authoritarian capitalist economy and society. (It is interesting that Russia with a much longer history of authoritarian communism (1917 - 1991) has now become a kleoptocracy.)

The leadership of the CCP recognises that it has to pursue and spread the benefits of economic growth if it is retain its tight political grip. This involves promoting the much-touted 'harmonious society' and 'trying to do progressive things'.

In this context I fail to see how you perceive the existence of a 'rampant free market' and that, even if it were to exist to the extent you seem to think it does, it hinders reform. What we are seeing in China is rampant capitalism. It sometimes sees benefits in using markets to advance its interests - but only if they are poorly policed and regulated. At other times it sees benefits in some policing and regulation of markets to generate liquidity and scale, but not enough to prevent manipulation by favoured parties. But more often than not it will suborn the authoritarian power of the CCP to advance its interests.

It would be wonderful if those on the progressive-left were to remove the blinkers when they look at China and recognise that capitalism will run riot in the absence of democratic governance and of competitive, efficient and well-regulated markets. But, perhaps, this is asking too much.

David Jacobson said...

In response to Paul Hunt, very few intelligent people with a reasonable understanding of institutions would deny that important elements of capitalism can and do develop within economies ruled by authoritarian regimes. One small expression of this from my experience of working with academics in Shenyang in October/November 2009, is how widespread discussions about investing in property and shares are. I met and through a graduate student who was my translator, discussed shares with one of the university's drivers. He was trying to decide whether to sell shares he had bought a year before, now that his shares had gone up in value by 25 per cent. He sold, and on my last day there told me proudly that he had made a profit equivalent to three months' salary. The essential story of Dale Tussing's post on the health system, which seems to echo in many other aspects of life in China in recent decades, is that - to borrow an expression from the latter years of the USSR - China is undergoing perestroika without glasnost. It is moreover not surprising that this is the case. It is the absence of glasnost that enables the Party to maintain control in China.

Paul Hunt said...

If all that's left to contest my contentions is an anecdote and some tired jargon from a former centrally planned economy that is now a kleptocracy I think I have well and truly made my case.

Michael Burke said...

The nature of the Chinese economy cannot be derived from the existence of publicly-quoted shares. The same logic would be to describe economies where publicly-owned enterprises exist- every economy including the US and Ireland, as socialist.
The key questions are what is the direction of travel and who controls the dominant sectors?
The banks in China are majority-controlled by the state or state-owned enterprises (soe). Many of them have a minority shareholding, on which they pay little or no dividends. This is effectively free or near-free capital for the soe. And a majority of industry is in collective ownership. The World Bank recognises this- and doesn't like it

On trajectory, many close followers of the trends in Chinese economy have noted that the response to the crisis, effectively an instruction to publicly-owned banks to increase lending, has led to a greater take-up of that credit by the soes than by private business. This has led to the mantra that the current situation is described as 'The state advances, the private sector retreats'. Most of the (admittedly Western) commentators I have read on this don't like that either

Paul Hunt said...

I'm going to leave it to someone far more competent than I am to spell out the nature of the Chinese economy, ie. Ronald Coase in his forthcoming book "How China became Capitalist".

My principal contention is that for sustained and sustainable economic prosperity and the general well-being of citizens one requires democratic governance (Egypt, for example, has a comprehensive state-directed apparatus) combined with well-regulated, efficient and competitive markets and, in the context of this thread, state direction and regulation of the efficient provision of universal services (including physical and social infrasctructure). But this does not require state owenrship management and control.

The key divide between progressives and neocons (let's drop this 'neoliberal' nonsense and follow Paolo Friere's advice to 'name our world') is the neocons' determined opposition to (1) state direction and regulation of the efficient provision of universal services, (2) effective competition policy and regulation of the markets they have subverted and (3) efforts to restrict their use of economic power to suborn democratic governance.

These battles are being fought with particular venom in the US, but are taking place in all developed economies. The progressive-left throughout the EU, by clinging to state ownership and control and with its demonisation of markets, is repelling a large number of citizens whose instincts are liberal and progressive. And their repulsion is such that many are prey to the wiles and ploys of the neocons. Until the progressive-left loses some of its historical - and now irrelevant - ideological baggage and reaches out to these citizens, the demcoratic plurality to implement the necessary reforms and to beat back the neocons will never emerge.

Damian Tobin said...

@ Paul H
"Naming the world" is undoubtedly a very worthwhile activity - but you must get the story right. In Chinese, TVEs are a location not ownership concept. Regarding "blinkers" it was a fundamental misconception, mostly made by western orthodox economists to label them as private sector market-driven phenomena and as evidence of private capitalism (which was not officially endorsed by the CCP until 1992). What Deng Xiaoping did say in 1978 was that while productivity would be rewarded, reform would ultimeately be carried out under the auspices of the CCP - no mystery! Thirty years later the fixed asset investment of all private firms in China has been estimated as being about 15% of total investment in the economy - perhaps even lower after the GFC. Hardly rampant capitalism? The state is owner, regulator and controls procurement in major sectors of the economy. These are facts not contentions.

Although the concepts of harmonoious society etc have gained popular covereage - they are hardly new or indeed unique to China. What has been consistent since 1949 is the concern with modernisation. This concern is as true for when China launched the leap forward strategy in the 1950s as it is in the current response to the financial crisis. This leads me to believe that your post is mostly about what “you” see. But what China sees is often very different. For the past six decades the PRC has been looking at what the prescription of “democratic governance and of competitive, efficient and well-regulated markets” has to offer. What is sees has hardly impressed - mass inequality, monopolies, concentrated markets, corruption, banking scandals and supposedly free markets that it cannot access. It sees western companies invest in China, but prove to be no better at business probity or meeting social obligations towards workers.