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Research Project of "A Theoretical Analysis, Performance Evaluation, and Reform Proposal of China’
Time:2018-04-24 09:14:41   Clicks:


       The market for healthcare featuresuncertainty, lack of price elasticity, and information asymmetric, besidesother market characteristics.

       The purpose of medical insurance is toeradicate uncertainty and bring about the utility of certainty by transformingthe uncertainty of personal medical affairs into predictable risks throughintegration and professionalization. 

       People tend to “buy more” and “buy theexpensive” as insurances lower the part of the medical expenses borne by theindividuals, which in effect pushes up the prices of health care, and thedemand for medical services and goods. The overall effect is an increase ofhealth care expenditure.

       Insurances pushes up89% of the prices of China’s medical services and goods, leading to anover-expenditure of 16% of all the medical services and goods by consumers,which further increases the healthcare expenditure per capita to 119% of thatwithout these insurances .

       Even though insurances bring about anincrease of welfare by 2.25% of the GDP, compared to the loss caused by it, anet loss of some 0.46% of the GDP, that is some RMB264 billion, is caused byinsurances.

       By 2013, a total of some RMB45.7 billion hasbeen wasted by the public healthcare system.

       Quality medicalresources concentrate disproportionately in big cities and big hospitals, whichcauses insensible spatial allocation causing an overly high time cost and otherindirect medical cost. In 2013, if we put together the overspent cost and timefor local and cross-region healthcare services and goods, it equaled to a totalwaste of resources that priced some RMB445.2 billion a year.

       Themanagerial cost of healthcare institutions, i.e., expenditure by healthcareadministrations and cost of managing the healthcare insurances, skyrocketedyear on year, and reached RMB 43.7 billion in 2014.

       Therefore, it is not enough to criticize onlythe use of healthcare insurances. See below:

       Weighing the Gains and Losses ofInsurance.       Unit: Percentage of GDPper capita(%)

 ●       In an aggregate sense,the demand for healthcare increased 40 times from 1980 to 2014, while thenumber of licensed doctors only increased 1.51 times. Demand surpassed supplyby a large margin.

       Average healthcare resources are distributed ina balanced manner across regions. It coincides with the resource allocationplanning approach based on population taken by the Chinese government.

       Qualityhealthcare resources are distributed in a very imbalanced term with moreresources concentrated in administrative centre. And this situation isexacerbating.

       Beijing is the “utmost unfair benefactor” ofthis distributional system of healthcare finance, while the “unfair victims”include provinces such as Henan, Anhui ,Hebei, Hunan, Jiangxi, Guizhou andShandong.

       The unfairness indexof the financial distribution system in the healthcare system is 0.344.According to our evaluation standard, this score is interpreted asintermediate.

       Civil servants are the “utmost unfairbenefactor” in the current healthcare financial distribution system, while the “unfairvictims” include farmers, urban residents, and urban workers.

       This researchproposes the basic principles for institutional healthcare reform is taking themarket institution as the basis, and government regulations as complement.


  1. To increase the self-pay ratio and itsscope, to enlarge the function of the market;

  2. To facilitate the market competition forhealthcare;

  3. To let the market make the price forhealthcare services under the market mechanism;

  4. To let the price ofmedicines fluctuate when the market makes prices for healthcare services;

  5. To abandon compulsorysocial insurance and rely more on commercial insurance institutions;

  6. The governmentshould subsidize the medicine fees for the poorest people.


       The main measuresproposed by this research include:


  1. Canceling the insurance covering out-patientmedical services: the fee inflicted by out-patient medical treatment can bepaid either by the patients or by the individual account;

  2. Canceling thethreshold for insurance coverage and raise the self-pay ratio for in-patientsto 70%;

  3. Setting up anational severe disease charity fund to subsidize those whose self-pay portionexceeds their yearly income’s 40%.


       Estimated according tothe model in this research, setting 2014 as the baseline, the proposal of thisresearch should be able to hold back a 75% increase of the price, which wouldsave RMB 1,294.7 billion, 2% of the GDP.

       It would hold back some13.2% of healthcare overuse, which would save up to RMB 217.8 billion, about0.34% of the GDP.

       Some RMB1,12.1 perperson would be saved for healthcare, about 2.37% of GDP per capita, whichrounds up to some RMB1,237.6 billion nationwide.

       Those whose self-payproportion exceeds their yearly income’s 40% constitute about 2.25% of thetotal population. If a severe disease fund is set up with a scale of about RMB200 billion, it will be only about 0.3% of the GDP.

       If the monopoly iseliminated and competition is promoted, then everyone would be able to saveabout RMB 7.3 for healthcare, a total RMB10 billion nationwide.

       Healthcare resourceswill be better allocated in space. If the distance and waiting time for medicaltreatment is shortened by half, that is the 4 hours needed for local treatmentis shortened to 2 hours, then a total value of time amounting to about RMB 266.2billionwill be saved; if the distance and waiting time for cross region treatment isshortened from 12.5 days to 6days and 6 hours, when a total value of timeamounting to about RMB 29 billion will be saved. Putting them together, a totalwaste of time estimated for the value of RMB 295.2 billion will be avoided.

       Canceling out-patient(small illness)insurance would reduce 2/3 of the current insurance-related managerialoperations, saving a total of RMB16.9 billion according to the currentadministrative fees of insurance agencies that is RMB 25.4 billion.

       When theincrease of healthcare expenditures is contained, a huge amount of resourcesare saved, which will bring back the advantages of insurances. See blow. 

       In summary, this reform proposal will reducehealthcare expenditure per capital from 5.08% to 2.71% of the GDP, a decreaseof 46.7%.

       This reform proposal will also reduce thehealthcare expenditure originally covered by insurance from 3.1% to 1% of theGDP, a decrease of 68.5%. If it is shown by the deduction of healthcareinsurance fees for urban workers, the deduction from their monthly wage will bedecreased from 9.5% to 3% of their monthly wage, which would also lower theburden for enterprises.

       Even though the self-pay fees account for ahigher ratio than before, as the healthcare expenditure decreased in general,patients pay 86.2% of that they paid for their medical treatments before thereform.





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