The Expansion of Public Health Insurance and the Demand for Private Health Insurance in Rural China
Hong Liu
Central University of Finance and Economics, Beijing, 100081, China
Song Gao
吸血鬼日记第二季21Central University of Finance and Economics, Beijing, 100081, China上元教育
John A. Rizzo
leapmotionStony Brook University, Stony Brook, 11794, NY
November 2009
Abstract
This paper examines the impact of the New Cooperative Medical Scheme (NCMS) on private health insurance purchasing decisions in rural China, using longitudinal data from the China Health and Nutrition Survey (CHNS, 2000-2006).
A Difference-in-difference (DID) approach is employed to estimate NCMS effects. The overall effects of NCMS were modest, but differed for adults and children. We find that adults were 2.1 percent more likely to purcha private health insurance when NCMS became available. NCMS had a larger positive effect on adult private coverage in higher income groups and in communities with a preexisting health care financing system, known as the Cooperative Medical Scheme (CMS). We also find evidence suggesting that NCMS crowded out child private health insurance, especially in lower income groups. However, this finding is not robust to controlling for other covariates including houhold characteristics and availability of private insurance in the community. For both adults and children, risk preferences and socio-economic status, including income and education, are important predictors of private insurance take-up. We find no evidence for adver lection in the demand for private health insurance.
JEL Classification: I1; D1; H4
Keywords: New Cooperative Medical Scheme; Private health insurance; Rural China
1. Introduction
Since the initiation of market reforms in the 1980s, China’s growing economy has resulted in an extr
汉英翻译在线aordinary reduction in poverty, lifting approximately 500 million of people out of poverty (World Bank, 2002). The sharp decline in the rural poor accounted for 75 to 80 percent of the drop in the national poverty rate during the period 1981-2001 (Ravallion & Chen, 2007). Nevertheless, the development of China’s health care system lagged far behind its economic growth (World Bank, 1997; Eggleston et al., 2008). Inadequate government investment in the health care ctor, combined with rapidly escalating medical costs, incread the burden of individual out-of-pocket health expenditures from 23.2 percent of total medical expenditures to 49.3 percent by 2006 (China Statistical Yearbook, 2008). Moreover, over 90 percent of the 0.9 billion rural population were uninsured in 1998 (Liu, 2004a). Soaring out-of-pocket medical expens have not only become a direct financial threat to low-income rural residents, but also created a financial barrier to health care access, thus contributing to the cycle of poverty associated with poor health (Liu, Rao, & Hsiao, 2003; Hennock, 2007; Yip & Hsiao, 2009).
To address this problem, in 2003 the Chine government began to re-establish the health care system in rural China, implementing a nationwide project known as the New Cooperative Medical Scheme (NCMS). The NCMS replaced the old village-bad rural health financing system, known as the Cooperative Medical Scheme (CMS). The NCMS was first implemented in 304 pilot rural coun
ties from 31 provinces, then expanded to 620 counties (about 22 percent of all rural counties) in 2005 (Liu, 2004b; World Bank, 2005), and aims at covering all rural counties by the end of 2010.
The NCMS eks to provide low-cost basic health care rvices, including inpatient, catastrophic, and some types of outpatient care, but it cannot finance full health protection for the entire rural population (Central Committee of CPC, 2009). Additional diversified supplemental medical insurance, such as private health
insurance programs, are required to satisfy different medical care needs beyond tho covered by the NCMS (Bhattacharjya & Sapra, 2008).pastdue
cultivatedSince its launch in the 1980s, the private health insurance industry has remained relatively small. Although private health insurance premiums amounted to 23.9 billion RMB in 2003, it only accounted for 3.6 percent of national health care expenditures (Guo & Duan, 2007). There are nearly 100 private insurers of different size and complexity,offering over 700 health insurance products in the market (Guo & Duan, 2007; Bhattacharjya & Sapra, 2008). However, the private health insurance products mainly focus on inpatient care and catastrophic coverage, and typically do not include long-term care coverage and disability income insurance (Wang, 2009). In 2003, only 6 percent of urban and 8 percent of rural residents were covered by private health insurance (Swiss Re, 2007).
The expansion and development of the rural public health insurance system pos a tremendous challenge as well as an opportunity for private health insurance, which the government has identified as an important component of China’s “multi-level health insurance system” (Central Committee of CPC, 2009；Blomqvist，2009). As part of this initiative, public health insurance is being developed as the main health insurance system, with private health insurance rving an important supplementary role to satisfy diver health care needs.
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However, rearch has shown that the role and function of private health insurance differ depending on a country’s specific economic, social and institutional development (Liu & Chen, 2002; Savedoff & Sekhri, 2005; Drechsler & Jütting, 2007), and its potential overlap with public insurance may significantly impact the entire system’s effectiveness (Swiss Re, 2007). Unfortunately, very few studies have empirically investigated the relationship between public and private health insurance in the evolving Chine rural health care protection system. Moreover, there is no evidence about the impacts on the private health insurance market brought about by the rapid expansion of NCMS.
To shed light on the issues, this paper empirically examines the impact of NCMS on private health insurance purchasing decisions in rural China, using longitudinal data from the three most recent waves of the China Health and Nutrition Survey (CHNS: 2000, 2004 and 2006). A difference-in-diff
erence (DID) approach is employed to estimate the impact of NCMS by comparing private health insurance coverage in treated groups to control groups, before and after the implementation of NCMS. We also investigate the role of other factors, especially individual traits, associated with the purcha of private health insurance. Separate estimates are provided for children and adults. The demand for private health insurance may vary by income class and as a result, the expansion of NCMS may work differently by income group. To investigate this, we also stratify the sample by mean income and perform parate estimates by income groups.
The remainder of this paper is divided into six parts. Section 2 briefly describes the history of public health insurance in rural China. Section 3 reviews the relevant literature. Section 4 describes our estimation strategy. Data and variables are discusd in Section 5 and the results are prented in Section 6. Section 7 concludes.
2. Public Health Insurance in Rural China
During the 1950s through the 1970s, a village-bad health care financing system, known as the Cooperative Medical Scheme (CMS), provided health care coverage for most of the Chine rural population. As an integrated part of the overall collective system for agricultural production and sociaplutocracy
l rvices in China, the CMS was primarily financed by the collective welfare fund and ensured access to basic health care rvices, mainly preventive and outpatient care (Feng et al., 1995; Liu, 2004b; You & Kobayashi, 2009). With the launch of market economic reforms in 1978, there was a transition from the collective system to what is termed the “houhold responsibility system”. As a result, the CMS lost its funding ba, and collapd in
