Economic Transition and Urban Health Care in China: Impacts and Prospects

This paper has three primary objectives. First, it illustrates how economic transition from a centrally planned to market-oriented economy inevitably transforms the foundation of social protection policies. Economic reform affects China’s urban health care through two primary channels. 1) A large proportional decline in government revenue constrained state capacity to finance health care. This, together with the subsequent perverse incentives that providers were subject to, has led to rapid cost escalation and unaffordable health care. 2) In the absence of any new health care financing policies, the transformation of state-owned enterprises and growth of the non-state sector threatened access to health care coverage for retirees, employees and their dependents. China’s experience also shows that the need for transformation of the social sector is not obviated by gradual economic reform or rapid economic growth. Second, it critically examines the potentials of current urban health reform initiatives in alleviating existing problems in China’s urban health care. The announced policy attempts to move China from a supply-side system, driven by perverse incentives and outdated central planning measures, to a demand-side system with a unified social insurance scheme as a powerful purchaser of health services. Our preliminary analysis suggests that these policies primarily target at the insured population and create a multi-tiered system under which the patients and the uninsured population would most likely bear the biggest burden of health care costs and risk. Finally, we raised additional challenges that China need to confront in order to restore a function-able urban health sector to provide affordable and equitable health care for its urban population.