The economic crisis has brought with it a lot of talk about the need to restructure the global economy. One argument has it that China’s high savings rate is partly responsible for pumping up the global credit bubble that burst so spectacularly last year. Although Premier Wen Jiabao laid the blame for the global credit crisis firmly at the door of greedy US consumers, Beijing agrees that it must restructure China’s economy away from exports and investment toward consumption.
Boosting domestic consumption will require households to reduce their savings rate. And this will only happen if Beijing massively expands the government-provided social safety net, as households will not spend their cash so long as they fear crippling medical bills.
January’s announcement of a US$124 billion plan to create a universal basic health insurance system is a good start. Like so many of Beijing’s spending initiatives, the details are murky: Questions remain over what constitutes "basic" health care, how non-basic services will be funded, and how much of the money is new spending. But the commitment to a universal scheme is badly needed. Although basic health indicators, such as life expectancy and infant mortality rates, have improved steadily over the past decade, China’s health care system nonetheless faces mounting problems.
Demand for health care is rising in volume and complexity, primary care infrastructure is inadequate, and detection and treatment of chronic diseases is poor. Most health care is dispensed by hospitals that frequently prescribe unnecessary drugs and procedures to boost revenues. Insurance schemes reimburse rather than pay hospitals directly, which means they have no power to rein in unethical practices, and reimbursement rates are low. As a result, the cost burden falls inordinately on individuals.
The new plan will extend health insurance programs in urban areas (only half of China’s city dwellers are currently covered, whereas all rural citizens in theory already are), and the minimum subsidy for those covered by the scheme will rise from RMB80 (US$11.70) to RMB120 by 2010. In practice, many citizens will receive more via top-ups from local government, although this does nothing to remedy the vast regional disparities in health care quality and reimbursement rates.
Nevertheless, the reform plan is the first explicit commitment to European-style universal, state-provided health care. In theory, it should lower drug costs, raise medical reimbursement rates and, in essence, nationalize a system of primary care.
These baby steps are a significant advance – a historic move, policymakers hope, toward making health care genuinely affordable for all Chinese citizens. It will be years before any of this has any significant economic impact, and medical reform will need to be backed by other large-scale social welfare spending programs. But cheaper health care should begin to chip away at China’s famously high savings rate.
By lessening the crippling economic burden of medical treatment currently shouldered by households, the new plan adds an arrow to Beijing’s diplomatic quiver. Reforming health care is a concrete step toward shifting the balance of China’s economy toward greater consumption.