Wednesday, 30 January 2013

Payment reform fails to fill medical insurance abyss

by Tian Peng and Zuo Lin
After three years of expansion, China's medical insurance system now covers 95 percent of the population. However, as the world's largest medical insurance program, it has come under great pressure to make ends meet.
On the one hand, medical insurance funds nationwide are struggling to foot skyrocketing medical bills resulting from soaring medical costs and surging compensation standards. Meanwhile, the current medical insurance system, which already boasts universal coverage, leaves little room for expansion. Therefore, increasing funding size hinges on rises in urban employment, higher income levels, and larger government allocations.
Compared with their foreign counterparts, Chinese citizens spend a large percentage of their salaries paying for social security, namely endowment insurance, medical insurance, unemployment insurance, employment injury insurance, maternity insurance, and the housing provident fund. Given that social security contributions and taxes already take up over 25 percent of individuals' total wages, it would be difficult to raise the percentage any time soon.
Take Beijing for instance. The municipality's medical insurance fund experienced average annual growth rates of 20-30 percent between 2007 and 2011. In comparison, medical costs increased 50 percent in 2010 and 38 percent in 2011 and have been growing faster than average wages since 2008.
The public's demand for medical services is soaring while the medical insurance contribution-wage ratio is already high. The Center for Public Policy at the Institute of Economics under the Chinese Academy of Social Sciences (CASS) estimated that under the current system, most Chinese cities will see their medical insurance funds running out of capital before 2020, though they may vary in population size and age structure.
Given the circumstances, the top priority for policymakers is to ensure efficiency and fairness in the deployment of medical insurance funds.
Medical insurance funds worldwide generally pay hospitals in two ways: one is through a fee-for-service system under which hospitals are paid based on specific services they provide, the categories their services fall into, or the categories of illnesses they treat; the other is to pay hospitals fixed total amounts determined in advance (i.e. the "total prepayment" mechanism) or predetermine per capita amounts of payment and pay hospitals based on the number of patients they treat and predetermined price levels.
For a long time, hospitals in China have generally been paid based on specific services they provided. In other words, hospitals (doctors) that prescribed more medical examinations and drugs enjoy higher incomes. As medical insurance funds nationwide strive to keep down overall medical costs, the "total prepayment" mechanism is gradually gaining momentum.
The mechanism could effectively contain medical costs in the short term; however, on a closed medical service market where reform on the supply side lags behind and administrative forces play an increasingly larger role in allocating medical resources, payment reform alone could in effect "release demand while limiting supply," which in turn would make medical insurance funds unable to foot skyrocketing medical bills.
In the long run, opening up the medical service market should be the ultimate solution to adjust demand and supply and control medical insurance costs. An expert contends the first step of medical reform should be deregulating the medical service market, which is the simplest reform path with the least social impact.
Source: Caijing

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