Duke/Peking University Day 3 – Expanding insurance coverage in China

Day 3 – Global Health

If you are just joining our blog community – this entry is part of my continuing coverage of Duke University’s two week Global Health certificate course at Peking University.  The class I am covering is focusing on the question of health insurance financing in China.  For more background and prior entries go here and here.  For an article I wrote related to Moral Hazard and Chinese Insurance, go here.  Donald Taylor is the professor teaching the class and his name appears throughout these summaries.  He is Associate Professor at Duke University.

Day three has been the most active day of debate in group discussion.  The big questions are, who insurance should cover? How many should receive insurance benefits? What kind of taxes are to be used to finance government insurance?

The discussion questions and student group responses are reprinted below;

Should china have a separate hospital insurance for elderly persons? What are the reasons to have elderly separate from younger persons?  What are bad reasons?

1.)    China should have a separate insurance for the elderly.

1. Advantages – the young people would not have to pay for the health care
2. Disadvantages –
   1. i.      high risk of disease
   2. ii.      low ability to pay
   3. iii.      mix of good and bad health
   4. iv.      Low payments and high use – ins and outs do not match up
   5. v.      Leads to adverse selection
   6. vi.      Not in line with the Chinese family concept
3. It is better to have family insurance and not to have the elderly insurance separate

2.)    It is hard to achieve a separate insurance for elderly.  We are going through a large demographic transition.  Many elderly are from a generation that did not have as much money. I think it is best that we establish a three tiered system of health insurance.  In one tier we focus on poor people – no matter if old or young, it makes sure that these poor people have access to health care. The second component is a local government system – how much the local government can pay depends in part on the local economy.  The third part is individual insurance – supplemental health care.

Donald Taylor Question: Give me a good reason for why a for profit insurance company might be a good thing?  What would be a reason to allow for profit insurance companies?  Profit insurance just means that the profit you make off of premiums is more than the money you give out.  So, in theory you can even make a profit off of sick people.

After no real answer is given, Don moves to the front of the class and explains that some would say private insurance companies exist, in theory, because they can do something better that a government cannot do.  He also acknowledges what seems to be a dominant view point of students in the room that this might be perverse.  He ends with the words “Just think about it.”

Should China try and expand the number of persons on government insurance?  Or should China try and expand number of persons on private insurance? Why?

1.)    Health insurance should cover 100% of the people to insure health equality.

1. Access to health services is a basic need for all people.  This is especially true for the poor and vulnerable.  They are the first ones to get hurt when a health insurance scheme does not cover everyone and so the government should focus on covering 100% of people so that these high risk groups are not hurt.
   1. i.      The government pays some of the costs and the resident contributes some as well.
2. Private insurance should be encouraged to provide some special services which the government does not have the ability to do
3. Donald Taylor summary: You are saying that the government funded insurance should be a basic government insurance.  With individuals required to pay some of the cost you are addressing the issue of moral hazard because by requiring people to pay some of the costs you are discouraging overuse.
4. Student Question: What if some people cannot afford to provide the premium for government insurance?  This is currently the situation in China.  So many people are so poor that they cannot afford to pay even a small amount.
   1. i.      Response – this is indeed a problem for some people, especially for people in some Western areas in China.  I think the government should pay proportionally more for poor people.
   2. ii.      Response 2 – China has this sort of subsidy already.  It is called China medical aid, and the program is available in the rural areas and in the cities.  Subsidies and health insurance systems combined make up the health care net.

(Note:  If there a “poverty aid” system in China, and the Chinese are notorious for underreporting income, then this increases the moral hazard associated with the health insurance system.  For example, poor people, who are not poor enough, would underreport income even more in order to qualify for the subsidy.”

2.)    China should expand the number of people on government insurance and the number of people on private insurance.

1. There are currently three types of insurance
   1. i.      Social Health Insurance which includes both Urban based medical insurance for employees AND urban based medical insurance for residents
   2. ii.      Community based insurance
2. Most people, around 75% have community based insurance, about 20% have urban residence insurance, and the remainder have urban medical employee insurance
   1. i.      The urban employee insurance is for government workers and politicians
3. But there are still many people who do not have any health insurance.  We should try our best to cover this percent as soon as possible
4. There must be a private insurance scheme to support the government insurance.    Maybe many of those who live in Beijing and Shanghai have the economic abilities to buy private insurance which matches their desire to access health care.
5. Question from student: How do you cover the 800 million peasants and migrant workers who still don’t have access to health care?

Donald Taylor makes a great point that is probably well known and often practiced by the Chinese students (indeed, as it is by all students world wide): Notice how when a group’s plan is detailed it is much easier to criticize, then when you speak in very general terms.

What types of taxes are the best ones to use to finance government insurance? Why?

1.)    Several kinds

1. Income tax which is progressive
   1. i.      If income below 500RMB/month then tax free
   2. ii.      As you go up the rate of taxation gets higher.
   3. iii.      As we learned this afternoon, the income tax narrows the gap between the poor and the rich.  It is an important tax tool.
2. The payroll tax
3. Sin tax
   1. i.      Cigarette smoking, alcohol consumption, and fat consumption are all factors which can affect our health.

(Note: The presented kind of parroted Don’s lecture, and there was no mention of why this might be a really good idea in a country where more than 60% of men smoke, and fully one third of men under the age of 30 are expected to die from smoking related complications.)

2.)    Income tax 20%, payroll 15%, sin 15%, luxury stamp 10%, others 5%

a.)    Corporation income tax is a real gold mine for the Chinese.

1. i.       It is easy to track and the companies “cannot fly away”
2. ii.      The corporations are responsible to the public if they have shareholders and it is easy to track their income flow
3. iii.      The corporations are really rich and if you tax them you will get a lot of money very fast
4. iv.      Since china’s economy is currently strong and not in danger of recession this is  a pretty dependable source of income
5. v.      Chinese incomes are not that high yet, so you would probably earn more money taxing the corporations