Urban Health Care Reform Initiative in China: Findings from Its Pilot Experiment in Zhengjiang City (1)

Abstract This research presents a preliminary assessment of China's urban health care reform experiment. In reforming its existing urban health care programs, the Chinese government initiated a new community-based insurance plan, which was implemented in a pilot experiment in 1994. Data for this study was derived from the first post-experiment survey, which was conducted in Zhengjiang city in 1995. The survey contains a total of 14,745 individuals, a 3.2% stratified random sample of the total enrollees in Zhengjiang city. A two-part econometric model was employed as the study's analytical framework. Major findings show significant changes in health care cost and utilization patterns in response to the experimental health insurance plan instituted in Zhengjiang city. First, the incidence of using any health care services increased by 12% among the general population. Second, when looking into changes in the composition of difference services, there was a shift from the likelihood of using inpatient care to outpatient care. Third, total health care expenditures decreased by 8% among the general population and 18% among users. And fourth, among respective service-specific users, the utilization rates consistently decreased by 14% for outpatient visits, 11% for inpatient admissions, and 17% for length of stay (LOS) per admission. Based on these findings, the experimental plan appears to be more cost effective than the previous health care programs. Introduction Over the last two decades, China's health care system has undergone numerous changes (Hsiao, 1984; Hu, 1984; 1988; Cretin et al., 1990; World Bank, 1993; Henderson et al., 1994; Liu et al., 1994; Liu and Hsiao, 1995). Like many other countries, runaway health care costs and limited insurance coverage have been serious problems that stimulated the Chinese government to reform its existing publicly financed health insurance programs. In December 1994, the Chinese central government initiated a new medical insurance plan for pilot experiments in two medium-sized cities: Zhengjiang and Jiujiang (Cai, 1995; Yuen, 1996). The experimental plan was intended to provide citywide insurance coverage for the urban working population, while capping overall health care spending. The government hoped to eventually reform its existing urban health insurance programs, following the design/testing of the experimental plan. Given that nearly 360 million people live in urban areas, the urban health insurance experiment will undoubtedly have profound and significant impacts on China's health care policy and transitions in health care markets. To date, only a few studies have been conducted to describe the pilot experiment (Cai, 1995; Xiang and Hillier, 1995; World Bank, 1996; Yuen, 1996; Jiangsu Province Bureau of Health, 1996; Song, 1997; Yip and Hsiao, 1997; Liu et al., 1998). A major observation from most of the previous studies suggested that the new insurance plan was effective in containing total health care expenditures (Jiangsu Province Bureau of Health, 1996; Yip and Hsiao, 1997). What remains inconclusive thus far is how the cost savings were derived from this new plan. In particular, some questions were raised as to whether and to what extent the identified cost savings were attributable to reductions in utilization rates of various services or to the reduction in the use of expensive diagnostic services and prescriptions. Moreover, previous studies were descriptive in nature. Because of data limitations, none of the existing studies was conducted in the context of an explanatory framework that controls for the confounding factors while assessing the dynamic changes in health care costs and outcomes resulting from the pilot reform experiment. Using data from the first survey conducted in 1995 by the Jiangsu Province Department of Health, this study conducted a preliminary economic assessment of the experimental program in Zhengjiang. …