Sickness of the savers
By Geoff Dyer
Published: May 12 2009 19:53 | Last updated: May 12 2009 19:53
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| Painful readjustment: waiting for the doctor in a Beijing hospital |
China’s economy has turned the corner. Government banks have been lending at a rapid rate, factory output is rising again and the local stock market is blazing ahead. But just how quickly the world’s most populous country emerges from the global economic crisis will depend, in part, on places such as the cancer ward of Jingdong hospital in Sanhe, not far from Beijing, and how they treat patients like Cao Jun.
Aged 13, Jun was diagnosed a few months ago with leukaemia. His parents managed to get him into the hospital, a Sino-US joint venture, and have been impressed with the level of care. “The doctors and nurses have been very helpful and are doing everything they can to assist us,” says his father, Cao Jirui.
But Mr Cao now works in part-time jobs after losing his position in a factory and, with little money left, he knows his son will not be able to stay much longer. “My son’s disease is bleeding our family financially dry,” he says.
Patients who cannot afford to treat serious illness are an all too common feature of any developing country. But they are particularly important in China for two reasons. The failings of the healthcare system have become a large source of political discontent, the biggest blot on the Communist party’s claims to be substantially improving the welfare of ordinary Chinese. In addition, health insurance has become a central issue in the country’s immediate economic future. For all the signs that China is beginning to rebound, the government has only won half the battle. To return to rapid rates of expansion, the country will need to find new sources of growth to replace stagnant exports, and that means boosting consumption.
If the US economy stored up problems for itself through consuming too much, China has distorted its economy by saving too much and spending too little. In recent years, the savings rate has risen as high as 50 per cent of gross domestic product, including the retained earnings of state-owned companies, and even families with incomes of less than $200 a year still save 18 per cent of their income, according to the World Bank.
One of the main underlying causes is the weakness of the social safety net. Many Chinese put a large chunk of their wages into bank accounts because they are worried about pensions, education expenses and – most of all – the prospect of a big hospital bill if a family member falls seriously ill.
Last month the government announced reforms that promise a clinic in every village by the end of 2011 and by 2020 a universal health insurance system that is “safe, efficient, convenient and affordable”. The success of this plan could be crucial to China’s medium-term economic performance. “China will not establish a more consumer-based economy until there is a stronger health insurance system in place,” says He Fan, an economist at the Chinese Academy of Social Sciences.
Indeed, one of the ironies of the current crisis in global capitalism is that China’s recovery – which will have a large impact on how well the rest of the world economy performs over the next few years – partly depends on its success in implementing the western-style social welfare that industrialised countries themselves increasingly struggle to fund.
At the same time, the failings of China’s health system are the dark side of the past three decades of economic reforms. Under Mao Zedong, improvements in healthcare were one of the main achievements. The strengths of the Maoist system are often exaggerated – the “barefoot doctors” sent out to work in villages were often barely educated and poorly prepared to provide medical treatment. But with the introduction of simple antibiotics and improvements in public hygiene, the results were impressive. Life expectancy rose from 35 in 1952 to 68 in 1982.
But in the 1980s – when China started reforming its economy – this system was in effect dismantled. Clinics on farm communes were often closed when land was redistributed. In the cities, state-owned companies and other public sector organisations started pulling out of providing healthcare. The government also put less focus on health spending, which fell from 3 per cent of GDP in the Mao era to below 2 per cent by the late 1990s.
China’s health indicators have continued to improve but at a slower pace than in many developing countries that have often not enjoyed such rapid economic growth. A recent World Bank study noted that “China has gone from being an overachiever to being an underachiever” in terms of health improvements.
Remarkably, China’s Communist government accounts for a smaller proportion of national health spending than in the US. The result has been to throw responsibility for healthcare on to patients, who pay for about 60 per cent of it. Relative to income, a stay in a hospital in China is more expensive than in any other big country.
Over the past few years, a string of government reports have outlined the problems. Researchers discovered that one-third of people who had been told to go to hospital failed to do so – and of those, three-quarters blamed the cost. In a 2005 report, the research arm of the State Council, the country’s cabinet, admitted that efforts to reform healthcare since the 1980s had been “basically a failure”.
Problems involve not just the level of funding but also the way the system is organised. Chinese hospitals suffer from the sort of unfettered capitalism that China has criticised so heavily in western banks. Under some estimates, as much as 40 per cent of revenues at hospitals come from profits from drug sales, to which doctors’ salaries are linked. As a result, there are huge incentives for doctors to overprescribe on expensive medicines and tests.
The government tries to control drug prices and hospital profit margins but hospitals find ways around the rules. Corruption in hospitals is also a problem, with patients complaining about the bribes they regularly need to pay.
The treatment Cao Jun has received reflects some of these problems. He first started experiencing severe fevers two years ago but the clinic in the rural area of Hebei province, where the family lives, gave him only simple medicines. “No one there had any idea that he could have such a serious disease,” says his father.
The family have a relative who is a party official in Hebei, through whom they were able to get Jun into the hospital near Beijing, but he cannot stay there forever. “We have been here for nearly a month and there is only so much we can ask of our relative,” says Cao Jirui. “When we go back home, I don’t know what we will do.”
The political and economic cost of these failings has not been lost on China’s leaders. Since they took office in 2003, President Hu Jintao and Wen Jiabao, prime minister, have talked frequently about improving healthcare, and recent months have brought a flurry of announcements about funding and reforms. After last year committing themselves to providing universal coverage for health insurance, last month they spelt out more concrete targets, promising to have 90 per cent of citizens covered by 2011 and everyone insured by 2020.
The health ministry is to introduce rules to try and prevent hospitals from making a profit on drug sales. In rural areas, a fixed salary scheme for doctors is being tried out, taking away the link between drug sales and their salaries.
There are also promises of big increases in funding. Spending by the central government on healthcare – which provides a part of the overall health budget – has been increasing by more than 20 per cent in recent years. In January, Mr Wen pledged Rmb850bn ($125bn, £81bn, €91bn) for healthcare reform over the next three years, although it is unclear how much of this will be money that would not already be in the budget – Tang Jun at the Chinese Academy of Social Sciences says that 60 per cent will be new funds but Caijing, a business magazine, reported recently that little of the Rmb850bn will be new.
Big increases in spending would be good news for multinational pharmaceuticals companies, especially at a time when they are under intense pressure in the US. However, basic health insurance is likely to lean more towards generic versions of established drugs rather than more expensive new patented medicines. A large part of the extra funding will also go into building new hospitals and clinics.
For some health experts, these reforms amount to an ambitious and important scaling-up of public healthcare. They point out that the government has now committed to making health insurance a basic right.
“The announcements and substantial funding for reforms demonstrate strong political commitment,” says Sarah Barber, a researcher at the Beijing office of the World Health Organisation. “There are many pilots ongoing throughout the country and we will probably see major breakthroughs in some regions with sufficient human and financial resources.” But poorer regions will find it harder to make progress, she adds. Liu Guo’en, a management professor at Peking University, says it will be “a long process” but adds: “It is a big step forward for China.”
Many Chinese economists and health experts are unconvinced, however, that the latest reforms will have any immediate impact on savings habits and on spurring a shift to more consumption.
For a start, coverage under the insurance plans is limited – for rural residents, it will be Rmb120 a year, compared with an average in-patient hospital bill of Rmb4,000. Most local governments provide additional subsidies, especially for serious illness, but patients usually end up with substantial bills. Researchers at Tokyo University, who examined the pilot programmes for rural health insurance, found the impact on health expenditures by individuals only modest.
A drawback of the current system – that patients need to pay the hospital up front in cash, being reimbursed only later – will still be in place. That means even insured patients will still need a pot of savings to cover bills.
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| Health insurance reforms could aid the development of a consumer-based economy, persuading shoppers in the capital and elsewhere to save less and spend more |
“I do not think the recently announced measures will have significant impacts on people’s saving and consumption decisions,” says Xu Xiaonian, an economist at China Europe International Business School in Shanghai. “The so-called reforms are not really changes to the current system but window-dressing.”
Moreover, can China afford big new increases in spending? The central government is in a strong financial position but more than half the new money is expected to come from local and regional authorities, which are already are under heavy budgetary pressure from the slowing economy and have little room to borrow.
“The good thing about this plan is they have established the aim of covering all people,” says Mr Tang at the social sciences academy. “But people will still face heavy pressure from healthcare costs.” The urge to save is likely to recede but will not disappear overnight.
THE DIY DIALYSIS CLINIC: ‘WE HAD SPENT ALL OUR MONEY – WHAT ELSE COULD I DO?’
Desperate people seek desperate remedies. The site of the latest scandal to expose the problems in China’s health system is a shabby building that looks on to a dilapidated courtyard in a village on the outskirts of Beijing. For the past few years, this has been a makeshift and unlicensed kidney dialysis clinic.
The 17 people who used the clinic all faced the same situation: their basic health insurance did not come close to covering the cost of their dialysis treatment. So they clubbed together, bought some second-hand equipment and, following advice from friends and acquaintances, treated themselves.
Sun Yongqin, a 28-year-old from a rural area of Shanxi province in northern China, started suffering serious kidney problems in 2006. She needed dialysis three times a week but the local government health insurance programme covered only a small portion of the Rmb400 ($59, €43, £38) cost per treatment.
“These were huge sums of money not covered by the insurance,” she says. “My husband and I borrowed money from friends and relatives, but after a few months we had spent all our savings.”
She came to the makeshift clinic in Tongzhou, which charged only what was needed to keep it going, in late 2006 and was appalled at first by the dirty conditions. “But I was dying, so what else could I do?”
The clinic eventually attracted the attention of local health officials and this year it was closed down on safety grounds. Ten of the group are still living in the village but the dialysis machinery has been taken away.
Not all the patients are that upset. Wu Yan, a 35-year-old, says the health system in her husband’s home town in Hubei province has improved a lot in recent years, the result of increased funding. The couple are applying for insurance offered to low-wage families who are registered urban residents.
“If we get that, I will be able to do dialysis twice a week for free, which is good enough,” she says.
But outside the cities, the coverage is much less extensive. Ms Sun, who is a registered resident in a rural area of Shanxi province, says she was given 11 free treatments by the Tongzhou authorities when they closed the clinic, but now that they have finished she has been told to go back home and ask for treatment there.
“In my home town, they will pay for only half the treatment cost and that does not cover medicines,” she says. “I do not know what I am going to do next.”
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