Financial Sector Reform in China

Thanks to continued economic growth and increasing income, the overall poverty rate has been on decline in China. However, due to medical cost escalation and lack of insurance coverage, catastrophic medical spending constitutes an increasingly important cause for poverty in rural areas. In 1993, the insurance coverage for the rural residents was already low (12.8%). By 1998, only 9.5 % of the rural populations were insured. Ever since collapse of the once successful Cooperative Medical System (CMS) in the early 1980s when China transformed its system of collective agricultural production to private production, many rural communities, especially the poor, faced several major problems. User charges and high direct costs effectively block access for many rural residents who lack adequate income to purchase basic healthcare when it is needed. Using the 1998 National Health Services Survey data, we estimated impact of medical expenditure on the poverty headcount for different rural regions. Based on the reported income statistics alone, the headcount for the whole rural sample is 7.22%. Out-of-pocket spending on healthcare has raised the headcount by more than 3 percentage points. In other words, medical spending raised the number of rural households living below poverty line by 44.3%. Why has there been no vigorous development of a rural health insurance system in China? This paper provides a systematic review of the underlying factors affecting the initiation and sustainability of China’s rural health insurance system, and discusses inadequacies of current policies