Economic evaluation of New Rural Cooperative Medical Scheme in China

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By Boshen Jiao

In China, while the private health insurance is growing rapidly, the government-funded basic health insurance still dominates the health care landscape. Chinese government defines three types of beneficiaries: urban employees, urban residents, and rural residents. Accordingly, three main types of healthcare coverage plans were implemented in China: the Urban Employee Basic Medical Insurance, the Urban Resident Basic Medical Insurance, and the New Rural Cooperative Medical Scheme (NCMS).

The NCMS, which was initiated in 2003 and financed by both governments and individuals, was specifically designed for rural residents in China. In some sense, the Chinese government can feel proud since 98% of the rural residents are covered and this, undoubtedly, has been viewed as a great success. In particular, many of the newly covered individuals are considered to be poor and underserved, with a long history of struggling for access to basic health care.

However, the health and economic consequence of the NCMS might not be that pleasing. While the effectiveness for mortality reduction remained controversial based on current scientific evidence, the NCMS resulted in a 61% increase in out-of-pocket spending. Given the fact that the NCMS has finite resources and impacts a large number of lives, it was critical to do a “thought experiment” and assess the cost-effectiveness of the NCMS. This is the subject of a paper I recently published with Dr. Jinjing Wu from the Asian Demographic Research Institute at Shanghai University and several coauthors from the Columbia Mailman School of Public Health. This paper, titled “The cost-effectiveness analysis of the New Rural Cooperative Medical Scheme in China,” was recently published in PloS One.

Initial estimates of NCMS’s effect on mortality were based on quasi-experimental studies that produced conflicting results. Some argued that NCMS significantly decreased the death rate among the elderly in the eastern region, while the other study using a nationally representative sample concluded to have no statistically significant effect. Although it was tempting to embrace the favorable results, our investigators decided to take on the less-favorable study. We made this call mainly because the nationally representative sample was derived from the Disease Surveillance Point system which was widely accepted as a very reliable data source. Besides, we hoped to draw from the whole country, rather than only focusing on East China where more economic resources and better healthcare are offered. In addition to the effect on mortality rate, the NCMS had proved to successfully lower the risk of hypertension, which was also included as an effectiveness parameter in our model.

Because of uncertainty around its effect on rural residents’ survival, it is likely that the NCMS is not cost-effective. Based on our analysis, the NCMS can only buy one more QALY for rural residents at the social price of 71,480 international (Int) dollars (Note: the costs and economic benefits were converted into 2013 Int dollars using purchasing power parity exchange rate reported by the World Bank). This is not optimal for China. If we believe that three times per capita GDP can be a fair willingness-to-pay threshold (Int$845,659), the NCMS had only a 33% chance to be cost-effective. The results were not surprising, however, nonetheless disappointing.  One possibility that we did not explore is that the elderly benefit the most from NCMS. Using a nationally representative sample, however, the NCMS is plausibly costly for the society and failed to produce sufficient health benefits.

We discussed the reasons why the NCMS appears to be inefficient. Current literature described the NCMS as providing catastrophic coverage that mostly covers inpatient services. People may barely use the preventative care or other necessary outpatient services, which would plausibly lead to severe illness and costly complications in the future. Moreover, the NCMS is associated with high copayments, which restricts low-income rural residents’ access to health care and fails to reduce out-of-pocket expenses. We concluded that, while the Chinese government indeed achieved a great success in coverage expansion, the program’s efficiency should be a consideration for future improvements. In order to achieve this goal, cost-effectiveness analysis could be a useful tool when designing the plan.

Our study presented an overall picture of the cost-effectiveness of the NCMS, in which the effect was estimated based on an aggregated of the data collected from different regions. However, the heterogeneity across the regions, particularly at the county level, would need to be taken into account for the future study. This is because the county governments play a critical role in financing for the NCMS, and their budget constraint for the plan has a fundamental effect on the design and implementation of it. As a consequence, the health outcome of NCMS may vary dramatically across the counties. Our analysis would have been enriched and would have provided more informative policy implications if the county level data can be obtained.