Empirical Studies On China’s New Cooperative Medical Scheme

China has begun to implement the New Cooperative Medical System (NCMS) since2003. It aims to guarantee rural residents basic medical service, reduce the financial burden related to disease, and raise the level of people’s health. The Chinese government has spent much money on new cooperative medical system since the system started. Over the last decade, the coverage and financing of NCMS have been extended, meanwhile, the benefit packages and reimbursement rates have expanded. However, as a social medical insurance, the operation of NCMS is not costless. The moral hazard which is caused by NCMS adds to these costs and reduces the efficiency of NCMS. We also concern that whether NCMS improve income-related inequality of health care utilization or promote social equality.There are a lot of empirical studies on NCMS using micro-data; however the conclusions are not consistent. Some studies found that NCMS coverage did not improve health status, increase use of formal medicine, or reduce out-of-pocket spending. On the other hand, some researches indicated that NCMS reduced out-of-pocket medical expenditures and increased the total medical expenditures significantly. The increasing expenditures were realized through increasing health care utilization and improved health status.At the early stage of NCMS, the principle of wide-coverage and low-reimbursement limited its effect. Due to insufficient funding, high level of copayment, and low reimbursement ceiling, it was difficult to reduce patients’ financial burden related to disease. This is also one of the reasons that NCMS hasn’t reduced out-of-pocket medical expenditures.All the data used in analysis were collected before2008owing to the fact that it took much time to design the questionnaires and to collect, check and clean the data. As a result, it could not reflect the situation after2009. It has been ten years since NCMS started. It shows that the NCMS coverage has extended, meanwhile, the financing has changed from10yuan to250yuan for each enrollee. Moreover, the benefit packages and reimbursement rates have expanded, especially after the health care reform in2009. Has NCMS achieved the stated goals? What’s the impact of NCMS for the post-2009period? Is there any difference comparing with the early stage? All of these questions need to be empirically studied.In this paper, we focus on two perspectives of NCMS:efficiency and equality and investigate the effect of NCMS based on the data of2011CHARLS national baseline survey.The structure of this paper is as follows.The first section, we have a brief summary of the backgrounds of NCMS and implications of this paper.In the next section, literature reviews are presented; based on which we investigate the effect of NCMS from two perspectives:efficiency and equality.The third section discusses the effect of NCMS on health. According to the Grossman model, the NCMS decreases the price of medical service, i.e., the NCMS decreases the supply price of health capital. Under the assumption of decreasing marginal product of health capital, NCMS will improve the stock of health capital.Section four discusses the mechanism of effect of NCMS on health and welfare loss of moral hazard by dividing the mechanism into two kinds.The first mechanism is that the NCMS affects individual’s health behaviors before he gets ill. Individual could do some preventive health activities positively in order to decrease health risk and medical expenditures. However, as long as one enrolls in the NCMS, the lower price of medical service might influence the cost of health capital. And people will reduce their motivation to preventive health activities. This paper investigates the effect of NCMS on preventive health behavior and to find whether there is ex ante moral hazard resulting in welfare loss.The second mechanism is that the NCMS affects individual’s health-seeking behaviors after he gets ill. With constant supply of medical service, NCMS reduces the price of medical service, and therefore increases the demand of medical service. But with some constraint such as income, access of health care utilization, benefit design of NCMS etc, the increased demand of medical service could not be completely met. This paper focuses on the health care decision such as whether to use health care or not, the type of health care utilization, and the level of medical facilities to investigate the effect of NCMS on health-seeking behaviors; meanwhile we discuss the ex post moral hazard of NCMS.The changes of these two kinds of behaviors caused by NCMS affect enrollee’s health level. If the NCMS doesn’t decrease but promote the people’s behaviors of preventive activities, there would be improvement of their health level. Especially the utilization of preventive care could make many chronic patients receive timely treatment; meanwhile it could avoid unnecessary medical expenditures in the future. With assuming that NCMS could increase utilization of health care in time after they get ill, there is no doubt that to improve health status.Section five discusses equality of NCMS by investigating whether NCMS reduces patients’ out-of-pocket spending, especially reduces financial burden on low-income individuals; whether NCMS decreases medical expenditure risk; whether NCMS improves income-related inequality of health care utilization.On the one hand, high-income individuals usually use more health care than low-income ones. As a result, the rich will receive more subsidies from government. At the same time, the poor will subsidise the rich as a result that everyone pays the premium as part of financing. On the other hand, the income elasticity of health care is higher for poor; therefore the income transfer effect of NCMS has bigger influence on poor. The NCMS will release the health care demand of poor and improve income-related inequality of health care utilization. The equality of NCMS depends on the price elasticity of health care compared to the income elasticity.Finally, conclusions and future work are summarized. The basic conclusions are as follows.Firstly, the NCMS improves health status.We use the self-rated health and ADL to measure subjective health status and objective health status. The results suggest that, compared with those without NCMS, the people who has enrolled in the NCMS has higher level of self-report health and fewer ADL. At the same time, both the year of implement of NCMS and the amount of premium affect the health status of rural residents. Higher premium and earlier enrolled means bigger benefit packages and earlier utilization of health care, then greater protection capability.Secondly, the ex ante moral hazard of NCMS is insignificant, while the ex post moral hazard is significant.This paper defines sports and physical examination as health behaviors, obesity and hypertension awareness as result of healthy lifestyles to investigate the effect of NCMS on health behaviors and to find whether there is ex ante moral hazard. The results suggest that the NCMS doesn’t reduce but promotes the enrollee’s health behaviors, and increases utilization of preventive care, awareness and treatment of hypertension. Although the NCMS increases BMI and the probability of obesity, the marginal effect is small. In summary, the ex ante moral hazard of NCMS is insignificant and there is no evidence that NCMS will promote unhealthy behaviors and generate a welfare loss.This paper focuses on the health care decision such as whether to use health care or not, the type of health care utilization, the level of medical facilities to investigate the effect of NCMS on health-seeking behaviors, and discusses the ex post moral hazard of NCMS. The results suggest that the ex post moral hazard of NCMS is significant. The NCMS increases the access to medical services, especially in those who doesn’t have enough money to afford the treatment. The NCMS also increases utilization of outpatient care and inpatient care, and the effect is stronger for low-income patients. The NCMS increases the rich’s utilization of outpatient care and inpatient care provided by county and higher level facilities; meanwhile it increases poor’s utilization of inpatient care provided by township health centers.Since the NCMS reduces the price of health care, increases the accessibility of health care, the rational individuals will use more health care after enrolling in the NCMS. Based on the actual situation that the demand of health care has been suppressed and been difficult to be met in rural China, this paper argues that the ex post moral hazard of NCMS has increased the social welfare by meeting the demand of health care and improving health status.Thirdly, the NCMS reduces the financial burden on the low-income individuals and improves income-related inequality of health care utilization.This paper uses two part model to estimate the effect of NCMS on the out-of-pocket medical expenditures. The results indicate that the NCMS doesn’t affect outpatient expenditures of all individuals or inpatient expenditures of high-income ones, but reduces inpatient expenditures of low-income significantly. The NCMS also reduces the probability of the catastrophic medical expenditures of the low-income families. It proves that NCMS has played an important role in the prevention of poverty caused by illness. Finally, the study finds that although the health care utilization of the high-income individuals is higher than that of the low-income ones among the NCMS samples, the NCMS improves income-related inequality of health care utilization.In summary, the NCMS increases the utilization of preventive care, outpatient care and inpatient care, and meets the health care demand of the rural resident. By affecting health behaviors and health-seeking behaviors, the NCMS improves the enrollee’s health status, and the ex ante moral hazard is not significant. Meanwhile, the NCMS reduces the financial burden and improves income-related inequality of health care utilization. It plays an important role in the field of the public welfare policy to promote social equality.