China: Healthcare Reform

The big news in China last week was the unveiling of the government's healthcare reform plan that would seek to provide "safe, effective, convenient, and affordable" health services to the entire population by 2020. The government is planning to spend 850 billion yuan (US$124 billion) towards building new rural hospitals and clinics and will regulate the prices of "essential" medicines. Different tiers of health insurance will be set up to cover citizens according to their employment status and whether they are urban or rural.

This is significant because affordable healthcare is not in the reach of the vast majority of Chinese citizens. As a result, families tend to save more in case a health emergency should occur. American economists who complain about Chinese currency manipulation have long called for the Chinese Communist Party (CCP) government to implement measures to lower the national savings rate and stimulate domestic consumption (see this Senate hearing testimony from the Peterson Institute for Intenational Economics for an example). This healthcare reform plan seems to be an answer to their wishes.

In the Southern Metropolis Daily, one of China's leading commercial newspapers, Beijing-based economist Chen Qinglan writes that this plan is a step in the wrong direction:

True healthcare reform must have a clear direction, and that should be to stimulate the supply of healthcare services and products. This is the path towards truly solving the healthcare system's problems. Specifically, we should: 1. Cancel restrictions on the inflow of private and foreign capital and open up the market. Encourage private capital to purchase stock and buy up public hospitals. Completely open up the healthcare market no matter whether it is for non-profit or for-profit hospitals. Allow private capital and public interest organizations to freely participate; 2. Cancel regulation of drug prices and let the market determine the prices of medicine and healthcare services. This would rationalize the allocation of healthcare resources; 3. Break the monpolistic and privileged position of public hospitals. The tasks of managing and supervising public hospitals by government health departments should be separated; 4. Open up the health insurance market; 5. Open up the establishment of privately-run medical schools and training organizations to stimulate the cultivation and supply of healthcare professionals.

By marching out under the banner of "public interest" and denying marketization, the government is comprehensively intervening in public healthcare services and returning to the planned model of the past. We will definitely be beset by inadequate supply of healthcare services, subpar service quality, non-proactive doctors, slowdown of technical innovation, and other old problems, once again falling into a vicious cycle. Once this model fails, it will be the people who pick up the bill.

Chen's criticism is timely in light of the fact that last month, Chang Gung, a hospital group founded by late-Taiwanese entrepreneur Wang Yung-ching, was forced to scale back its plans to expand into two more Chinese cities because its flagship hospital in Xiamen was having trouble hiring sufficient doctors and nurses and running at a profit. The Chinese government does not allow Chang Gung to register as a non-profit entity, so it does not enjoy the tax breaks and subsidies that are available to local public hospitals. The CCP's healthcare reform proposal does not seem to address this problem.