Each year, out-of-pocket payments for health care push millions of families into poverty. When such payments exceed a specified threshold of a household’s income or capacity to pay they are considered catastrophic health spending, a measure of a household’s financial hardship.
China has gradually added catastrophic medical insurance (CMI) to its various basic insurance schemes to protect families from catastrophic health spending and reduce illness-induced poverty. Existing research, however, has been inconclusive about the impact of China’s CMI on patients’ out-of-pocket spending and overall health expenditures. Now, a new study, published in The Lancet Regional Health – Western Pacific, helps fill in that gap.
The research findings reveal that the availability of CMI significantly increased health care access and utilization among resident insurance beneficiaries. Narrowing the gap between the coverage of employee and resident insurance is an important step towards reducing illness-induced poverty in China and improving the security of rural residents’ livelihoods.
The study's co-authors include colleagues at the Zhejiang Provincial Center for Disease Control and Prevention (Zhejiang CDC) as well as APARC's Asia Health Policy Program Director Karen Eggleston and several Stanford alumni who worked with Eggleston as student research assistants while pursuing their undergraduate and graduate degrees.
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In 2000, China first introduced CMI for beneficiaries of urban employee basic medical insurance (UEBMI). As part of a series of health care policy initiatives, China achieved universal health coverage for its population in 2011, yet the basic insurance coverage left many households, particularly among rural and urban non-employed residents, exposed to catastrophic medical expenditures. In 2013, China began offering CMI to these underserved residents. CMI supplements insurance coverage by relaxing the insurance reimbursement ceiling, intending to lower patients’ out-of-pocket (OOP) payments by providing additional reimbursement for catastrophic health expenditures.
Looking at the period from 2011 to 2015, the researchers examined spending changes before and after 2014 for the resident insurance group compared to beneficiaries of employee insurance. They could evaluate the policy impact on the resident insurance beneficiaries as the treatment group while regarding the employee insurance beneficiaries as a control group because resident insurance underwent a significant structural change with the CMI addition, while employee insurance changed only marginally.
For their analysis, Eggleston and her colleagues used administrative and medical claims data specifically for individuals with hypertension and diabetes. They chose to examine this subpopulation of individuals with chronic diseases because of their increased likelihood of health care utilization and risk of catastrophic medical expenditures. The researchers used medical claims data to explore the change in multiple expenditure categories — such as total and OOP spending for inpatient and outpatient care — after the 2014 inclusion of CMI in the resident insurance scheme. Then, to derive the CMI's causal effect, they compared the expenditure changes for resident insurance beneficiaries to otherwise similar hypertension and diabetes patients covered by employee insurance in the same locality.
The study’s empirical analyses reveal that CMI led to significantly greater medical utilization for resident insurance beneficiaries, including inpatient and outpatient care at higher-tier providers, thus reducing some of the gaps between them and their better-insured counterparts covered by employee insurance. It appears that CMI for resident insurance beneficiaries relaxed the constraint on accessing expensive medical care and contributed to narrowing the urban-rural divide in access to health care.
However, with the introduction of CMI, OOP spending increased. The majority of the increased spending was in outpatient costs which are not a primary target of CMI. Inpatient OOP spending conditional on positive spending did not exhibit a statistically significant change. This means that CMI provided greater financial protection from increases in OOP spending on inpatient care than outpatient care. Moreover, OOP spending as a share of total expenditures declined for resident insurance beneficiaries over the study period (from 63% in 2011 to 51% in 2015), despite their increase relative to the comparison group. For employee insurance recipients, OOP spending as a share of total expenditures stayed roughly constant at 23%. Thus, the data suggest that residents’ increased use of medical resources, including in higher-tier settings, led to an increase rather than decrease in OOP spending, although OOP spending declined as a portion of total spending.
The results indicate that implementing more robust coverage for catastrophic medical expenses increases spending across the board — not only for inpatient admissions, the category that most often leads to catastrophic expenditures — but also for outpatient visits. Access to CMI enabled insurance recipients to spend more overall, and they paid on average more out-of-pocket. Therefore, out-of-pocket expenditures increased despite the greater financial protection. In part, this is because patients accessed treatment more often at larger urban hospitals rather than at nearby village clinics, township health centers, or community health centers. Additionally, fewer patients resorted to self-discharging from hospitals early or to ignoring physician recommendations to be hospitalized altogether.
The study provides evidence on the effects of China’s nationwide efforts to bolster universal healthcare and provide greater financial coverage to reduce disparities in access and outcomes. “Understanding how CMI may actually increase different types of expenditure by incentivizing more and better-quality care is essential for future initiatives aimed at improving population health and protecting against high costs of care,” write Eggleston and her colleagues. “This research may also have policy relevance for other low- and middle-income countries as they continue to aim for greater financial protection and reduced catastrophic spending.”
The study is part of Eggleston’s Addressing Health Disparities in China research project, which analyses data from Tongxiang county as a case study for understanding China’s responses to healthcare inequalities and population aging challenges in rural and urban areas. Throughout the project, Eggleston worked with four Stanford students who served as research assistants. The four, now alumni, are also coauthors of the newly published study: Merrell Guzman (BA ’20), Xiaotong Gui (MS ’21), Sandra Tian-Jiao Kong (BA ’21), and Tingting Qu (MS ’20).
“I got involved with this study during the spring quarter of 2020, my senior year, because I was looking for a way to do research even from an off-campus setting during the COVID-imposed restrictions,” says Guzman, who holds a BA in Economics. “I had such a positive experience with this research project that at the end of my senior year, I applied for and received the Blacker Fellows Fund award, a grant for graduating students to continue academic research. I worked on a project focused on the global PPE supply chain during COVID-19.” Guzman now works as an economic consultant for Analysis Group.