An Empirical Investigation of the Reformed Public Health Insurance in Urban China

Presenter: Minglai Zhu, Nankai University

Abstract

Background: With its transition to a market-oriented economy, China has gone through significant changes in health care delivery and financing systems in the last three decades. Since 1998, a new public health insurance program for urban employees, called Basic Medical Insurance Program (BMI), has been established. One theme of this reform was to control medical service over-consumption with new cost containment methods.

Objectives: This paper attempts to evaluate the effects of the reformed public health insurance in China, with in-depth empirical studies. The effects of public health insurance program on medical service utilization and expenditure were never explored fully in literature for China case. This study addresses this shortcoming by in-depth data analysis.

Methodology: We explore the extent to which the public health insurance status affects individual’s medical service utilization and medical expenditure over the period when the new urban public health insurance has been in effect, using two waves of China Health and Nutrition Surveys (CHNS) data with relevant econometric models.
First, we employ the popular PROBIT function in the medical service utilization. Second, the properties of medical expenditure data such as skewness, a “spike” of zero values and restricted range make OLS estimation biased and inefficient. The popular alternatives to OLS include the two-part model, the sample selection model and the TOBIT model. We choose the two-part model to study the medical expenditure. Finally, to demonstrate how the impacts of public health insurance status on medical service utilization and expenditure change over time in response to the health insurance reform in 1998, this study also employs a difference-in-difference model, which provides a straightforward framework for pursuing our empirical analysis.

Results: The empirical results provide evidences that (1) public health insurance in China has increasing effect on individual’s medical service utilization and medical expenditure, i.e., there exists patients’ ex post moral hazard; (2) China’s public health insurance reform reduced the increasing effect of the public health insurance on the probability of utilizing medical service, i.e., reduced patients’ ex post moral hazard, because whether or not utilizing medical service is determined by patients themselves; (3) China’s public health insurance reform enlarges the increasing effect of the public health insurance on individual’s medical service expenditure, implying there exists physicians’ severe incentive to over utilize medical services for their own benefits in China.