HEALTH ECONOMICS Health Econ. (2008) Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/hec.1346 CATASTROPHIC MEDICAL PAYMENT AND FINANCIAL PROTECTION IN RURAL CHINA: EVIDENCE FROM THE NEW COOPERATIVE MEDICAL SCHEME IN SHAND

Objective: To measure the impact of China’s New Cooperative Medical Scheme (NCMS) on catastrophic medical payments of rural households in Linyi County, Shandong Province. Method: In 2005, from a stratified cluster sample of 3101 rural households, we identified 375 households that might be at risk of catastrophic payments by searching through NCMS claims and interviewing key informants. We interviewed these 375 households and confirmed that 231 had had catastrophic payments ( 40 % of the households ’ capacity to pay; CTP) during 2004. A validity test of our screening method found another eight cases among immediate neighbours of these 375 households; by extrapolation, we obtained an adjusted total of 289 catastrophic households in the sample of 3101. We measured the impact of the NCMS on hardship alleviation by counterfactual analysis, comparing catastrophic payments before and after NCMS reimbursements. Result: The effect was twofold. Before NCMS intervention 8.98 % of Linyi population had had catastrophic out-of-pocket payments compared with 8.25 % after reimbursements. Catastrophic severity for households remaining in catastrophe after reimbursement dropped by 18.7 % to an average of 6.34 times the household’s CTP. Conclusion: Out-of-pocket medical payments remain a burden for rural households. Financial protection from the NCMS, with an average reimbursement of 17.8%, was modest and should be restructured to provide better benefits that are targeted to those in most need. Copyright # 2008 John Wiley & Sons, Ltd