Reforming China’s Healthcare System: Beijing’s Strategy for Establishing Universal Coverage

Publication: China Brief Volume: 6 Issue: 24

Troubled by the widening disparities in socioeconomic conditions between urban and rural regions and among various demographics, China’s leaders have adopted what they believe will be a more equitable policy of development. During its Sixth Plenary Sessions in October, the 16th Central Committee issued a statement that called for the development of a “harmonious socialist society” in China (China Brief, October 25). Among the various concerns stipulated in the statement was the role of healthcare reform, which for the first time, was placed as a priority on the political agenda. President Hu Jintao proposed an overall strategic direction and goal for China’s healthcare reforms: the establishment of a healthcare system that would provide universal coverage for basic health services; past reforms, though noteworthy, were considered insufficient in addressing the innumerable health challenges facing China. In order to achieve this goal, the central government and related ministries have been developing operational plans to reform all aspects of the current healthcare system, including healthcare delivery, health insurance and pharmaceuticals.


There have been several debates regarding China’s healthcare reforms in recent years. Critics, composed primarily of individuals from outside the Ministry of Health, have labeled the past reforms as failures, attributing it to the excessive dependence upon market mechanisms in the healthcare sector. Yet supporters, composed of individuals from within the Ministry of Health, have asserted that past reforms were relatively successful, pointing to the fact that the problems associated with the shortage of health services and drugs during the period of the planned economy have largely been resolved. Recognizing the merits of each perspective and the need for a more comprehensive and efficient healthcare system, Beijing set up a taskforce in May consisting of representatives from fourteen ministries to work on a new proposal for future healthcare reforms.

In recent years, especially since the SARS outbreak in 2003, healthcare reform, primarily in the rural regions of China, has received unprecedented attention from the central government. While a rural health insurance system, the Cooperative Medical Scheme (CMS), had existed in China prior to its economic reforms, the CMS floundered during the early 1980s primarily because of the collapse of the rural collective economy. As a result, some 90% of the rural population was left without any type of health insurance coverage. In 2003, the central government decided to subsidize the operation of the CMS for the poorer provinces. This was the first time that Beijing had allocated funds from the central government budget to support a rural health insurance plan. In addition to subsidizing the CMS, Beijing also created a medical assistance fund. Under this system, those suffering from debilitating diseases could apply for cash subsidies. The government has also devoted large amounts of funding to construct disease control institutions and purchase necessary healthcare equipment.


The current healthcare reforms in China are largely driven by the following factors: (1) the political leadership has become concerned with the growing number of complaints from the public about their inadequate healthcare provisions. Public polls have revealed that communities are increasingly concerned with the rapidly rising cost of healthcare and the poor quality of the available medical services; (2) the gaps in health resource distribution and healthcare utilization between regions and demographics have continued to widen. Such a disparity would need to be addressed if the development policy goals of a “harmonious socialist society” are to be achieved; (3) the increase in the healthcare costs has outstripped the relative increase in people’s incomes. From 1980 to 2004, China’s total annual health expenditures increased from 14 billion yuan (US$1.7 billion) to 759 billion yuan ($97 billion) [1]. The rapid rise of medical expenditures has increased the financial burden of the patients and has placed enormous fiscal pressures on the government; (4) the majority of the population is not covered by any type of health insurance, leaving most patients unable to afford even basic healthcare services due to its extraordinarily high costs.

While the overall health status of the population has continued to improve since the 1980s, disparities among regions and socioeconomic groups have widened. For example, the overall level of infant mortality declined from 52.3 deaths per thousand live births in 1990 to 19.0 per thousand live births in 2005; and life expectancy increased from 67.9 years in 1982 to 72.0 in 2005 [2]. Yet, in 2005, the infant mortality rate in rural areas was 2.4 times higher than in urban areas, the maternal mortality ratio in rural areas was 2.5 times that of the urban population and there was a 40% higher mortality for female infants than male infants [3]. Furthermore, in poorer areas, life expectancy was 4 years shorter than the country’s average.

Contributing to the disparities in health status is the fact that a large portion of the population, particularly the poor, is unable to seek medical assistance because of the high cost of healthcare. According to the National Health Services Survey in 2003, nearly 30% of the patients did not use inpatient care when they were advised by doctors to be hospitalized; 70% of those attributed their decision to affordability, and the percentage of the rural patients who avoided hospitalization was 20% higher than their urban counterparts. Likewise, utilization of maternal and pediatric care varied between urban and rural areas. For example, in 2003, 93.0% of the urban population received Hepatitis B vaccinations, as opposed to 76.7% of those in rural regions [4]. Overall, the immunization coverage for children in wealthier areas was 10-25% higher than in poorer areas.

Between 1978 and 2004, the annual growth rate of health expenditures in China was 12%, which was higher than the 9.4% growth of GDP. The percentage of government spending in total health expenditures declined from 32% in 1978 to 17% in 2004, with 50% of the total health expenditures contributed by individuals [5]. In 2004, the per capita health expenditures of urban inhabitants was 1,262 yuan ($160) as opposed to 302 yuan ($40) in rural areas; the per capita health expenditure of the rural population was only one-third of the urban population’s expenditure in 1998, declining to one-fourth in 2004. In the overall government budget, health expenditures accounted for 2.37% in 1980, decreasing to 1.85% in 2004 [6].

The limited health resources are also used inefficiently, primarily because the Ministry of Health allocates a significant portion of the resources to urban services and to tertiary hospitals, large hospitals based primarily in urban regions. What little funding is left is insufficient to ensure the provision of basic primary healthcare in rural areas. Furthermore, drug prescriptions and advanced diagnostic techniques consume a large portion of health resources. The 2005 National Health Economics Institute reported that some 40% of the overall health expenditures were spent on drugs, which is a much higher percentage than in other countries [7].


Chinese policymakers are currently faced with two major sets of challenges: how to narrow, if not close, disparities in healthcare services and how to utilize the limited healthcare resources. Based upon the recent healthcare reform policy presented by Beijing, it seems that the central government’s strategies would include the following elements: (1) increase and target public funding for primary healthcare; (2) strengthen the capacity of the community healthcare system in order to provide quality and accessible healthcare; (3) extend the coverage of social health insurance schemes; (4) provide government health subsidies to the vulnerable portions of the population; and (5) adopt more appropriate health technologies and pharmaceuticals in healthcare delivery. The government hopes that by implementing these healthcare reform strategies, the entire population can be covered by cost-effective primary healthcare.

A successful implementation of the strategies for healthcare reform would be the first step toward the equitable distribution of and access to public health resources. The residents of impoverished regions would be able to obtain access to additional resources allocated by both the central and local governments. Moreover, social health insurance schemes, especially the rural CMS, could be rapidly extended with strong government support, which would then form the base of a universal health insurance system. The disadvantaged segments of the population would likewise receive access to improved healthcare, and the disparity in health status between population demographics, which is regarded as an important indicator of a harmonious society, could be narrowed.

The implementation of the proposed healthcare reforms will not be an easy task, even though the political will is certainly available. Successful reforms would require fundamental modifications to be made to both the fiscal and healthcare delivery systems. For instance, it would take time to create a fiscal transfer payment system, whereby wealthier provinces would be obligated to contribute a greater amount of taxes to the central government, which then reallocates the funds to poorer provinces. In addition, the administrative authorities related to healthcare are distributed across a number of ministries. Enormous efforts would be required to coordinate both the policies and actions of the various ministries to serve the overall aim of developing an effective healthcare system, because each ministry may have individual and even conflicting interests in the development and implementation of healthcare reforms. Even the existing healthcare policies that were initiated during past reforms would require additional inputs and resources. The rural CMS, for instance, requires additional amendments, in spite of its rapid development in the past three years. The current CMS in most places has not adequately ensured healthcare access and coverage for the poor, and the unregulated behavior of certain healthcare providers—recommending expensive and unnecessary drug prescriptions and specialized treatments—has resulted in a waste of the limited fiscal resources, threatening the sustainability of the CMS. Similarly, the community healthcare system, which was originally envisioned to adopt a proactive approach toward preventing diseases and treating patients with common illnesses at community health clinics rather than tertiary hospitals, also requires additional augmentation. Initiated ten years ago, the reforms have shown little progress, primarily because tertiary hospitals have been competing for the same public health resources.

President Hu’s proposed healthcare reforms are indeed critical to the development of China as a “harmonious socialist society.” While China’s existing reforms are on the right track in serving Beijing’s overall social development policies, the existing disparities in China’s healthcare services must be narrowed. If Beijing is committed to the reforms, as it certainly seems to be, it may be required to overhaul its existing bureaucratic structures and practices in the months and years to come.


1. 2005 National Health Economics Institute report on health expenditures in China.

2. 2005 Health Statistics. Ministry of Health, Beijing.

3. Ibid

4. Center for Health Statistics and Information, Ministry of Health. Report on the National Health Services Survey of China, 2003. Beijing: Union Medical University, 2004

5. 2005 National Health Economics Institute report on health expenditures in China


7. Ibid