Duke/Peking University Day 2 – China Insurance And Moral Hazard

Day two featured a lot of debate about how to finance the health insurance system in China.

The summary of the discussion is posted below, and I have also written an article on Moral Hazard and the Chinese Healthcare system incentives for Professor Don Taylor’s Free For All Blog and I strongly encourage you to check it out (It should be up tomorrow if it is not already up now).  The following are a few fun notes about yesterday’s lecture (day 2) as well as a transcript of the day’s discussion questions and the students’ responses.

On day two, Donald Taylor has made a switch to a much more animated teaching style. Perhaps this is a reaction to a relatively quite day one where some of the more technical information may have been lost on the students trying to keep up with the pace of the lecture.

He used fewer words and more body language to communicate concepts; making good use of voice inflection to highlight points; and using his body to illustrate size of problems, the speed of actions, and the irony inherent in some of the systemic problems that result from moral hazards.

Any American educators thinking about going to teach in China, take note – body language is usually 70% of communication, but, in China, that figure is closer to 90%.

A funny moment occurred when Don Taylor asked the class how to say poor.  He was promptly informed that the word is ‘chou’.  Unfortunately, when he eventually employed the word ‘chou,’ he pronounced the word using  the fourth tone.  ‘Chou’ in the fourth tone means ‘stinky’.  So he ended up saying “people who are stinky are disadvantaged by insurance”.  That initially garnered a small laugh, and then each additional mention garnered a bigger one.

Below are the discussion questions asked at the tail end of the lesson.   The students’ responses are then recorded below.  I have also included some of Don Taylor’s interjections.

How should doctors in China be paid (salary, fee for service, capitation) Why?

1)      Two part answer + first group to use power point

1. Primary hospitals: salaries and allowance
2. Large general hospitals in China: Fee for service, salaries and allowance.  While the fee for service takes the lion’s share
3. The reasoning: city hospitals get more patients and so the fee for service makes up a larger part of their salary.  By contrast, the doctors that go to the rural areas are more incentivized by the government because the number of patients they see is not as high

2)      (This presenter is an MD)

1. This is how our payment plan is broken down
   1. i.      1^st part is salary, 2^nd part is allowance, 3^rd part is from kick backs given by drug distributors
2. The 3^rd part is illegal, and this is what needs to be addressed so that it becomes legal for doctors.  The salary for doctors is much lower in China than in the United States.  The salary can be padded by drug companies who would be more heavily taxed by government.  This tax would then go to increase the portion of a doctors remuneration paid by government

3)      Doctors at the primary level should be paid by capitation and fee for service

1. Doctors at secondary level through a “Global Budget”.
   1. i.      Hospitals should give a certain amount of money to cover costs.  Part of this money should go to doctors.
2. Doctors at the third level should be paid by DRG

Donald Taylor points out that the phrase DRG is a very big term that encompasses all the categories of disease, injury, etc that a hospital might encounter.  What it might stand for here is having a reimbursement sheet for a wide category of diseases.

Should insurance cover all the costs of health care for persons who are insured?  If Yes, why?  If no, what percentage should individuals pay and why?

1)      Self paid/Insured ratio in method 1 (5% self pay, 95% insured) method 2 (50%/50%), Method 3 (95%/5%)

1. Only method 2 is realistic as a starting point.  The costs for the state of Method 3 would be too expensive for the state.
2. Issues of Community vs. General – General hospitals should be more expensive so going to general hospital for minor ailments is dis-incentivized
3. Issues of necessary vs. luxury – health insurance should cover a smaller percentage of non-necessary procedures

[Student Question: How do you use this logic when talking about a disease like cancer]

[Donald Taylor answer: You can do that but not that typical to have a payment rate for a specific disease category]

2)      It would be a mistake to answer all of the costs due to the problem of moral hazard.

1. There are three components that go into the question of what insurance should cover- public policy, hospital, Insurance companies.
   1. i.      I did not catch the minutia of his point but the presenter seemed to be saying that all of these components presented several key questions and that a key consideration in each case was the delineation between private and public systems

4)      Insurance pay most of the cost and patients cover the remainder

a.)    If health insurance coverage in rural areas are higher, than this will provide more incentives for doctors to go there

Which is a bigger problem in China:  Overuse of care, or underuse of care?

1)      Underuse of care – one has to look at all of China.  People are afraid of the costs and do not get enough care

2)      The people with middle income or above, or with insurance are overusing care

1. People with low income and without insurance are under-using care