Essays on China’s Health Care and Skill Upgrading Decisions

Thesis (Ph.D.)--University of Washington, 2022In this dissertation, I explore three seemingly disparate but inter-connected questions related to China’s strategies for human capital maintenance and accumulation. Hereinafter, a brief outline of each of the three chapters is given. In the first chapter, I investigate how efficiently the Chinese government designs a public health insurance program, namely the New Rural Cooperative Medical Scheme (NRCMS), in a hierarchical medical system. To study the welfare effects of adjusting the plan’s policies, I construct and structurally estimate a two-stage choice model based on a set of medical claims data of all inpatients enrolled in the NRCMS between 2012 and 2014 from a representative county of China. In the first stage, a patient chooses one of the hospitals available to treat his or her disease with imperfect information of health status; in the second stage, the patient decides a spending level according to his or her realized health risk, moral hazard type, and the cost-sharing structure in the chosen hospital. According to my model, patients can exhibit diverse risk attitudes that affect their hospital choices, and a higher- deductible plan can improve social welfare if generosity increases mistrust among patients with minor diseases. Indeed, empirical results confirm these concerns, and eventually lead me to suggest the Chinese government to increase both the deductible and reimbursement maximum for social welfare gains as well as public acceptance. In this first chapter, I focus on the demand side of China’s healthcare system to understand how China maintains the health capital of its rural residents. In the meanwhile, I identify efficiency issues caused by how consumers respond to the way in which China manages health capital, and propose policy recommendations to improve economic efficiency. I realize that the efficiency issues in China’s healthcare system come from not only the demand side but also the supply side. Thus, I present my second chapter, which is a joint work with Qifan Huang and Zhentong Lu. In this chapter, we consider the incentives of physicians and the price bargaining between the Chinese government and pharmaceutical companies, in a prescription drug market, in addition to considering consumer incentives. We take advantage of a policy shock, namely the Zero Markup Drug Policy (ZMDP), to measure physician incentives and the bargaining power of the Chinese government relative to pharmaceutical companies regarding wholesale pricing and to identify the impacts of the ZMDP on market structure and patient welfare. We find that: prescription choices of physicians are more sensitive to out-of-pocket costs of patients than drug markups when the coinsurance rate is below 35 percent; wholesale pricing is mostly dominated by provincial governments; branded drugs are more preferable and less price elastic than generic ones, but the ZMDP improves the favorability and thus the profitability of generic drugs; while total sales can be negatively affected by the ZMDP, patient welfare can be improved by a sizable amount because of the lowered prices, holding other medical activities constant. The third chapter describes a study which is a joint work with two of my classmates, Chujian Shao and Qiliang Chen. It emphasizes a different aspect of China’s human capital accumulation—job skills. In this project, we study the impact of a regional trade agreement, namely the Asia-Pacific Trade Agreement (APTA), on skill upgrading by manufacturers in China. We first develop a general equilibrium model of trade with heterogeneous firms and endogenous export and employee training decisions to explain firm performance following trade liberalization. Then, we test our theory based on a general difference-in-differences strategy, showing that manufacturing firms in some sectors that face higher reductions in India’s tariffs increase their investment in on-the-job training faster. The effects of trade openness on export participation and training spending of firms are the largest in the middle range of productivity, which corresponds to our model prediction. This third chapter shows that one of the effective human capital accumulation strategies can be to encourage voluntary skill upgrading of firms via bilateral trade liberalization, and it works for China, especially during its transition (i.e., privatization) era. Understanding how China can manage to maintain and improve one of its drivers of economic growth and development, human capital, is meaningful. It not only provides policy implications for other developing countries, but also points out the areas of improvement for China and other countries. I hope that this dissertation can contribute to the discussion of human capital maintenance and accumulation