The history of social health insurance expansion in China

Early reform: collectivist welfare regime (1951-1978)

China was a rising star in public health system performance among the developing countries prior to 1978. The communist party regime led by Mao Zedong transformed the public health landscape in China by taking complete ownership in the operations and financing of healthcare, ranging from large specialized health facilities in the urban areas to small township clinics in the rural areas, a phenomenon that was typical of communist societies during that period. The so-called barefoot doctors formed the bulk of human resources in the health sector at the time, delivering both affordable and effective healthcare in China. They were perceived to be the core actors in expediting the improvement of health outcomes in China between 1952 and 1982 - an improvement marked by a dramatic reduction in infant mortality from 200 to 34 per 1,000 live births and an almost miraculous increase in life expectancy from 35 to 68 years (Blumenthal and Hsiao, 2005). The health system in China during this period included three social insurance schemes that covered almost the entire population of China: the Government Insurance Scheme (GIS) for employees of state-owned companies, Labour Insurance Scheme (LIS) for the urban population, and Cooperative Medical System (CMS) for the rural population (Ramesh et al., 2013).

Rollback of reform: economic liberalization and minimalist welfare regime (1978-1998)

The liberalization of the Chinese economy from a centrally planned economy to a market economy, a bold decision taken by then-premier Deng Xiaoping in 1978, spurred phenomenal economic growth in China over the ensuing three decades. However, it also resulted in the demise of the government’s role in the public health system. Deng spearheaded an ideological shift in China’s welfare philosophy turning an egalitarian state into a highly individualistic and market-oriented system, advocating for a “family responsibility system” in the rural sector and emphasizing family as the first line of social protection (Liu, 2002). From 1978 to the 1990s, the Chinese government placed economic growth as the top priority in China’s developmental agenda; the price it paid was a widening of health disparities and deterioration of health outcomes for large numbers in the rural population (Huang, 2014).

The minimalist welfare approach adopted by the Chinese government shook the fundamental structure of the public health system, which had been heavily statedependent prior to the economic transformation. As the government reduced its fiscal responsibility in public health provision, public hospitals became privatized, resulting in the transfer of ownership and operations to private providers (Gu and

Zhang, 2006). The CMS collapsed as a result of the privatization of agricultural collectives in rural areas, leaving the barefoot doctors unemployed and 900 million rural citizens uninsured (Blumenthal and Hsiao, 2005). The changes in public healthcare provision saw the share of national health spending as a percentage of total government spending reduced from 32% in 1978 to 15% in 1999 (ibid.), while out-of-pocket spending as a share of total spending increased from 23.2% to 57.8% (Liu and Rao, 2006).

The devolution of financial autonomy from the state to private entities also created health disparities between the rural and urban populations and between rich and poor, as privatization of the public health system resulted in cost escalation, impeding access to healthcare by the poor (Liu, 2002). Health inequality in China became a serious phenomenon, characterized by widening discrepancies in the infant mortality rate (IMR) and maternal mortality rate (MMR) between urban and rural China. In 1999, the IMR was reported to be 37 in rural areas as opposed to 11 in urban areas, while the MMR was reported to be 39 in rural area and 14 in urban areas (Blumenthal and Hsiao, 2005).

Extension of reforms: signaling of legitimacy and SHI expansion (1998-2009)

The widening health disparity between urban and rural areas was a worrisome situation for political leaders, as levels of public grievance increased. The negative repercussions on the impoverished rural population, which made up 70% of the total population in China, were seen as a threat to the authoritarian Communist Party regime with its firm belief that political order and stability were prerequisites to sustainable economic growth (Blumenthal and Hsiao, 2005; Liu and Rao, 2006). In a sign of the government’s desire to secure political legitimacy, the Health Ministry, led by Dr Zhang Wenkang in the late 1990s, took the initiative to push for healthcare to be given priority on the political agenda (Liu and Rao, 2006). Academic research also played a role in bringing healthcare to the attention of top policymakers in China from the late 1990s onward. The publication of the World Health Report in 2000 rang a political alarm bell for Communist Party leaders as the report highlighted the relatively lower level of health financing in China as compared to many other upper-middle-income countries (ibid.).

A preliminary wave of SHI reform in China occurred with the introduction of Urban Employees Basic Medical Insurance (UEI) in 1998 - a government health insurance scheme that was mandatory for urban formal sector workers. The subsequent wave of reforms from 2003 - including the New Rural Cooperative Medical Insurance Scheme (NRCMS), which initially enrolled 8 million of the rural population - marked the beginning of the full government response to address the urban-rural health disparity. It was also a strong signal of the Communist Party’s political commitment to the grand ambition of universal health coverage by 2020. In 2007, the Urban Residents Basic Medical Insurance (LIRI) was launched, targeting urban migrant workers as well as the non-employed (children, students, elderly, and disabled). By 2008, 87% of the total Chinese population was covered by one or other of the major state-controlled health insurance schemes (Meng and Tang, 2010).¹

Escalation of reforms: three-phase public health reforms and the expansion of policy pilots

In 2009, a three-phase health development blueprint was unveiled by the Chinese government as a major development plan to strengthen supply-side readiness by 2020. In the first phase, spanning 2009-2012, a total of USD 125 billion was injected into the health sector to finance development and programs in five key areas: expanding SHI, strengthening primary care, establishing an essential medicines program, ramping up public healthcare services, and implementing pilot reforms in public hospitals (Li and Fu, 2017). Policy experimentation and pilots became central and were prioritized by the government as instruments to inform policies (Husain, 2017). For instance, 17 cities were selected as pilot cities for public hospitals in the first phase (Li and Fu, 2017).

In the second phase (2012-2015), the Chinese government reaffirmed its promise and commitment to the same health developmental focus as the first phase but increased its attention on public hospital reforms. Another 83 cities across China were added as pilot cities in order to step up efforts to strengthen the supply-side of healthcare (ibid.). In the third phase, which started in 2015, an integrated health system with improved interface between primary care and higher-level care through ongoing reforms was envisioned (ibid.). Moreover, in further attempts to improve the efficiency and equity of the existing SHI system, the Chinese government announced a merger between URI and NRCMS to form the new Urban and Rural Residence Medical Insurance (URRMI) scheme in 2016 (Shan, 2016). Table 7.3 provides an overview of the various SHI schemes in China.